Speaker 1: Welcome to Trilliance. I'm Joel Webber and I'm earth All
Speaker 1: Tunist Eric. One of the themes of this year, I
Speaker 1: think has been the rise of the spack and that
Speaker 1: is a thing that, like I have to tell you,
Speaker 1: like maybe they existed before this year, but it just
Speaker 1: became this this thing that I see in headlines constantly now,
Speaker 1: spack spacks back. Where did it come from? What? What's what? Why? Why? Now?
Speaker 1: What's this all about? Well, that's definitely why we have
Speaker 1: the two guests we have on I would I would
Speaker 1: say I'm very mild in my spack knowledge. I the
Speaker 1: phrase I keep here thinking of my head is spack attack.
Speaker 1: I feel like I'm being attacked by spacks and spack
Speaker 1: news um Our associate Morgan Barna did did a little
Speaker 1: research into the underlying market. It looks like there's over
Speaker 1: a hundred of them, double from last year, and the
Speaker 1: market cap or the value is also double, so it's
Speaker 1: almost like they were in existence before, but they've really
Speaker 1: blown up this year. And so if it seems like
Speaker 1: you're being attacked by SPACs, it's because you are. And
Speaker 1: of course if there's a new area, you know there's
Speaker 1: going to be an e t F tracking it. So
Speaker 1: that's also part of the reason we're covering it, because
Speaker 1: now there's an e t F that tracks backs in
Speaker 1: the US and and it's back if you're if you're
Speaker 1: new to that term, there's a blink check company sort
Speaker 1: of a thing with that. What what's that about? Eric, Yeah,
Speaker 1: So for best my knowledge, we'll get our guests to
Speaker 1: see correct me if I'm wrong. But it's special purpose
Speaker 1: acquisition company. And to me, it seems like just a
Speaker 1: another way to bring a company public that could be
Speaker 1: easier cheaper than the traditional I p O path. And
Speaker 1: as somebody who's seen necessity being the mother of invention,
Speaker 1: this happens a lot. You know, this is just the
Speaker 1: way capitalism works. So I think SPACs are just a
Speaker 1: way for for people to bring companies public in a
Speaker 1: new way. Um. And that's really it, and you know,
Speaker 1: and that's why our guess are here to help us
Speaker 1: navigate these waters. We've got Julian Clamatico, who's the CEO
Speaker 1: of Accelerate Financial Technologies, and then Joseph Schuster, who's the
Speaker 1: founder of I p O X Schuster, Eric White. These
Speaker 1: two guys right, well, Julian to me has been really
Speaker 1: on this back thing early. I mean, he has a
Speaker 1: a t F in Canada called the Arbitrage E t
Speaker 1: F and he has a ton of SPACs in there.
Speaker 1: So we wrote a note about two months ago basically
Speaker 1: saying that you probably can't do an e t F
Speaker 1: for SPACs. The closest you can get as Julians, which
Speaker 1: includes some SPACs, because these are very small companies. Their
Speaker 1: market cap is like two fifty millions to five dred million.
Speaker 1: There's a couple of big ones, but that's like right
Speaker 1: on the borderline of microcap. So we E t F
Speaker 1: needs more liquidity. So I was talking to him when
Speaker 1: I was doing some research on this, and he's very
Speaker 1: knowledgeably as a SPAC monitor. But our call for how
Speaker 1: you couldn't have a spack ETF was obviously over overwhelmed
Speaker 1: because like two weeks later they filed for one. I think,
Speaker 1: you know, being first to market an e t F
Speaker 1: for a is very important. That issued Defiance, which has
Speaker 1: the E t F here in the US, which the
Speaker 1: ticker s p a K is not on today, but
Speaker 1: will you know go over the E t F now
Speaker 1: and then in this But the big thing to know
Speaker 1: about that E t F of the holdings are pre
Speaker 1: acquisition SPACs, and are SPACs the companies that SPACs brought public.
Speaker 1: Will dive into that a little bit later, moving to Joseph. Now,
Speaker 1: when you think of SPACs, you think I p O
Speaker 1: So in our research, we've also covered I p O
Speaker 1: E t f s and I'm a big fan of these. Uh.
Speaker 1: The E t F that his index tracks, or the
Speaker 1: E t F tracks his index is fp X from
Speaker 1: First Trust and it's been around, I don't know, fifteen
Speaker 1: years ish and it is blowing away the SMP. It's
Speaker 1: almost doubling it because they've a couple huge winners and
Speaker 1: SPACK and I p O E t s to me,
Speaker 1: do serve a purpose potentially the viewer, the listener can
Speaker 1: decide because a lot of the times they track companies
Speaker 1: that just aren't in the big index as yet. Big
Speaker 1: index is can be a little uh conservative, and you
Speaker 1: could take a couple of years for one of these
Speaker 1: companies to get in there. So to me, they're tracking
Speaker 1: an area that hardly anybody has any exposure to. Um
Speaker 1: So we've always thought there was kind of value add
Speaker 1: but there's not a ton of assets in the space
Speaker 1: yet this time on Brilliance, I p oing too hard
Speaker 1: can give you us back at you out of Noba now, Julian,
Speaker 1: welcome to Brilliance. Thank you guys, thanks for having me.
