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Speaker 1: Welcome to Trilliance. I'm Joel Webber and I'm earth All

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Speaker 1: Tunist Eric. One of the themes of this year, I

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Speaker 1: think has been the rise of the spack and that

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Speaker 1: is a thing that, like I have to tell you,

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Speaker 1: like maybe they existed before this year, but it just

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Speaker 1: became this this thing that I see in headlines constantly now,

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Speaker 1: spack spacks back. Where did it come from? What? What's what? Why? Why? Now?

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Speaker 1: What's this all about? Well, that's definitely why we have

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Speaker 1: the two guests we have on I would I would

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Speaker 1: say I'm very mild in my spack knowledge. I the

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Speaker 1: phrase I keep here thinking of my head is spack attack.

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Speaker 1: I feel like I'm being attacked by spacks and spack

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Speaker 1: news um Our associate Morgan Barna did did a little

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Speaker 1: research into the underlying market. It looks like there's over

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Speaker 1: a hundred of them, double from last year, and the

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Speaker 1: market cap or the value is also double, so it's

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Speaker 1: almost like they were in existence before, but they've really

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Speaker 1: blown up this year. And so if it seems like

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Speaker 1: you're being attacked by SPACs, it's because you are. And

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Speaker 1: of course if there's a new area, you know there's

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Speaker 1: going to be an e t F tracking it. So

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Speaker 1: that's also part of the reason we're covering it, because

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Speaker 1: now there's an e t F that tracks backs in

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Speaker 1: the US and and it's back if you're if you're

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Speaker 1: new to that term, there's a blink check company sort

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Speaker 1: of a thing with that. What what's that about? Eric, Yeah,

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Speaker 1: So for best my knowledge, we'll get our guests to

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Speaker 1: see correct me if I'm wrong. But it's special purpose

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Speaker 1: acquisition company. And to me, it seems like just a

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Speaker 1: another way to bring a company public that could be

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Speaker 1: easier cheaper than the traditional I p O path. And

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Speaker 1: as somebody who's seen necessity being the mother of invention,

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Speaker 1: this happens a lot. You know, this is just the

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Speaker 1: way capitalism works. So I think SPACs are just a

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Speaker 1: way for for people to bring companies public in a

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Speaker 1: new way. Um. And that's really it, and you know,

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Speaker 1: and that's why our guess are here to help us

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Speaker 1: navigate these waters. We've got Julian Clamatico, who's the CEO

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Speaker 1: of Accelerate Financial Technologies, and then Joseph Schuster, who's the

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Speaker 1: founder of I p O X Schuster, Eric White. These

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Speaker 1: two guys right, well, Julian to me has been really

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Speaker 1: on this back thing early. I mean, he has a

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Speaker 1: a t F in Canada called the Arbitrage E t

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Speaker 1: F and he has a ton of SPACs in there.

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Speaker 1: So we wrote a note about two months ago basically

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Speaker 1: saying that you probably can't do an e t F

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Speaker 1: for SPACs. The closest you can get as Julians, which

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Speaker 1: includes some SPACs, because these are very small companies. Their

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Speaker 1: market cap is like two fifty millions to five dred million.

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Speaker 1: There's a couple of big ones, but that's like right

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Speaker 1: on the borderline of microcap. So we E t F

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Speaker 1: needs more liquidity. So I was talking to him when

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Speaker 1: I was doing some research on this, and he's very

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Speaker 1: knowledgeably as a SPAC monitor. But our call for how

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Speaker 1: you couldn't have a spack ETF was obviously over overwhelmed

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Speaker 1: because like two weeks later they filed for one. I think,

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Speaker 1: you know, being first to market an e t F

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Speaker 1: for a is very important. That issued Defiance, which has

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Speaker 1: the E t F here in the US, which the

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Speaker 1: ticker s p a K is not on today, but

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Speaker 1: will you know go over the E t F now

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Speaker 1: and then in this But the big thing to know

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Speaker 1: about that E t F of the holdings are pre

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Speaker 1: acquisition SPACs, and are SPACs the companies that SPACs brought public.

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Speaker 1: Will dive into that a little bit later, moving to Joseph. Now,

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Speaker 1: when you think of SPACs, you think I p O

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Speaker 1: So in our research, we've also covered I p O

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Speaker 1: E t f s and I'm a big fan of these. Uh.

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Speaker 1: The E t F that his index tracks, or the

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Speaker 1: E t F tracks his index is fp X from

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Speaker 1: First Trust and it's been around, I don't know, fifteen

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Speaker 1: years ish and it is blowing away the SMP. It's

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Speaker 1: almost doubling it because they've a couple huge winners and

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Speaker 1: SPACK and I p O E t s to me,

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Speaker 1: do serve a purpose potentially the viewer, the listener can

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Speaker 1: decide because a lot of the times they track companies

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Speaker 1: that just aren't in the big index as yet. Big

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Speaker 1: index is can be a little uh conservative, and you

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Speaker 1: could take a couple of years for one of these

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Speaker 1: companies to get in there. So to me, they're tracking

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Speaker 1: an area that hardly anybody has any exposure to. Um

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Speaker 1: So we've always thought there was kind of value add

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Speaker 1: but there's not a ton of assets in the space

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Speaker 1: yet this time on Brilliance, I p oing too hard

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Speaker 1: can give you us back at you out of Noba now, Julian,

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Speaker 1: welcome to Brilliance. Thank you guys, thanks for having me.

