SPAC Investment Returns Don’t Match ‘Hype,’ SEC Chief Says
(Bloomberg) -- U.S. regulators are growing concerned that risks posed to shareholders from blank-check companies are getting increasingly dangerous as the SPAC bubble inflates to unprecedented levels.
“Lately, we have seen more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype,” Acting Securities and Exchange Commission Chair Allison Herren Lee said Thursday.
Lee, speaking at an SEC event, added that the agency is closely scrutinizing “the structural and the disclosure issues” of special purpose acquisition companies amid a deluge of new listings. She said she hoped a group of industry officials advising the SEC would explore those questions and other risks associated with SPACs during the all day virtual meeting held by the regulator.
While the SEC has taken few concrete steps to slow the boom, the agency has become more outspoken about the potential risks posed to retail investors. On Wednesday, the regulator warned against buying stakes in SPACs based solely on endorsements from Hollywood actors, professional athletes and other celebrities. The SEC didn’t single anyone out specifically.
Still, the explosive growth of blank-check companies shows no signs of slowing. In 2019, 59 SPACs raised $13.6 billion, according to data compiled by Bloomberg. In 2020, those figures leaped to 248 and $83.3 billion. So far this year, the totals are already at 226 SPACs and almost $73 billion, with SPACs making up more than 70% of the IPO market.
Despite their recent resurgence, SPACs have been around for decades. They are publicly traded shell companies with no revenues that raise money from investors with the goal of buying a profitable business. A top worry is that as more and more SPACs sell shares, there will be few viable companies available for them to acquire, leaving investors holding the bag.
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