Speaker 1: Glad to be here. Why does the world needs backs,
Speaker 1: you know all, that's an interesting question and they've really
Speaker 1: emerged this year as a popular new asset class. And
Speaker 1: the point of a SPACK and the reason why it
Speaker 1: exists is basically twofold number one. It acts as uh
Speaker 1: structure in order to take a private company public versus
Speaker 1: say a direct listing or a traditional I p O. Now,
Speaker 1: SPACs are unique in that the type of companies that
Speaker 1: they're bringing public are different than what would be used
Speaker 1: for direct listing or traditional IPO. For example, on a
Speaker 1: direct listing, these are typically very large private companies that
Speaker 1: don't need to raise capital on their growing public transaction
Speaker 1: than traditional I p O. S have really become exit
Speaker 1: opportunities for venture capital and private equity firms where they're
Speaker 1: looking to offload their steak onto the public markets. We
Speaker 1: haven't seen the traditional I p O process being used
Speaker 1: for actually raising growth capital to fund growth businesses, so
Speaker 1: we've seen the SPACK emerge where you have more earlier
Speaker 1: stage entities. Many of them are pre profit or even
Speaker 1: pre revenue, where they're actually coming public and raising a
Speaker 1: significant amount of capital, which includes cash in the blank
Speaker 1: check company. As you guys indicated, they generally raised between
Speaker 1: two to three million dollars on the spack PO and
Speaker 1: then with their business combination as a spack combines with
Speaker 1: the private company to bring them public, they generally include
Speaker 1: what's known as a pipe financing, private investment in public
Speaker 1: equity that can add hundreds of millions of dollars. More So,
Speaker 1: you can have these early stage companies growing public at
Speaker 1: say a billion dollar valuation, and raising five hundred million
Speaker 1: dollars in growth capital to invest in growing that business.
Speaker 1: So you really haven't seen that opportunity for public market
Speaker 1: investors to get access to those earlier stage growth entities
Speaker 1: that are perhaps late stage venture capital type financing rounds,
Speaker 1: say Series D, Series E, which were usually kept to
Speaker 1: the private markets. They are now coming to the public
Speaker 1: markets through SPACs now on the other side of the coin.
Speaker 1: One main driver that has led to a massive increase
Speaker 1: in popularity and number of acts. They're now north of
Speaker 1: an eighty billion dollar asset class, which is more than
Speaker 1: tripled since April is the sponsor promote, and by sponsor promote,
Speaker 1: I'm talking about the equity compensation given to the founder
Speaker 1: of the spack, which is as high as twenty of
Speaker 1: the spack. So say it's bacco is public raising dollars
Speaker 1: in cash to do a deal. The sponsor or founder
Speaker 1: of that SPAC could be awarded a forty million dollar
Speaker 1: stake in the ProForma entity once the business combination closes. So, um,
Speaker 1: let's go through a real life example, and I the
Speaker 1: two that I think most people may have heard of
Speaker 1: if they've been following this at all, or Virgin Galactic
Speaker 1: and Draft Kings. Those are actually two of the biggest
Speaker 1: waitings in the spack etf because again at whole, some
Speaker 1: of the companies after they've been brought public. Walk us
Speaker 1: through you can pick either example, but just walk us
Speaker 1: through there was a SPAC that existed before they actually
Speaker 1: announced that. How long did and how did they get
Speaker 1: that company? How do they pick the company, and why
Speaker 1: does that company go into this back instead of doing
Speaker 1: attritional IPO. Maybe I guess, you know, walk us through
Speaker 1: the timeline of of one of those. That's a really
Speaker 1: good question, and we can start off just by explaining
Speaker 1: how the special purpose acquisition company structure works. Typically, they
Speaker 1: go public and an initial public offering at ten dollars
Speaker 1: per unit. So SPACK initially consists of units, and after
Speaker 1: fifty two days they split into common shares plus warrants,
Speaker 1: so the average unit comes with it could be as
Speaker 1: low as point to five warrants per unit. It could
Speaker 1: be as high as one warrant per unit, so that
Speaker 1: represents additional equity upside for people investors like myself to
Speaker 1: subscribe to the initial public offering. So once it's public,
Speaker 1: they generally have twenty four months to complete a business combination,
Speaker 1: and if they don't, then they liquidate and they pay
Speaker 1: investors back their money plus acrude interest. They're not allowed
Speaker 1: to spend the money on anything. They keep it in
Speaker 1: trust and they invest that in short term treasury bents.