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Speaker 1: Glad to be here. Why does the world needs backs,

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Speaker 1: you know all, that's an interesting question and they've really

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Speaker 1: emerged this year as a popular new asset class. And

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Speaker 1: the point of a SPACK and the reason why it

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Speaker 1: exists is basically twofold number one. It acts as uh

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Speaker 1: structure in order to take a private company public versus

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Speaker 1: say a direct listing or a traditional I p O. Now,

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Speaker 1: SPACs are unique in that the type of companies that

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Speaker 1: they're bringing public are different than what would be used

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Speaker 1: for direct listing or traditional IPO. For example, on a

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Speaker 1: direct listing, these are typically very large private companies that

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Speaker 1: don't need to raise capital on their growing public transaction

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Speaker 1: than traditional I p O. S have really become exit

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Speaker 1: opportunities for venture capital and private equity firms where they're

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Speaker 1: looking to offload their steak onto the public markets. We

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Speaker 1: haven't seen the traditional I p O process being used

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Speaker 1: for actually raising growth capital to fund growth businesses, so

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Speaker 1: we've seen the SPACK emerge where you have more earlier

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Speaker 1: stage entities. Many of them are pre profit or even

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Speaker 1: pre revenue, where they're actually coming public and raising a

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Speaker 1: significant amount of capital, which includes cash in the blank

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Speaker 1: check company. As you guys indicated, they generally raised between

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Speaker 1: two to three million dollars on the spack PO and

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Speaker 1: then with their business combination as a spack combines with

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Speaker 1: the private company to bring them public, they generally include

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Speaker 1: what's known as a pipe financing, private investment in public

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Speaker 1: equity that can add hundreds of millions of dollars. More So,

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Speaker 1: you can have these early stage companies growing public at

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Speaker 1: say a billion dollar valuation, and raising five hundred million

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Speaker 1: dollars in growth capital to invest in growing that business.

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Speaker 1: So you really haven't seen that opportunity for public market

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Speaker 1: investors to get access to those earlier stage growth entities

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Speaker 1: that are perhaps late stage venture capital type financing rounds,

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Speaker 1: say Series D, Series E, which were usually kept to

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Speaker 1: the private markets. They are now coming to the public

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Speaker 1: markets through SPACs now on the other side of the coin.

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Speaker 1: One main driver that has led to a massive increase

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Speaker 1: in popularity and number of acts. They're now north of

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Speaker 1: an eighty billion dollar asset class, which is more than

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Speaker 1: tripled since April is the sponsor promote, and by sponsor promote,

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Speaker 1: I'm talking about the equity compensation given to the founder

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Speaker 1: of the spack, which is as high as twenty of

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Speaker 1: the spack. So say it's bacco is public raising dollars

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Speaker 1: in cash to do a deal. The sponsor or founder

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Speaker 1: of that SPAC could be awarded a forty million dollar

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Speaker 1: stake in the ProForma entity once the business combination closes. So, um,

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Speaker 1: let's go through a real life example, and I the

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Speaker 1: two that I think most people may have heard of

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Speaker 1: if they've been following this at all, or Virgin Galactic

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Speaker 1: and Draft Kings. Those are actually two of the biggest

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Speaker 1: waitings in the spack etf because again at whole, some

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Speaker 1: of the companies after they've been brought public. Walk us

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Speaker 1: through you can pick either example, but just walk us

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Speaker 1: through there was a SPAC that existed before they actually

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Speaker 1: announced that. How long did and how did they get

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Speaker 1: that company? How do they pick the company, and why

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Speaker 1: does that company go into this back instead of doing

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Speaker 1: attritional IPO. Maybe I guess, you know, walk us through

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Speaker 1: the timeline of of one of those. That's a really

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Speaker 1: good question, and we can start off just by explaining

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Speaker 1: how the special purpose acquisition company structure works. Typically, they

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Speaker 1: go public and an initial public offering at ten dollars

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Speaker 1: per unit. So SPACK initially consists of units, and after

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Speaker 1: fifty two days they split into common shares plus warrants,

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Speaker 1: so the average unit comes with it could be as

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Speaker 1: low as point to five warrants per unit. It could

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Speaker 1: be as high as one warrant per unit, so that

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Speaker 1: represents additional equity upside for people investors like myself to

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Speaker 1: subscribe to the initial public offering. So once it's public,

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Speaker 1: they generally have twenty four months to complete a business combination,

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Speaker 1: and if they don't, then they liquidate and they pay

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Speaker 1: investors back their money plus acrude interest. They're not allowed

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Speaker 1: to spend the money on anything. They keep it in

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Speaker 1: trust and they invest that in short term treasury bents.

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Speaker 1: And once you go public, then the quest to find

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Speaker 1: an attractive private company begins. So specifically, we can talk

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Speaker 1: about one of those, Virgin Galactic, how that process went,

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Speaker 1: and the way that I understand it is Virgin Galactic

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Speaker 1: was pursuing some sort of strategic alternatives process. I'm not

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Speaker 1: sure if they tried to go the traditional I p

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Speaker 1: O route or tried to sell themselves or what. But

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Speaker 1: they're looking to do something. And Virgin Galactic was a

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Speaker 1: very early stage company revenues many many years away, and

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Speaker 1: so they didn't really fit the mold for a traditional

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Speaker 1: initial public offering as we see them these days. Typically,

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Speaker 1: UH companies growing the traditional route are much much more mature.

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Speaker 1: If you take Uber for example, really at the tail

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Speaker 1: end of their growth stage. And so this back in

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Speaker 1: Virgin Galactics case was Social Capital Head of Sophia one.

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Speaker 1: There's not actually six of them, and three of them,

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Speaker 1: three new ones, went public last week, raising a stunning

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Speaker 1: two point one billion dollars in capital. But Social Capital

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Speaker 1: Head of Sophia is run by Chamath Pala Hepatia, which

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Speaker 1: is you know, well known VC out in Silicon Valley.

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Speaker 1: So it's first back. Social Capital Head of Sophia one

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Speaker 1: went public in an I p O, raised a few

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Speaker 1: hundred million dollars and went on a quest to do

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Speaker 1: a business combination. And they're actually getting very close to

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Speaker 1: the tail end of their two years in which they

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Speaker 1: would have had to give money back and lose all

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Speaker 1: the money they invested into it. But you know, luckily

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Speaker 1: this Virgin Galactic deal came along, and that one was

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Speaker 1: really a turning point because prior to that, the spact

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Speaker 1: market was small, didn't get a lot of attention, and

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Speaker 1: the deals were kind of home hump. When Virgin Galactic

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Speaker 1: came out, it was the first one that was this

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Speaker 1: VC type investment opportunity any where. It was still very

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Speaker 1: early stage. You have revenue way way out there, and

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Speaker 1: I mean the business model is space flight, which is

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Speaker 1: super futuristic, right, So it had this story to it was,

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Speaker 1: you know, Virgin Galactic. It is a story stock because

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Speaker 1: you really need to believe that you can't be looking

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Speaker 1: at the financial statements any sort of fundamentals to be

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Speaker 1: an investor in that story. So when it came out

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Speaker 1: and the stock just went crazy, I think that was

