Why SPAC Titans Are Betting on a Bloodbath

It’s like what Blackstone’s Steve Schwarzman said this week while speaking at a Goldman Sachs investor event: “When the government prints enormous amounts of money, it has to go someplace .”

One of those places, of course, is private equity. But another is SPACs. Citigroup currently estimates more than $150 billion worth of funds on the sidelines, hungry to find a deal. That equates to more than 530 SPACs competing for takeovers.

The number of SPACs that have liquidated has been pretty low. But, “probably around the middle of next, year, that failure rate is going to jump,” David Panton, managing partner at Navigation Capital Partners, told me in a panel at the Museum of American Finance this week . “It’s going to be a bloodbath.”

SPAC titan Betsy Cohen told Bloomberg this year that a third of blank-check companies are likely to go bust. Panton thinks it’s bound to be a higher proportion. Investors get their money back if no deal is struck, but it’s not like the capital has been all too cheap for sponsors of the vehicles, according to a fund manager whose firm focuses on SPACs.

“The people who are going to suffer are the sponsor teams who have put up $6 million to $10 million,” said Andrew Cohen, who co-founded Difesa Capital Management in 2019. “When the SPAC liquidates because they can’t find a deal, that’s going to be a big zero.”

Richard Branson, who announced a takeover this week for his Virgin Group Acquisition Corp II., also expects that a number SPACs will inevitably fail. Yet, when asked whether he would create more of them, he said they’ve been the “greatest helper to innovation that we’ve had since the public markets were invented.”

“It means that companies that have gotten big profits just over the horizon -- fantastic growth can come to the market through a SPAC,” Branson said in a Bloomberg Television interview with me and my colleagues.

Panton even sees an opportunity in failure.

“The reality is there are going to be a lot of SPACs which have cash in trust which is of value, which we can probably get -- because they’re about to expire -- for a relatively low price,” he said. “When this bloodbath comes, it’s going to be a great opportunity for people like us.”

Large Investors Get Loud

With Goldman Sachs Group Inc.’s asset-management arm saying it would vote against corporate directors whose boards don’t meet diversity expectations, it turns out there are large forces coalescing around the push for broader representation.

When asked about the 2022 proxy season, the CEO of the largest pension in the U.S. said board diversity is very high on her radar.

“That will certainly be a top priority,” Calpers CEO Marcie Frost told me this week for Bloomberg’s Sustainable Business Summit. “We know that more diverse boards, more diverse companies have better productivity, they’re better managed, better innovation.”

Board independence will also be a priority, she said. “Dual class shares as well, that’s something we’re very watchful of.”

Margaret Anadu, who leads sustainability for Goldman Sachs Asset Management, also joined us this week for Bloomberg Television. You can find the interview here .

More on Wall Street

• We spoke to Cathie Wood, who says she’s been doing some “soul searching” as she continues to expand her Ark empire. Here’s her television interview with us, where she explains where she’s changed her mind on investments -- and where she’s sticking to her wagers.
• Lloyd Blankfein reflects on the privileges of the 1%.
• Bank of America plans to hire as many as 5,000 people in the coming months . CEO Brian Moynihan spoke to Bloomberg’s David Westin in an exclusive.
• Jefferies is asking staff to work from home as Covid cases rise, and requiring employees to get a vaccine booster by the end of January.
• JPMorgan expects a banner year in investment-banking fees. But the bank set more muted expectations on trading, as did Citigroup, which guided that revenue will be lower than the fourth quarter of 2019.
• A crypto giant slams a “Ponzi scheme” in bond markets as central-bank policies have propped up prices .
• It’s going to be difficult to get a spot at the hottest restaurants in town through the rest of the year. Here’s our conversation with the co-owner of Le Bernadin.

Hoping you have a restful weekend, given this year has seen very little reprieve. The markets remain interesting, and perhaps fragile. Tips and opinions are welcome at [email protected] .