Speaker 1: And once you go public, then the quest to find
Speaker 1: an attractive private company begins. So specifically, we can talk
Speaker 1: about one of those, Virgin Galactic, how that process went,
Speaker 1: and the way that I understand it is Virgin Galactic
Speaker 1: was pursuing some sort of strategic alternatives process. I'm not
Speaker 1: sure if they tried to go the traditional I p
Speaker 1: O route or tried to sell themselves or what. But
Speaker 1: they're looking to do something. And Virgin Galactic was a
Speaker 1: very early stage company revenues many many years away, and
Speaker 1: so they didn't really fit the mold for a traditional
Speaker 1: initial public offering as we see them these days. Typically,
Speaker 1: UH companies growing the traditional route are much much more mature.
Speaker 1: If you take Uber for example, really at the tail
Speaker 1: end of their growth stage. And so this back in
Speaker 1: Virgin Galactics case was Social Capital Head of Sophia one.
Speaker 1: There's not actually six of them, and three of them,
Speaker 1: three new ones, went public last week, raising a stunning
Speaker 1: two point one billion dollars in capital. But Social Capital
Speaker 1: Head of Sophia is run by Chamath Pala Hepatia, which
Speaker 1: is you know, well known VC out in Silicon Valley.
Speaker 1: So it's first back. Social Capital Head of Sophia one
Speaker 1: went public in an I p O, raised a few
Speaker 1: hundred million dollars and went on a quest to do
Speaker 1: a business combination. And they're actually getting very close to
Speaker 1: the tail end of their two years in which they
Speaker 1: would have had to give money back and lose all
Speaker 1: the money they invested into it. But you know, luckily
Speaker 1: this Virgin Galactic deal came along, and that one was
Speaker 1: really a turning point because prior to that, the spact
Speaker 1: market was small, didn't get a lot of attention, and
Speaker 1: the deals were kind of home hump. When Virgin Galactic
Speaker 1: came out, it was the first one that was this
Speaker 1: VC type investment opportunity any where. It was still very
Speaker 1: early stage. You have revenue way way out there, and
Speaker 1: I mean the business model is space flight, which is
Speaker 1: super futuristic, right, So it had this story to it was,
Speaker 1: you know, Virgin Galactic. It is a story stock because
Speaker 1: you really need to believe that you can't be looking
Speaker 1: at the financial statements any sort of fundamentals to be
Speaker 1: an investor in that story. So when it came out
Speaker 1: and the stock just went crazy, I think that was
Speaker 1: one of the key main drivers in spurring this kind
Speaker 1: of growth of this new asset class number one and
Speaker 1: then you know number two. It just shows that if
Speaker 1: you're successful in one speck, then you just keep bringing
Speaker 1: these out. And now Social Capital and SMATH is up
Speaker 1: to six raising well above three three billion dollars. So
Speaker 1: that was certainly a really interesting deal. It's still trading
Speaker 1: very well well above the ten dollar price of its
Speaker 1: I p O. And that's really how you judge a
Speaker 1: spack success at least in the short term, is how
Speaker 1: high above ten dollars is it trading? So Julian, what
Speaker 1: kind of UM exposure have you had two spacts and
Speaker 1: how does your et F come into play there? We
Speaker 1: approach it on a different investment strategy than others. We
Speaker 1: look at what we call spack arbitrage. So the way
Speaker 1: that we approach SPACs is invest before they announce a deal,
Speaker 1: and we're looking to buy at or below their net
Speaker 1: asset value, meaning the cash that they have in the
Speaker 1: bad because the key aspect to a spack arbitrage strategy
Speaker 1: is you're looking for a guaranteed return, and the way
Speaker 1: that you get that is that pre deal spacks offer
Speaker 1: a unique exposure for one main reason, and that is
Speaker 1: they keep cash on hand so you know it's not
Speaker 1: going anywhere and they can't spend it. So you have
Speaker 1: this guaranteed return of basically treasury bills because they invested
Speaker 1: in short term treasuries not earning a lot these days,
Speaker 1: maybe ten fifteen basis points. However, either they don't find
Speaker 1: a deal in liquidate and you get the yield of
Speaker 1: T bills, or they do announce a deal, and there's
Speaker 1: this one key aspect, which is they allow you to
Speaker 1: redeem your shares for cash plus acrude interest, getting that
Speaker 1: T bill like payoff. So that's sort of the worst
Speaker 1: case scenario. We're looking to bias back at or below
Speaker 1: its net asset value. And here's where um the upside
Speaker 1: comes in. We previously discussed the sort of downside scenario
Speaker 1: where you just earn basically T buills and that discount
Speaker 1: if you buy it at a discount to net asset value. However,
Speaker 1: in the upside scenario, if they announce a great deal
Speaker 1: that the market really likes, say such as a virgin
Speaker 1: galactic UH such as a Nicola highly on Lordstown, things
Speaker 1: of that nature, where the spack just kind of surges
Speaker 1: and price can go double or triple above the ten
Speaker 1: dollar range. That's where an arbitrager really can make significant
Speaker 1: returns at a very little downside risk. So we're looking
Speaker 1: to invest in pre deal SPACs at or below their
Speaker 1: ten dollar plus recruit interest, net asset value, and exit
Speaker 1: prior to the deal closing. Either we earn a T
Speaker 1: bill return and sort of exit either through redemption or liquidation.