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Speaker 1: one of the key main drivers in spurring this kind

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Speaker 1: of growth of this new asset class number one and

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Speaker 1: then you know number two. It just shows that if

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Speaker 1: you're successful in one speck, then you just keep bringing

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Speaker 1: these out. And now Social Capital and SMATH is up

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Speaker 1: to six raising well above three three billion dollars. So

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Speaker 1: that was certainly a really interesting deal. It's still trading

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Speaker 1: very well well above the ten dollar price of its

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Speaker 1: I p O. And that's really how you judge a

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Speaker 1: spack success at least in the short term, is how

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Speaker 1: high above ten dollars is it trading? So Julian, what

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Speaker 1: kind of UM exposure have you had two spacts and

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Speaker 1: how does your et F come into play there? We

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Speaker 1: approach it on a different investment strategy than others. We

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Speaker 1: look at what we call spack arbitrage. So the way

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Speaker 1: that we approach SPACs is invest before they announce a deal,

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Speaker 1: and we're looking to buy at or below their net

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Speaker 1: asset value, meaning the cash that they have in the

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Speaker 1: bad because the key aspect to a spack arbitrage strategy

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Speaker 1: is you're looking for a guaranteed return, and the way

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Speaker 1: that you get that is that pre deal spacks offer

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Speaker 1: a unique exposure for one main reason, and that is

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Speaker 1: they keep cash on hand so you know it's not

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Speaker 1: going anywhere and they can't spend it. So you have

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Speaker 1: this guaranteed return of basically treasury bills because they invested

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Speaker 1: in short term treasuries not earning a lot these days,

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Speaker 1: maybe ten fifteen basis points. However, either they don't find

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Speaker 1: a deal in liquidate and you get the yield of

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Speaker 1: T bills, or they do announce a deal, and there's

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Speaker 1: this one key aspect, which is they allow you to

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Speaker 1: redeem your shares for cash plus acrude interest, getting that

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Speaker 1: T bill like payoff. So that's sort of the worst

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Speaker 1: case scenario. We're looking to bias back at or below

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Speaker 1: its net asset value. And here's where um the upside

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Speaker 1: comes in. We previously discussed the sort of downside scenario

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Speaker 1: where you just earn basically T buills and that discount

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Speaker 1: if you buy it at a discount to net asset value. However,

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Speaker 1: in the upside scenario, if they announce a great deal

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Speaker 1: that the market really likes, say such as a virgin

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Speaker 1: galactic UH such as a Nicola highly on Lordstown, things

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Speaker 1: of that nature, where the spack just kind of surges

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Speaker 1: and price can go double or triple above the ten

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Speaker 1: dollar range. That's where an arbitrager really can make significant

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Speaker 1: returns at a very little downside risk. So we're looking

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Speaker 1: to invest in pre deal SPACs at or below their

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Speaker 1: ten dollar plus recruit interest, net asset value, and exit

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Speaker 1: prior to the deal closing. Either we earn a T

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Speaker 1: bill return and sort of exit either through redemption or liquidation.

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Speaker 1: But in the upside scenario, what we're really in it

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Speaker 1: for is this surge and the share price in what

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Speaker 1: I termed the spack pop. If you look at any

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Speaker 1: of them announcing a deal, especially in these hot spaces

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Speaker 1: such as electric vehicles, biotechnology, things of that nature, if

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Speaker 1: they can do that, then we seek to exit prior

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Speaker 1: to the deal completing and us passing that redemption date.

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Speaker 1: So you're you've effectively found the rare wind win in

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Speaker 1: finance exactly. Yeah, I call it heads. We win tails,

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Speaker 1: we win big and and you've mentioned the pop there.

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Speaker 1: Can you give us a sense of like, what you know,

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Speaker 1: what kind of range of a pop are are you

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Speaker 1: able to lock in here? And what percentage of them pop?

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Speaker 1: If there's a hundred right now, how many will pop?

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Speaker 1: That's really good question, and that is moving all the

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Speaker 1: time with all the attention coming to the space. It

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Speaker 1: didn't used to be as attractive as it is right now.

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Speaker 1: So I'm not sure how long this opportunity will last.

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Speaker 1: But if we look at stocks like Nicola, which went

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Speaker 1: north of fifty dollars per share, there's another one called

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Speaker 1: highly on that one was incredibly lucrative. So I think

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Speaker 1: the ones where you're getting triple digit returns in a

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Speaker 1: short period of time, I know, with a percent or

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Speaker 1: above twenty dollars per share, those are say one in

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Speaker 1: twenty one and thirty. However, the ones where we see

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Speaker 1: a pop in the range, those are quite calm. It

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Speaker 1: we probably see those at least of the time, at

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Speaker 1: least in the current environment. The way you are talking

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Speaker 1: kind of does remind me of the I p o

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Speaker 1: E t F. So I want to bring Joseph in here.

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Speaker 1: We when we study the I p o E t F,

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Speaker 1: which let me go over the tickers real quick, Julian's

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Speaker 1: tickers A, R, B, C N. He's up in Canada.

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Speaker 1: The spack ETF here in the U S is s

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Speaker 1: p a K which holds of these pre acquisition SPACs

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Speaker 1: that you hope pop, and of companies already in the market,

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Speaker 1: such as Draft Kings. And when we look at the

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Speaker 1: I p o E t F, and we look at

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Speaker 1: these companies that do the traditional route, all you need

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Speaker 1: is like a couple superstars from like to just rocket

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Speaker 1: ship stocks to make up for plenty of dogs. And

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Speaker 1: we found that fp X was really the performance was

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Speaker 1: powered off of a couple of Facebook type companies, but

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Speaker 1: there were a bunch of duds, But you don't it

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Speaker 1: gets offset. So Joseph, I guess I want to talk

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Speaker 1: about the after they come out, which spack owns and

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Speaker 1: then you own DraftKings, you own once I guess of

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Speaker 1: these talk about these companies after they're out and how

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Speaker 1: they work into the traditional I p O index. So, um,

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Speaker 1: what we are basically doing we start once the I

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Speaker 1: p O is done, so we don't buy it the

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Speaker 1: I p O prisents and get the pop because that's

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Speaker 1: really not accessible. So what we do is we start

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Speaker 1: with one large underlying universe, which we call the ipoxes composite,

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Speaker 1: and it sees underlying universe. We buy companies on day

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Speaker 1: six and they exit automatically four years. So after four years,

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Speaker 1: it's because we believe that's the kind of maximum of

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Speaker 1: the going public effect, and that's when really the risk

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Speaker 1: and the beta uncertainty about set new listing really gets resolved.

