They all bring their pickaxes to the SPAC gold rush, failing to understand that the opportunities were mined long before they got there-by the sponsors who see an easy score, the entrepreneurs who get fat exits when their companies are acquired and the SPAC Mafia hedge funds that lubricate it all.įormer stockbroker and convicted felon Jordan Belfort was immortalized in The Wolf Of Wall Street. As always, it’s the retail investor, the Robinhood novice, the good-intentions fund company like Fidelity. What’s not to love when “risk” is all but risk-free? There’s only one loser in this equation. Adds Roy Behren of Westchester Capital Management, a fund with a $470 million portfolio of at least 40 SPACs, in clearer English: “We love the risk/reward of it.” “The optionality to the upside is unlimited,” gushes Patrick Galley, a portfolio manager at Chicago-based RiverNorth, who manages a $200 million portfolio of SPAC investments. Though they’re loath to talk specifics, SPAC Mafia hedge funds say returns currently run around 20%. Some 97 percent of these hedge funds redeem or sell their IPO stock before target mergers are consummated, according to a recent study of 47 SPACs by New York University Law School professor Michael Ohlrogge and Stanford Law professor Michael Klausner. The SPAC boom of 2020 is probably the biggest Wall Street story of the year, but almost no one has noticed the quiet force driving this speculative bubble: a couple dozen obscure hedge funds like Polar Asset Management and Davidson Kempner, known by insiders as the “SPAC Mafia.” It’s an offer they can’t refuse. “SPACs are a phenomenal yield alternative,” says David Sultan, chief investment officer at Fir Tree Partners, a $3 billion hedge fund that bought into Fertitta’s Landcadia SPAC IPO-and pretty much any other it could get its hands on. Virtually all recouped their initial investment, with interest, and many profited by exercising warrants in the aftermarket. But the hedge funds that purchased Landcadia’s IPO units did just fine. Waitr was a disaster for pretty much anyone who bought the stock early. As such, its stock recently traded at $2.62, down more than 70% from its IPO price (the S&P 500 has climbed 76% over the same period). Two years later, though, you very likely have never heard of Waitr. Fertitta touted the fact that the Louisiana startup, with $65 million in revenue, would now have access to 4 million loyalty members of his restaurant and casino businesses, and a new partnership with his Houston Rockets NBA franchise. In May 2018, Landcadia finally located its target: a budding online restaurant delivery service called Waitr that would merge with the SPAC in exchange for $252 million in cash.
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