Speaker 1: But in the upside scenario, what we're really in it
Speaker 1: for is this surge and the share price in what
Speaker 1: I termed the spack pop. If you look at any
Speaker 1: of them announcing a deal, especially in these hot spaces
Speaker 1: such as electric vehicles, biotechnology, things of that nature, if
Speaker 1: they can do that, then we seek to exit prior
Speaker 1: to the deal completing and us passing that redemption date.
Speaker 1: So you're you've effectively found the rare wind win in
Speaker 1: finance exactly. Yeah, I call it heads. We win tails,
Speaker 1: we win big and and you've mentioned the pop there.
Speaker 1: Can you give us a sense of like, what you know,
Speaker 1: what kind of range of a pop are are you
Speaker 1: able to lock in here? And what percentage of them pop?
Speaker 1: If there's a hundred right now, how many will pop?
Speaker 1: That's really good question, and that is moving all the
Speaker 1: time with all the attention coming to the space. It
Speaker 1: didn't used to be as attractive as it is right now.
Speaker 1: So I'm not sure how long this opportunity will last.
Speaker 1: But if we look at stocks like Nicola, which went
Speaker 1: north of fifty dollars per share, there's another one called
Speaker 1: highly on that one was incredibly lucrative. So I think
Speaker 1: the ones where you're getting triple digit returns in a
Speaker 1: short period of time, I know, with a percent or
Speaker 1: above twenty dollars per share, those are say one in
Speaker 1: twenty one and thirty. However, the ones where we see
Speaker 1: a pop in the range, those are quite calm. It
Speaker 1: we probably see those at least of the time, at
Speaker 1: least in the current environment. The way you are talking
Speaker 1: kind of does remind me of the I p o
Speaker 1: E t F. So I want to bring Joseph in here.
Speaker 1: We when we study the I p o E t F,
Speaker 1: which let me go over the tickers real quick, Julian's
Speaker 1: tickers A, R, B, C N. He's up in Canada.
Speaker 1: The spack ETF here in the U S is s
Speaker 1: p a K which holds of these pre acquisition SPACs
Speaker 1: that you hope pop, and of companies already in the market,
Speaker 1: such as Draft Kings. And when we look at the
Speaker 1: I p o E t F, and we look at
Speaker 1: these companies that do the traditional route, all you need
Speaker 1: is like a couple superstars from like to just rocket
Speaker 1: ship stocks to make up for plenty of dogs. And
Speaker 1: we found that fp X was really the performance was
Speaker 1: powered off of a couple of Facebook type companies, but
Speaker 1: there were a bunch of duds, But you don't it
Speaker 1: gets offset. So Joseph, I guess I want to talk
Speaker 1: about the after they come out, which spack owns and
Speaker 1: then you own DraftKings, you own once I guess of
Speaker 1: these talk about these companies after they're out and how
Speaker 1: they work into the traditional I p O index. So, um,
Speaker 1: what we are basically doing we start once the I
Speaker 1: p O is done, so we don't buy it the
Speaker 1: I p O prisents and get the pop because that's
Speaker 1: really not accessible. So what we do is we start
Speaker 1: with one large underlying universe, which we call the ipoxes composite,
Speaker 1: and it sees underlying universe. We buy companies on day
Speaker 1: six and they exit automatically four years. So after four years,
Speaker 1: it's because we believe that's the kind of maximum of
Speaker 1: the going public effect, and that's when really the risk
Speaker 1: and the beta uncertainty about set new listing really gets resolved.
Speaker 1: So we have an underlying university in the US of
Speaker 1: nine plus companies right now reflecting pretty much all the
Speaker 1: deal flow over the last four years from I p
Speaker 1: O spinoffs as well and then and specs as well.