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Speaker 1: So we have an underlying university in the US of

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Speaker 1: nine plus companies right now reflecting pretty much all the

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Speaker 1: deal flow over the last four years from I p

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Speaker 1: O spinoffs as well and then and specs as well.

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Speaker 1: And then what we do was the uh we see

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Speaker 1: fp X and the underlying index is the IPOX one

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Speaker 1: is basically on a quarterly basis, we take the top

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Speaker 1: hundred names on the market cap weighted basis in this

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Speaker 1: underlying composite index, and that kind of gives us exposure

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Speaker 1: to the momentum i PO like the soon videos, you know,

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Speaker 1: the facebooks in the past, Svisa, the master cards while

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Speaker 1: through a quarterly rebalance and we're able to kind of

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Speaker 1: get rid of the losers as well, and we hold

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Speaker 1: them typically as an asset for the first four years

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Speaker 1: of trading. Um. Really originally we developed the index really

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Speaker 1: from a performance perspective. We news as performance aertain the

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Speaker 1: I p O market, but only a certain segment like

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Speaker 1: let's say twenty thirty percent, and many companies will be

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Speaker 1: the crispy crime Donuts of the world. And so that's

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Speaker 1: where we start. Like we we started with, hey, we

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Speaker 1: want to capture the alpha in the I p O market,

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Speaker 1: not really provide access to the whole kind of spaces

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Speaker 1: as as an equity class um as we're pretty well

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Speaker 1: formed pips up performance and or it was a c

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Speaker 1: SMP Obviously the question is what is what is the

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Speaker 1: correct benchmark? Obviously, how respects fall in here is if

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Speaker 1: a certain company is large enough, let's say one and

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Speaker 1: a half two billion, it gets an our radar and

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Speaker 1: the IPOX hundred, then it becomes large enough, and then

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Speaker 1: we basically by default have to buy it because we

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Speaker 1: know the good performance is driven by the larger I

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Speaker 1: p O s which can get large by which are

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Speaker 1: large by default or by momentum like teslas or and

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Speaker 1: and really the underperformance story of the IPO market is

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Speaker 1: driven by small microcap small it pos at least historically. Yeah,

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Speaker 1: I think the I p O fp X in particular,

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Speaker 1: and there's another one called I p O they're both

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Speaker 1: having good years and fp X it's really interesting to

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Speaker 1: me that this thing doesn't have has a billion, so

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Speaker 1: that's not chump change. But you know, given the performance

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Speaker 1: and the fact that you have only four percent of

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Speaker 1: the portfolio of fp X is overlapped with the S

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Speaker 1: and P five hundreds, so it's very unique exposure. It's

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Speaker 1: almost like you're capturing the toddlers before they get to

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Speaker 1: be teenagers and enter the big benchmarks. Why do you

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Speaker 1: think more people don't Um, is it the PR? Because

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Speaker 1: when I PR doesn't go well gets really dragged through

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Speaker 1: the press. Do you think the PR is a problem

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Speaker 1: here too, that people have bad feelings or that oh

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Speaker 1: all these Wall Street banks are going to make all

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Speaker 1: this money and screw me over? Is that really the

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Speaker 1: big challenge here? Because the performance, you'd think there'd be

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Speaker 1: more assets. Yeah. I think the assets are now like

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Speaker 1: one point six billion and total around more than two

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Speaker 1: billion in iOS as well as a last fry. I

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Speaker 1: think initially took a long time to get it off

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Speaker 1: the ground. Obviously, I think one drawback is for for

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Speaker 1: for us as we're starting the aftermarket, right, we don't

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Speaker 1: really care as we buy Google that's the I p

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Speaker 1: O price and flip it like you know sixty flip

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Speaker 1: it at ninety. We care of buying it at hundred

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Speaker 1: twentys and keep it for a long period of time

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Speaker 1: and said it maybe at four dollars, which initially really

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Speaker 1: took a lot of markets in appeal away. Um kind

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Speaker 1: of from from the concept. Um the other opposite challenges, Um,

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Speaker 1: you know what is our benchmark? Were does Morning Stop

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Speaker 1: put it? There's a lot of because obviously we have

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Speaker 1: a rotational kind of cycle where but we don't know

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Speaker 1: how the kind of portfolio looks like in four to

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Speaker 1: five years. So you know, like I think financial advisor

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Speaker 1: at least historically have had a kind of tough time

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Speaker 1: to know where as they put it right, recently, it

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Speaker 1: really becomes part of kind of event driven strategies. You know,

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Speaker 1: it has kind of started to replace private equity as

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Speaker 1: well because we hold some of those names. And then

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Speaker 1: another reason is we are just you know, a small

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Speaker 1: innovative firm which you know tries to you know, kind

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Speaker 1: of pioneer the concept of you buy I P s

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Speaker 1: in the aftermarket, you just index and rather than buying

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Speaker 1: it through you know, dealer connections in the immediate you know,

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Speaker 1: bp FO the I P and and flip it make

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Speaker 1: quick box and that's another challenge. However, obviously we don't

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Speaker 1: speak for themselves, and you know, at fifty eight basis points,

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Speaker 1: there's been a you know, a very attractive product for

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Speaker 1: many financial advisors. So so Joseph, one of the things

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Speaker 1: that Julian said that really struck me was the way

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Speaker 1: he was describing SPACs is sort of like it allows

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Speaker 1: investors to have access to a type of company and

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Speaker 1: those types of companies to have access to public markets.

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Speaker 1: It sort of seems like the original I p O

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Speaker 1: right with being able to fund companies with public public markets.