Speaker 1: And then what we do was the uh we see
Speaker 1: fp X and the underlying index is the IPOX one
Speaker 1: is basically on a quarterly basis, we take the top
Speaker 1: hundred names on the market cap weighted basis in this
Speaker 1: underlying composite index, and that kind of gives us exposure
Speaker 1: to the momentum i PO like the soon videos, you know,
Speaker 1: the facebooks in the past, Svisa, the master cards while
Speaker 1: through a quarterly rebalance and we're able to kind of
Speaker 1: get rid of the losers as well, and we hold
Speaker 1: them typically as an asset for the first four years
Speaker 1: of trading. Um. Really originally we developed the index really
Speaker 1: from a performance perspective. We news as performance aertain the
Speaker 1: I p O market, but only a certain segment like
Speaker 1: let's say twenty thirty percent, and many companies will be
Speaker 1: the crispy crime Donuts of the world. And so that's
Speaker 1: where we start. Like we we started with, hey, we
Speaker 1: want to capture the alpha in the I p O market,
Speaker 1: not really provide access to the whole kind of spaces
Speaker 1: as as an equity class um as we're pretty well
Speaker 1: formed pips up performance and or it was a c
Speaker 1: SMP Obviously the question is what is what is the
Speaker 1: correct benchmark? Obviously, how respects fall in here is if
Speaker 1: a certain company is large enough, let's say one and
Speaker 1: a half two billion, it gets an our radar and
Speaker 1: the IPOX hundred, then it becomes large enough, and then
Speaker 1: we basically by default have to buy it because we
Speaker 1: know the good performance is driven by the larger I
Speaker 1: p O s which can get large by which are
Speaker 1: large by default or by momentum like teslas or and
Speaker 1: and really the underperformance story of the IPO market is
Speaker 1: driven by small microcap small it pos at least historically. Yeah,
Speaker 1: I think the I p O fp X in particular,
Speaker 1: and there's another one called I p O they're both
Speaker 1: having good years and fp X it's really interesting to
Speaker 1: me that this thing doesn't have has a billion, so
Speaker 1: that's not chump change. But you know, given the performance
Speaker 1: and the fact that you have only four percent of
Speaker 1: the portfolio of fp X is overlapped with the S
Speaker 1: and P five hundreds, so it's very unique exposure. It's
Speaker 1: almost like you're capturing the toddlers before they get to
Speaker 1: be teenagers and enter the big benchmarks. Why do you
Speaker 1: think more people don't Um, is it the PR? Because
Speaker 1: when I PR doesn't go well gets really dragged through
Speaker 1: the press. Do you think the PR is a problem
Speaker 1: here too, that people have bad feelings or that oh
Speaker 1: all these Wall Street banks are going to make all
Speaker 1: this money and screw me over? Is that really the
Speaker 1: big challenge here? Because the performance, you'd think there'd be
Speaker 1: more assets. Yeah. I think the assets are now like
Speaker 1: one point six billion and total around more than two
Speaker 1: billion in iOS as well as a last fry. I
Speaker 1: think initially took a long time to get it off
Speaker 1: the ground. Obviously, I think one drawback is for for
Speaker 1: for us as we're starting the aftermarket, right, we don't
Speaker 1: really care as we buy Google that's the I p
Speaker 1: O price and flip it like you know sixty flip
Speaker 1: it at ninety. We care of buying it at hundred
Speaker 1: twentys and keep it for a long period of time
Speaker 1: and said it maybe at four dollars, which initially really
Speaker 1: took a lot of markets in appeal away. Um kind
Speaker 1: of from from the concept. Um the other opposite challenges, Um,
Speaker 1: you know what is our benchmark? Were does Morning Stop
Speaker 1: put it? There's a lot of because obviously we have
Speaker 1: a rotational kind of cycle where but we don't know
Speaker 1: how the kind of portfolio looks like in four to
Speaker 1: five years. So you know, like I think financial advisor
Speaker 1: at least historically have had a kind of tough time
Speaker 1: to know where as they put it right, recently, it
Speaker 1: really becomes part of kind of event driven strategies. You know,
Speaker 1: it has kind of started to replace private equity as
Speaker 1: well because we hold some of those names. And then
Speaker 1: another reason is we are just you know, a small
Speaker 1: innovative firm which you know tries to you know, kind
Speaker 1: of pioneer the concept of you buy I P s
Speaker 1: in the aftermarket, you just index and rather than buying
Speaker 1: it through you know, dealer connections in the immediate you know,
Speaker 1: bp FO the I P and and flip it make
Speaker 1: quick box and that's another challenge. However, obviously we don't
Speaker 1: speak for themselves, and you know, at fifty eight basis points,
Speaker 1: there's been a you know, a very attractive product for
Speaker 1: many financial advisors. So so Joseph, one of the things
Speaker 1: that Julian said that really struck me was the way
Speaker 1: he was describing SPACs is sort of like it allows
Speaker 1: investors to have access to a type of company and
Speaker 1: those types of companies to have access to public markets.
Speaker 1: It sort of seems like the original I p O
Speaker 1: right with being able to fund companies with public public markets.