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Speaker 1: How permanent of a shift do you feel like this

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Speaker 1: could end up being for the marketplace. I think it's

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Speaker 1: going to be here to stay. You see that. I

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Speaker 1: mean that the big guys, as a big private equity

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Speaker 1: firms are stepping up in that space. It's probably gonna

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Speaker 1: replace private equity to some degrees. Those companies need to

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Speaker 1: go public. I think it's a great development. It takes

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Speaker 1: away a lot of kind of hurdles which Savings atfully

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Speaker 1: started in two thousand and four. I think it's going

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Speaker 1: to open up a lot of trading, investment strategies opportunities

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Speaker 1: in the long short space. Um, you know, I believe

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Speaker 1: it's here to stay. It's it's it's one way. This

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Speaker 1: is equity capital markets always find a different way to

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Speaker 1: to make it and kind of a symptom of the

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Speaker 1: free capital markets as well, you know, the American capitalism.

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Speaker 1: So it's an outcrowth of it. And obviously the question

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Speaker 1: is how many of these companies suspects are going to

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Speaker 1: be within US and how many are gonna be losers.

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Speaker 1: The thing is, we really haven't had like a big,

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Speaker 1: big loser in the spect spaces. You know, Nicola came

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Speaker 1: down and so forth. But we don't have the statistics yet.

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Speaker 1: While we say okay, you know, one of out of

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Speaker 1: training makes it and the rest when significantly underperformer one

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Speaker 1: out of thirty, you know, the more as the underperformers

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Speaker 1: ours and it's gonna go kind of away automatically because

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Speaker 1: people are gonna be cautious about investing in them once

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Speaker 1: it deal consummate. UM and Julian, I want to bring

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Speaker 1: you back into this. Um. I just talked about how

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Speaker 1: I p O s can at least the ones that

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Speaker 1: don't work out, we'll get dragged through the mud and

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Speaker 1: the press, and that can overhang the whole market a

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Speaker 1: little bit. I've seen some pretty rough tweets about SPACs

432
00:24:49,240 --> 00:24:51,320
Speaker 1: from some people. I mean, you're on Twitter, you're dealing

433
00:24:51,400 --> 00:24:53,960
Speaker 1: with that quite a bit. Is there any validity to

434
00:24:54,000 --> 00:24:59,560
Speaker 1: what they're saying or what are what do they not know? Yes,

435
00:25:00,040 --> 00:25:02,600
Speaker 1: the criticism is well founded. If you look at the

436
00:25:02,640 --> 00:25:07,399
Speaker 1: track record historically a post spack equity performance, it has

437
00:25:07,720 --> 00:25:12,000
Speaker 1: been poor. They have underperformed and so that's one thing

438
00:25:12,080 --> 00:25:15,399
Speaker 1: to consider is the data behind it, which is one

439
00:25:15,440 --> 00:25:18,840
Speaker 1: reason that we don't invest in posts back equities, and

440
00:25:18,840 --> 00:25:21,800
Speaker 1: I do consider those a different asset class. Well, let

441
00:25:21,800 --> 00:25:23,639
Speaker 1: me just up you real quick. Is that because the

442
00:25:23,720 --> 00:25:27,479
Speaker 1: spack when you the announced the deal gets announced, that pop.

443
00:25:28,040 --> 00:25:31,320
Speaker 1: Is that stealing from the I p O post IPO

444
00:25:31,520 --> 00:25:34,840
Speaker 1: future in a way. That is one of the reasons.

445
00:25:34,840 --> 00:25:37,480
Speaker 1: There are other reasons, and the market has really changed,

446
00:25:37,520 --> 00:25:41,360
Speaker 1: so this isn't guaranteed to go forward in the future. Historically,

447
00:25:41,520 --> 00:25:48,199
Speaker 1: say pre twenty nineteen, the spack market was really a

448
00:25:48,280 --> 00:25:53,800
Speaker 1: space for lesser known entrepreneurs. You don't have the big

449
00:25:53,880 --> 00:25:56,520
Speaker 1: name sponsors that you do have these dates. We have

450
00:25:56,800 --> 00:26:01,600
Speaker 1: Bill Ackman, Apollo, TPG, Social Capital, we have all these

451
00:26:01,680 --> 00:26:05,720
Speaker 1: big hedge funds, private equity firms, venture capital firms with

452
00:26:05,760 --> 00:26:10,320
Speaker 1: pretty exceptional deal flow and high quality deals coming into

453
00:26:10,320 --> 00:26:13,800
Speaker 1: the space. We never had that before. And so if

454
00:26:13,840 --> 00:26:16,919
Speaker 1: you go back, say five years or ten years, you

455
00:26:17,000 --> 00:26:21,240
Speaker 1: did have a number of Chinese companies going public through

456
00:26:21,280 --> 00:26:23,640
Speaker 1: a reverse merger with a spack that ended up being

457
00:26:23,640 --> 00:26:29,200
Speaker 1: fraudulent unfortunately. So I think what's changed versus the historical

458
00:26:29,240 --> 00:26:35,040
Speaker 1: poor performance is the market has become significantly higher quality. However,

459
00:26:35,080 --> 00:26:39,240
Speaker 1: as you indicated, Eric, the way that we generate alpha

460
00:26:39,320 --> 00:26:42,480
Speaker 1: or performance is capitalizing on that spack pop, and so

461
00:26:42,640 --> 00:26:46,280
Speaker 1: by the time the deal closes, you know there's a

462
00:26:46,320 --> 00:26:50,240
Speaker 1: significant amount of performance built in, and you know, perhaps

463
00:26:50,240 --> 00:26:52,520
Speaker 1: they're going to give that up. The other thing that

464
00:26:52,640 --> 00:26:56,639
Speaker 1: has changed, and one thing that led to poor performance historically,

465
00:26:56,800 --> 00:26:59,359
Speaker 1: is that if you look at the guys who subscribe

466
00:26:59,400 --> 00:27:01,600
Speaker 1: to these back I p o s, guys like myself,

467
00:27:01,640 --> 00:27:05,240
Speaker 1: like hedge funds, liquidity providers that are looking to capitalize

468
00:27:05,320 --> 00:27:10,800
Speaker 1: on those prespact dynamics. However, historically, you didn't get as

469
00:27:10,840 --> 00:27:13,480
Speaker 1: much as a pop, and therefore more and more often

470
00:27:13,520 --> 00:27:16,359
Speaker 1: they would redeem to get their cash back because the

471
00:27:16,800 --> 00:27:19,439
Speaker 1: share price didn't go up, and therefore, when these business

472
00:27:20,240 --> 00:27:24,159
Speaker 1: combinations completed, lots of the cash would go back to