Speaker 1: How permanent of a shift do you feel like this
Speaker 1: could end up being for the marketplace. I think it's
Speaker 1: going to be here to stay. You see that. I
Speaker 1: mean that the big guys, as a big private equity
Speaker 1: firms are stepping up in that space. It's probably gonna
Speaker 1: replace private equity to some degrees. Those companies need to
Speaker 1: go public. I think it's a great development. It takes
Speaker 1: away a lot of kind of hurdles which Savings atfully
Speaker 1: started in two thousand and four. I think it's going
Speaker 1: to open up a lot of trading, investment strategies opportunities
Speaker 1: in the long short space. Um, you know, I believe
Speaker 1: it's here to stay. It's it's it's one way. This
Speaker 1: is equity capital markets always find a different way to
Speaker 1: to make it and kind of a symptom of the
Speaker 1: free capital markets as well, you know, the American capitalism.
Speaker 1: So it's an outcrowth of it. And obviously the question
Speaker 1: is how many of these companies suspects are going to
Speaker 1: be within US and how many are gonna be losers.
Speaker 1: The thing is, we really haven't had like a big,
Speaker 1: big loser in the spect spaces. You know, Nicola came
Speaker 1: down and so forth. But we don't have the statistics yet.
Speaker 1: While we say okay, you know, one of out of
Speaker 1: training makes it and the rest when significantly underperformer one
Speaker 1: out of thirty, you know, the more as the underperformers
Speaker 1: ours and it's gonna go kind of away automatically because
Speaker 1: people are gonna be cautious about investing in them once
Speaker 1: it deal consummate. UM and Julian, I want to bring
Speaker 1: you back into this. Um. I just talked about how
Speaker 1: I p O s can at least the ones that
Speaker 1: don't work out, we'll get dragged through the mud and
Speaker 1: the press, and that can overhang the whole market a
Speaker 1: little bit. I've seen some pretty rough tweets about SPACs
Speaker 1: from some people. I mean, you're on Twitter, you're dealing
Speaker 1: with that quite a bit. Is there any validity to
Speaker 1: what they're saying or what are what do they not know? Yes,
Speaker 1: the criticism is well founded. If you look at the
Speaker 1: track record historically a post spack equity performance, it has
Speaker 1: been poor. They have underperformed and so that's one thing
Speaker 1: to consider is the data behind it, which is one
Speaker 1: reason that we don't invest in posts back equities, and
Speaker 1: I do consider those a different asset class. Well, let
Speaker 1: me just up you real quick. Is that because the
Speaker 1: spack when you the announced the deal gets announced, that pop.
Speaker 1: Is that stealing from the I p O post IPO
Speaker 1: future in a way. That is one of the reasons.
Speaker 1: There are other reasons, and the market has really changed,
Speaker 1: so this isn't guaranteed to go forward in the future. Historically,
Speaker 1: say pre twenty nineteen, the spack market was really a
Speaker 1: space for lesser known entrepreneurs. You don't have the big
Speaker 1: name sponsors that you do have these dates. We have
Speaker 1: Bill Ackman, Apollo, TPG, Social Capital, we have all these
Speaker 1: big hedge funds, private equity firms, venture capital firms with
Speaker 1: pretty exceptional deal flow and high quality deals coming into
Speaker 1: the space. We never had that before. And so if
Speaker 1: you go back, say five years or ten years, you
Speaker 1: did have a number of Chinese companies going public through
Speaker 1: a reverse merger with a spack that ended up being
Speaker 1: fraudulent unfortunately. So I think what's changed versus the historical
Speaker 1: poor performance is the market has become significantly higher quality. However,
Speaker 1: as you indicated, Eric, the way that we generate alpha
Speaker 1: or performance is capitalizing on that spack pop, and so
Speaker 1: by the time the deal closes, you know there's a
Speaker 1: significant amount of performance built in, and you know, perhaps
Speaker 1: they're going to give that up. The other thing that
Speaker 1: has changed, and one thing that led to poor performance historically,
Speaker 1: is that if you look at the guys who subscribe
Speaker 1: to these back I p o s, guys like myself,
Speaker 1: like hedge funds, liquidity providers that are looking to capitalize
Speaker 1: on those prespact dynamics. However, historically, you didn't get as
Speaker 1: much as a pop, and therefore more and more often
Speaker 1: they would redeem to get their cash back because the
Speaker 1: share price didn't go up, and therefore, when these business
Speaker 1: combinations completed, lots of the cash would go back to
Speaker 1: investors and they'd end up highly leveraged, and therefore the
Speaker 1: risk of them failing was significantly higher. What's changed these
Speaker 1: days is they're raising significantly more capital. The traditional spack
Speaker 1: was kind of fifty two hundred million dollars a number
Speaker 1: of years ago, and now the average is more like
Speaker 1: three million dollars, So they're more cash. Not just that,
Speaker 1: but a large amount of business combinations that we're seeing
Speaker 1: is coming along with these pipe financings UH in the
Speaker 1: hundreds of millions of dollars, which mitigate that redemption risk
Speaker 1: that have that used to happen with these deals. So
Speaker 1: a lot of things are changing. However, it is important
Speaker 1: to be cognizant of posts back equity performance performance, and
Speaker 1: historically they have underperformed. Um, I wanna ask both of
Speaker 1: you this question, which is you know, we just went
Speaker 1: over some of the background the industry. These things are
Speaker 1: now in e T S, which I would argue probably
Speaker 1: is the way to play them because you go out
Speaker 1: and try unless you are in the market and can
Speaker 1: pick this stuff and have knowledge of everything going on,
Speaker 1: and E T F will minimize your risk. That said,
Speaker 1: would you recommend to like your uncle Bob or somebody
Speaker 1: that they buy aid either your rbt F which has
Speaker 1: these SPACs in it, or Joseph fp X, like, is
Speaker 1: this really something a retail investor should should have? I
Speaker 1: know you're biased, but give me your your take on
Speaker 1: what you would say. Sure, Eric can take that one.