473
00:27:24,200 --> 00:27:28,119
Speaker 1: investors and they'd end up highly leveraged, and therefore the

474
00:27:28,240 --> 00:27:32,040
Speaker 1: risk of them failing was significantly higher. What's changed these

475
00:27:32,119 --> 00:27:35,879
Speaker 1: days is they're raising significantly more capital. The traditional spack

476
00:27:36,040 --> 00:27:38,520
Speaker 1: was kind of fifty two hundred million dollars a number

477
00:27:38,560 --> 00:27:41,080
Speaker 1: of years ago, and now the average is more like

478
00:27:41,520 --> 00:27:45,600
Speaker 1: three million dollars, So they're more cash. Not just that,

479
00:27:45,800 --> 00:27:49,320
Speaker 1: but a large amount of business combinations that we're seeing

480
00:27:49,480 --> 00:27:53,399
Speaker 1: is coming along with these pipe financings UH in the

481
00:27:53,480 --> 00:27:57,680
Speaker 1: hundreds of millions of dollars, which mitigate that redemption risk

482
00:27:57,960 --> 00:28:00,960
Speaker 1: that have that used to happen with these deals. So

483
00:28:01,080 --> 00:28:04,600
Speaker 1: a lot of things are changing. However, it is important

484
00:28:04,640 --> 00:28:09,399
Speaker 1: to be cognizant of posts back equity performance performance, and

485
00:28:09,520 --> 00:28:20,760
Speaker 1: historically they have underperformed. Um, I wanna ask both of

486
00:28:20,800 --> 00:28:23,120
Speaker 1: you this question, which is you know, we just went

487
00:28:23,160 --> 00:28:26,800
Speaker 1: over some of the background the industry. These things are

488
00:28:26,800 --> 00:28:28,960
Speaker 1: now in e T S, which I would argue probably

489
00:28:29,040 --> 00:28:31,600
Speaker 1: is the way to play them because you go out

490
00:28:31,600 --> 00:28:33,640
Speaker 1: and try unless you are in the market and can

491
00:28:33,640 --> 00:28:36,320
Speaker 1: pick this stuff and have knowledge of everything going on,

492
00:28:37,080 --> 00:28:40,200
Speaker 1: and E T F will minimize your risk. That said,

493
00:28:41,440 --> 00:28:45,080
Speaker 1: would you recommend to like your uncle Bob or somebody

494
00:28:45,120 --> 00:28:49,479
Speaker 1: that they buy aid either your rbt F which has

495
00:28:49,520 --> 00:28:52,760
Speaker 1: these SPACs in it, or Joseph fp X, like, is

496
00:28:52,800 --> 00:28:55,560
Speaker 1: this really something a retail investor should should have? I

497
00:28:55,600 --> 00:28:57,520
Speaker 1: know you're biased, but give me your your take on

498
00:28:57,560 --> 00:29:00,960
Speaker 1: what you would say. Sure, Eric can take that one.

499
00:29:01,240 --> 00:29:05,560
Speaker 1: And so what we're all about is offering alternative ets.

500
00:29:05,800 --> 00:29:10,600
Speaker 1: So instead of traditional asset classes sixty forty portfolio, we

501
00:29:10,720 --> 00:29:15,680
Speaker 1: are leaning more towards what we call, you know, the

502
00:29:15,720 --> 00:29:19,800
Speaker 1: next sixty, which is twenty in which that is a

503
00:29:19,800 --> 00:29:24,160
Speaker 1: diversified sleeve of alternative asset classes. And with the advent

504
00:29:24,320 --> 00:29:27,320
Speaker 1: of alternative E t F, s I p O E

505
00:29:27,400 --> 00:29:29,960
Speaker 1: t F and things of that nature, investors can finally

506
00:29:30,040 --> 00:29:34,360
Speaker 1: get access to these institutional caliber alternative strategies. And what

507
00:29:34,360 --> 00:29:37,560
Speaker 1: we're really looking for in terms of something alternative to

508
00:29:37,600 --> 00:29:41,360
Speaker 1: your traditional stocks and bonds and something that is uncorrelated

509
00:29:41,520 --> 00:29:44,800
Speaker 1: or perhaps even negatively correlated, such that in Q one

510
00:29:45,200 --> 00:29:48,400
Speaker 1: when your stocks are crashing, you know, luckily bonds kind

511
00:29:48,400 --> 00:29:51,800
Speaker 1: of bailed people out, but with bonds ten years at

512
00:29:51,880 --> 00:29:54,640
Speaker 1: seventy five basis points, perhaps it may not be there

513
00:29:54,880 --> 00:29:58,480
Speaker 1: on the next crash. So it's important to own asset

514
00:29:58,520 --> 00:30:02,800
Speaker 1: classes within a portfoli you that are uncorrelated and perhaps

515
00:30:02,880 --> 00:30:06,120
Speaker 1: good zig while your other asset classes zag. So we

516
00:30:06,200 --> 00:30:09,680
Speaker 1: ran a study, we run spack index looking at daily

517
00:30:09,720 --> 00:30:13,600
Speaker 1: performance and in the first five months where things went

518
00:30:13,680 --> 00:30:17,560
Speaker 1: absolutely crazy, as you know at the coronavirus pandemic our

519
00:30:17,640 --> 00:30:21,360
Speaker 1: s back in next was actually negatively correlated with both

520
00:30:21,640 --> 00:30:26,600
Speaker 1: equities and bonds and we all know the great performance

521
00:30:26,800 --> 00:30:29,720
Speaker 1: of treasuries kind of in the first five months of

522
00:30:29,760 --> 00:30:33,440
Speaker 1: the year. However, that's back index that we run outperformed

523
00:30:33,560 --> 00:30:37,920
Speaker 1: treasuries on an absolute basis with lower risk and lower volatility.

524
00:30:37,960 --> 00:30:42,200
Speaker 1: I think they declined maybe five six percent at their

525
00:30:42,240 --> 00:30:45,959
Speaker 1: peak to trough decline. Meanwhile, treasuries declined more like eight percent.

526
00:30:46,560 --> 00:30:49,280
Speaker 1: And Joseph, let's let's turn you say, you know, your

527
00:30:49,320 --> 00:30:52,240
Speaker 1: niece comes to you and uh, you're she's in her thirties.