Speaker 1: And so what we're all about is offering alternative ets.
Speaker 1: So instead of traditional asset classes sixty forty portfolio, we
Speaker 1: are leaning more towards what we call, you know, the
Speaker 1: next sixty, which is twenty in which that is a
Speaker 1: diversified sleeve of alternative asset classes. And with the advent
Speaker 1: of alternative E t F, s I p O E
Speaker 1: t F and things of that nature, investors can finally
Speaker 1: get access to these institutional caliber alternative strategies. And what
Speaker 1: we're really looking for in terms of something alternative to
Speaker 1: your traditional stocks and bonds and something that is uncorrelated
Speaker 1: or perhaps even negatively correlated, such that in Q one
Speaker 1: when your stocks are crashing, you know, luckily bonds kind
Speaker 1: of bailed people out, but with bonds ten years at
Speaker 1: seventy five basis points, perhaps it may not be there
Speaker 1: on the next crash. So it's important to own asset
Speaker 1: classes within a portfoli you that are uncorrelated and perhaps
Speaker 1: good zig while your other asset classes zag. So we
Speaker 1: ran a study, we run spack index looking at daily
Speaker 1: performance and in the first five months where things went
Speaker 1: absolutely crazy, as you know at the coronavirus pandemic our
Speaker 1: s back in next was actually negatively correlated with both
Speaker 1: equities and bonds and we all know the great performance
Speaker 1: of treasuries kind of in the first five months of
Speaker 1: the year. However, that's back index that we run outperformed
Speaker 1: treasuries on an absolute basis with lower risk and lower volatility.
Speaker 1: I think they declined maybe five six percent at their
Speaker 1: peak to trough decline. Meanwhile, treasuries declined more like eight percent.
Speaker 1: And Joseph, let's let's turn you say, you know, your
Speaker 1: niece comes to you and uh, you're she's in her thirties.
Speaker 1: Should she buy the I P O E T F.
Speaker 1: Is that something that should fit into somebody's portfolio? Yeah?
Speaker 1: I think absolutely. I think makes sense to invest strategically
Speaker 1: as an asset all location plan into these companies which
Speaker 1: have a lot of be transerventy in new listings. I
Speaker 1: POS spinoff specs are probably one part of it. You know,
Speaker 1: we have outperformed, you know, from fpx's perspective by almost
Speaker 1: four d pigs annually over the last thirteen years since
Speaker 1: the frond launched. Has given you double the performance almost
Speaker 1: what's S and P has given you. That makes makes
Speaker 1: sense to invest in that space, but always maybe ten
Speaker 1: percent of your your money you're put into the equity
Speaker 1: market Overall, however, it's obviously important to know you know
Speaker 1: how much um the individual rates are. I don't believe
Speaker 1: taking more than ten percent of an individual holding into
Speaker 1: your portfolio, um, you should not do that. You should
Speaker 1: be diversified, and you should have the ability to rebalance.
Speaker 1: The rebalancing probably should be on a quarterly or senior
Speaker 1: annual basis so you're able to get rid of losers
Speaker 1: and and just let's serenas around. So absolutely should part
Speaker 1: of your should be part of yourset our location um
Speaker 1: um into that space. Yeah, Julian, I forgot to ask
Speaker 1: you something earlier, which is how do you get exposure
Speaker 1: to this stuff? Do you have to write blank checks
Speaker 1: to someone? In terms of investing inspects, Well, we do
Speaker 1: it in a number of ways. We do subscribe to
Speaker 1: I P O S, which as an E T F
Speaker 1: I think we're the only one that actually does that.