528
00:30:52,880 --> 00:30:54,960
Speaker 1: Should she buy the I P O E T F.

529
00:30:55,480 --> 00:30:58,720
Speaker 1: Is that something that should fit into somebody's portfolio? Yeah?

530
00:30:58,760 --> 00:31:02,640
Speaker 1: I think absolutely. I think makes sense to invest strategically

531
00:31:02,640 --> 00:31:05,640
Speaker 1: as an asset all location plan into these companies which

532
00:31:05,640 --> 00:31:08,520
Speaker 1: have a lot of be transerventy in new listings. I

533
00:31:08,680 --> 00:31:12,880
Speaker 1: POS spinoff specs are probably one part of it. You know,

534
00:31:12,960 --> 00:31:17,959
Speaker 1: we have outperformed, you know, from fpx's perspective by almost

535
00:31:17,960 --> 00:31:22,200
Speaker 1: four d pigs annually over the last thirteen years since

536
00:31:22,240 --> 00:31:25,440
Speaker 1: the frond launched. Has given you double the performance almost

537
00:31:25,800 --> 00:31:28,680
Speaker 1: what's S and P has given you. That makes makes

538
00:31:28,720 --> 00:31:32,080
Speaker 1: sense to invest in that space, but always maybe ten

539
00:31:32,160 --> 00:31:35,040
Speaker 1: percent of your your money you're put into the equity

540
00:31:35,080 --> 00:31:39,200
Speaker 1: market Overall, however, it's obviously important to know you know

541
00:31:39,320 --> 00:31:43,560
Speaker 1: how much um the individual rates are. I don't believe

542
00:31:43,720 --> 00:31:47,480
Speaker 1: taking more than ten percent of an individual holding into

543
00:31:47,520 --> 00:31:50,720
Speaker 1: your portfolio, um, you should not do that. You should

544
00:31:50,720 --> 00:31:54,840
Speaker 1: be diversified, and you should have the ability to rebalance.

545
00:31:55,320 --> 00:31:58,040
Speaker 1: The rebalancing probably should be on a quarterly or senior

546
00:31:58,080 --> 00:32:02,800
Speaker 1: annual basis so you're able to get rid of losers

547
00:32:03,040 --> 00:32:06,320
Speaker 1: and and just let's serenas around. So absolutely should part

548
00:32:06,320 --> 00:32:09,760
Speaker 1: of your should be part of yourset our location um

549
00:32:10,560 --> 00:32:15,440
Speaker 1: um into that space. Yeah, Julian, I forgot to ask

550
00:32:15,480 --> 00:32:20,280
Speaker 1: you something earlier, which is how do you get exposure

551
00:32:20,360 --> 00:32:24,000
Speaker 1: to this stuff? Do you have to write blank checks

552
00:32:24,040 --> 00:32:28,240
Speaker 1: to someone? In terms of investing inspects, Well, we do

553
00:32:28,280 --> 00:32:30,680
Speaker 1: it in a number of ways. We do subscribe to

554
00:32:30,720 --> 00:32:32,560
Speaker 1: I P O S, which as an E T F

555
00:32:32,760 --> 00:32:34,520
Speaker 1: I think we're the only one that actually does that.

556
00:32:34,640 --> 00:32:37,120
Speaker 1: So you need good deal flow and connections at the

557
00:32:37,120 --> 00:32:40,440
Speaker 1: different investment banks brokerage firms. So that's one way. We

558
00:32:40,520 --> 00:32:43,280
Speaker 1: also buy in the secondary market, whether they're the the

559
00:32:43,480 --> 00:32:47,240
Speaker 1: units i e. The shares and the warrants, or even

560
00:32:47,600 --> 00:32:50,440
Speaker 1: the shares once they split off from the unit. So

561
00:32:50,480 --> 00:32:54,160
Speaker 1: there's a number of ways um in order to invest

562
00:32:54,200 --> 00:32:57,120
Speaker 1: in that. Sometimes we just look at the discount and

563
00:32:57,160 --> 00:33:00,320
Speaker 1: it's just a straight cash arbitrage as sometimes who are

564
00:33:00,360 --> 00:33:04,800
Speaker 1: buying these ones at NAV on a unit basis and

565
00:33:04,920 --> 00:33:08,080
Speaker 1: we think the sponsor could announce a good deal and

566
00:33:08,400 --> 00:33:12,280
Speaker 1: it's get that pop. So it definitely requires a significant

567
00:33:12,320 --> 00:33:17,160
Speaker 1: amount of monitoring and trading and uh additionally deal flow.

568
00:33:17,200 --> 00:33:19,400
Speaker 1: On the I p O side, we mentioned that you

569
00:33:19,440 --> 00:33:23,800
Speaker 1: were Canadian listed. Are there any advantages to being in

570
00:33:23,880 --> 00:33:27,320
Speaker 1: Canada for this? I think there is. I don't know

571
00:33:27,360 --> 00:33:31,600
Speaker 1: the US regulatory regime super well, but what's interesting in

572
00:33:31,640 --> 00:33:35,240
Speaker 1: the Canadian regime, it's actually changed dramatically just last year

573
00:33:35,280 --> 00:33:38,800
Speaker 1: that allowed us to launch hedge fund strategies within Prospectus

574
00:33:38,800 --> 00:33:40,880
Speaker 1: issued products such as an E t F and by

575
00:33:40,920 --> 00:33:44,520
Speaker 1: hedge fund strategies I'm talking about leverage derivatives and short

576
00:33:44,520 --> 00:33:48,720
Speaker 1: sellings are accelerating. Arbitrage. Fund is actually a leveraged fund

577
00:33:49,160 --> 00:33:52,440
Speaker 1: and not the traditional you know, double lever kind of

578
00:33:52,520 --> 00:33:55,640
Speaker 1: daily rebalanced type thing. It's leveraged like a traditional long

579
00:33:55,640 --> 00:33:57,840
Speaker 1: short hedge fund where you have your longs and your

580
00:33:57,840 --> 00:34:00,880
Speaker 1: short so you know you do have gross exposure above

581
00:34:00,920 --> 00:34:05,880
Speaker 1: a pent. So the really interesting structure that we actually

582
00:34:05,920 --> 00:34:09,000
Speaker 1: invented is you know, getting into the weeds a bit

583
00:34:09,080 --> 00:34:11,399
Speaker 1: on the E t F side. But we utilize what's

584
00:34:11,400 --> 00:34:14,960
Speaker 1: called sub custody, So we utilize that custodian as all

585
00:34:15,080 --> 00:34:17,440
Speaker 1: E t F s do. But we also have a

586
00:34:17,480 --> 00:34:20,520
Speaker 1: prime broker which hedge funds use that allows us to

587
00:34:20,880 --> 00:34:23,719
Speaker 1: sort of short, borrow and leverage the portfolio. So I'm

588
00:34:23,760 --> 00:34:25,600
Speaker 1: not sure if any U S E t f s

589
00:34:25,640 --> 00:34:29,600
Speaker 1: actually have individual short positions, but our et F does.