Speaker 1: So you need good deal flow and connections at the
Speaker 1: different investment banks brokerage firms. So that's one way. We
Speaker 1: also buy in the secondary market, whether they're the the
Speaker 1: units i e. The shares and the warrants, or even
Speaker 1: the shares once they split off from the unit. So
Speaker 1: there's a number of ways um in order to invest
Speaker 1: in that. Sometimes we just look at the discount and
Speaker 1: it's just a straight cash arbitrage as sometimes who are
Speaker 1: buying these ones at NAV on a unit basis and
Speaker 1: we think the sponsor could announce a good deal and
Speaker 1: it's get that pop. So it definitely requires a significant
Speaker 1: amount of monitoring and trading and uh additionally deal flow.
Speaker 1: On the I p O side, we mentioned that you
Speaker 1: were Canadian listed. Are there any advantages to being in
Speaker 1: Canada for this? I think there is. I don't know
Speaker 1: the US regulatory regime super well, but what's interesting in
Speaker 1: the Canadian regime, it's actually changed dramatically just last year
Speaker 1: that allowed us to launch hedge fund strategies within Prospectus
Speaker 1: issued products such as an E t F and by
Speaker 1: hedge fund strategies I'm talking about leverage derivatives and short
Speaker 1: sellings are accelerating. Arbitrage. Fund is actually a leveraged fund
Speaker 1: and not the traditional you know, double lever kind of
Speaker 1: daily rebalanced type thing. It's leveraged like a traditional long
Speaker 1: short hedge fund where you have your longs and your
Speaker 1: short so you know you do have gross exposure above
Speaker 1: a pent. So the really interesting structure that we actually
Speaker 1: invented is you know, getting into the weeds a bit
Speaker 1: on the E t F side. But we utilize what's
Speaker 1: called sub custody, So we utilize that custodian as all
Speaker 1: E t F s do. But we also have a
Speaker 1: prime broker which hedge funds use that allows us to
Speaker 1: sort of short, borrow and leverage the portfolio. So I'm
Speaker 1: not sure if any U S E t f s
Speaker 1: actually have individual short positions, but our et F does.
Speaker 1: And Joseph Um, you know, we've got this. I think
Speaker 1: there's going to be a spack E t F attack.
Speaker 1: Um s p a K has taken in flows every day.
Speaker 1: It's only twenty million, but pretty good for a smaller issue.
Speaker 1: Where you guys planning to make a spack index, do
Speaker 1: you do you anticipate a market where there could be
Speaker 1: you know, three to four spack ets by the end
Speaker 1: of the year. I demand can be said we have
Speaker 1: a spec index. The IPOX spec spec is a tik
Speaker 1: On Bloomberg. It measures it for form and of the
Speaker 1: most liquid spects into the consummation of the deal, typically
Speaker 1: thirty to forty companies. Has been up like ten percent
Speaker 1: since we launched the end of July. I think there
Speaker 1: will be more coming on the pre consummation space, but
Speaker 1: also on the post consummation space only eventually. I think
Speaker 1: it really depends on the performance of it. But I
Speaker 1: think it's just a um the first in a in
Speaker 1: a number of spects spect focus to E t F
Speaker 1: s Okay, closing question for you both. It's one that
Speaker 1: we ask everyone favorite E t F ticker cannot be
Speaker 1: your own. Julian, I'll start with you, Well, that's a
Speaker 1: good question. My favorite E t F ticker and cannot
Speaker 1: be my own? Why I hear one that I believe
Speaker 1: one of you two guys talk about move for the
Speaker 1: agriculture e t F. You know that one. That's a
Speaker 1: that's a classic one. Joseph over to you. I like
Speaker 1: a r K K both. The company is fantastic and
Speaker 1: has been fantastic too. We were just talking about that. Yeah,
Speaker 1: that that's talk about. That's Cathy Woods actively managed fund.
Speaker 1: That's just so in the zone like Michael Jordan's in
Speaker 1: the mid nineties, kind of in the zone right now.
Speaker 1: Um yeah, not not that that doesn't get mentioned a
Speaker 1: lot as the favorite ticker, but it gets brought up
Speaker 1: here and there and move does get mentioned a lot.
Speaker 1: I'd say that's probably the most mentioned. Rachel. Maybe that
Speaker 1: is a Hall of Fame ticker. Yeah, for sure, that
Speaker 1: that's amount Rushmore. All right, Julian, Joseph, thanks so much
Speaker 1: for joining us on Trillians. Thank you guys, happy to
Speaker 1: be here. Thanks for listening to Trillions until next time.
Speaker 1: You can find us on the Bloomberg Terminal, Bloomberg dot com,
Speaker 1: Apple Podcasts, Spotify, and wherever else you'd like to listen.
Speaker 1: We'd love to hear from you. We're on Twitter, I'm
Speaker 1: at Joel Webber Show. He's at Eric Baltuna's. You can
Speaker 1: find Julian at llan Clmacho, where he's also known as
Speaker 1: the Scat King, and you can find Joseph at Ipox eight.
Speaker 1: This episode of Trillions was produced by Magnus Hendrickson. Francesca
Speaker 1: Levy is the head of Bloomberg podcast by