590
00:34:30,760 --> 00:34:33,799
Speaker 1: And Joseph Um, you know, we've got this. I think

591
00:34:33,800 --> 00:34:36,440
Speaker 1: there's going to be a spack E t F attack.

592
00:34:36,840 --> 00:34:39,279
Speaker 1: Um s p a K has taken in flows every day.

593
00:34:39,280 --> 00:34:43,360
Speaker 1: It's only twenty million, but pretty good for a smaller issue.

594
00:34:43,360 --> 00:34:46,800
Speaker 1: Where you guys planning to make a spack index, do

595
00:34:46,840 --> 00:34:49,560
Speaker 1: you do you anticipate a market where there could be

596
00:34:49,600 --> 00:34:51,560
Speaker 1: you know, three to four spack ets by the end

597
00:34:51,560 --> 00:34:54,840
Speaker 1: of the year. I demand can be said we have

598
00:34:54,880 --> 00:34:57,799
Speaker 1: a spec index. The IPOX spec spec is a tik

599
00:34:57,880 --> 00:35:00,880
Speaker 1: On Bloomberg. It measures it for form and of the

600
00:35:00,960 --> 00:35:04,880
Speaker 1: most liquid spects into the consummation of the deal, typically

601
00:35:04,920 --> 00:35:08,360
Speaker 1: thirty to forty companies. Has been up like ten percent

602
00:35:08,400 --> 00:35:11,000
Speaker 1: since we launched the end of July. I think there

603
00:35:11,000 --> 00:35:14,920
Speaker 1: will be more coming on the pre consummation space, but

604
00:35:15,040 --> 00:35:19,040
Speaker 1: also on the post consummation space only eventually. I think

605
00:35:19,080 --> 00:35:22,560
Speaker 1: it really depends on the performance of it. But I

606
00:35:22,600 --> 00:35:25,799
Speaker 1: think it's just a um the first in a in

607
00:35:25,800 --> 00:35:28,680
Speaker 1: a number of spects spect focus to E t F

608
00:35:28,760 --> 00:35:31,680
Speaker 1: s Okay, closing question for you both. It's one that

609
00:35:31,719 --> 00:35:35,480
Speaker 1: we ask everyone favorite E t F ticker cannot be

610
00:35:35,560 --> 00:35:39,560
Speaker 1: your own. Julian, I'll start with you, Well, that's a

611
00:35:39,600 --> 00:35:44,080
Speaker 1: good question. My favorite E t F ticker and cannot

612
00:35:44,239 --> 00:35:47,880
Speaker 1: be my own? Why I hear one that I believe

613
00:35:47,880 --> 00:35:50,120
Speaker 1: one of you two guys talk about move for the

614
00:35:50,200 --> 00:35:53,120
Speaker 1: agriculture e t F. You know that one. That's a

615
00:35:53,320 --> 00:35:57,000
Speaker 1: that's a classic one. Joseph over to you. I like

616
00:35:57,480 --> 00:36:02,040
Speaker 1: a r K K both. The company is fantastic and

617
00:36:03,080 --> 00:36:06,120
Speaker 1: has been fantastic too. We were just talking about that. Yeah,

618
00:36:06,120 --> 00:36:10,160
Speaker 1: that that's talk about. That's Cathy Woods actively managed fund.

619
00:36:10,200 --> 00:36:12,680
Speaker 1: That's just so in the zone like Michael Jordan's in

620
00:36:12,680 --> 00:36:14,879
Speaker 1: the mid nineties, kind of in the zone right now.

621
00:36:15,600 --> 00:36:18,880
Speaker 1: Um yeah, not not that that doesn't get mentioned a

622
00:36:18,920 --> 00:36:20,719
Speaker 1: lot as the favorite ticker, but it gets brought up

623
00:36:20,760 --> 00:36:22,799
Speaker 1: here and there and move does get mentioned a lot.

624
00:36:22,840 --> 00:36:25,600
Speaker 1: I'd say that's probably the most mentioned. Rachel. Maybe that

625
00:36:25,760 --> 00:36:28,000
Speaker 1: is a Hall of Fame ticker. Yeah, for sure, that

626
00:36:28,000 --> 00:36:32,359
Speaker 1: that's amount Rushmore. All right, Julian, Joseph, thanks so much

627
00:36:32,400 --> 00:36:36,239
Speaker 1: for joining us on Trillians. Thank you guys, happy to

628
00:36:36,239 --> 00:36:44,120
Speaker 1: be here. Thanks for listening to Trillions until next time.

629
00:36:44,120 --> 00:36:46,880
Speaker 1: You can find us on the Bloomberg Terminal, Bloomberg dot com,

630
00:36:47,000 --> 00:36:50,480
Speaker 1: Apple Podcasts, Spotify, and wherever else you'd like to listen.

631
00:36:50,840 --> 00:36:53,120
Speaker 1: We'd love to hear from you. We're on Twitter, I'm

632
00:36:53,200 --> 00:36:57,200
Speaker 1: at Joel Webber Show. He's at Eric Baltuna's. You can

633
00:36:57,239 --> 00:37:02,920
Speaker 1: find Julian at llan Clmacho, where he's also known as

634
00:37:03,000 --> 00:37:08,960
Speaker 1: the Scat King, and you can find Joseph at Ipox eight.

635
00:37:10,320 --> 00:37:13,759
Speaker 1: This episode of Trillions was produced by Magnus Hendrickson. Francesca

636
00:37:13,840 --> 00:37:16,480
Speaker 1: Levy is the head of Bloomberg podcast by