SPAC markets erase 2021 gains amid possible regulatory headwinds


Bill O’Brien, Editor

“There may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA (Private Securities Litigation Reform Act). Congress could not have predicted the wave of SPACs in which we find ourselves. It may be time to revisit these issues.” – Jon Coates, Acting Director, Division of Corporation Finance (SEC)


The SEC’s Acting Director of Corporation Finance, Jon Coates, has called on Congress to reign in SPACs and tighten regulatory disclosure requirements on the “blank check” companies.

What used to be a niche investment vehicle that served as an alternative for privately-held companies to enter public markets is now regarded as a market craze, a change that has taken place amid the historic, pandemic-induced 2020 market crash. Companies looking to go public partnered with SPACs to take advantage of markets flush with capital but volatile amid the backdrop of the coronavirus pandemic. Unfortunately though, SPAC moguls, like Bill Ackman, who the Collegian covered in its Feb 10 issue, are learning that, like all good things, the SPAC craze must too come to an end. 

SPAC markets have taken a sharp downturn in recent months, and even more trouble is on the horizon due, in large part, to heightened regulatory scrutiny for the investment vehicle. John Coates, the SEC’s Acting Director, Division of Corporation Finance, released a statement on the Securities and Exchange Commission’s (SEC) website sounding alarms on the SPAC surge. The SEC’s statement, SPACs, IPOs and Liability Risk under the Securities Laws, contained verbiage that has likely contributed to the recent downturn in SPAC markets. The SEC is now eyeing SPACs for the potential they have to mislead investors as they have significantly less disclosure requirements than a traditional IPO would have.

  In the statement, Coates discusses how 25 years ago, the path to public markets for a company was fairly simple and one-tracked and, with the innovations markets have today, there should be regulation to follow along with it. “With all these changes, the appeal of understanding and developing law around economic substance over form may be greater than ever.” Coates talks about how initial public offerings are a “distinct and challenging moment for disclosure” for companies undergoing them for good reason. “An IPO is where the protections of the federal security laws are typically most needed to overcome the information asymmetries between a new investment opportunity and investors in the newly public company,” says Coates.

Coates ends the statement by calling for legislative bodies to consider imposing tighter requirements that would target the second phase of a SPAC transaction, otherwise known as the “de-SPAC,” where a target company is acquired and original investors in the SPAC typically unload their shares into the secondary market. Coates calls on authorities to treat the de-SPAC transaction as the “real IPO.” “It is the de-SPAC as much as any other element of the process on which we should focus the full panoply of federal securities law protections — including those that apply to traditional IPOs.” Heightened regulatory pressures have further depressed SPAC markets that have already been reeling in recent months. The proposed regulation could increase disclosure costs for the blank-check companies which already face tough competition from private equity firms when hunting for target companies.

A SPAC index across 210 different companies, made up of 60 percent public companies derived from SPACs and 40 percent pre-IPO SPACs, “Indxx SPAC & NextGen IPO Index,” has fallen 24.87 percent since the SPAC market’s February highs. New accounting guidelines issued by Jon Coates and Acting Chief Accountant of the SEC, Paul Munter, have helped to grind SPAC markets to a halt as well. The statement, which read, “OCA (Office of the Chief Accountant) staff concluded that – the tender offer provision would require the warrants to be classified as a liability measured at fair value, with changes in fair value reported each period in earnings,” has the potential to impact newly issued SPACs and companies that have already gone public through a SPAC transaction. Proponents of the investment vehicle are eyeing financial regulators to see what moves they will make to tighten regulations around the investment vehicle. Eyes will surely be on the SEC in the coming months to see how they choose to advance their agenda as laid out by John Coates.

Johnson & Johnson vaccine rollout halted amid concerns over rare form of blood clotting


Bill O’Brien, Editor


Cases of blood clotting remain extremely rare among the upwards of 7 million Johnson & Johnson vaccine recipients. To this date, there have only been six reported cases of cerebral venous sinus thrombosis from J&J vaccine recipients, per Centers for Disease Control (CDC).

Johnson & Johnson (NYSE: JNJ) trended downward (-3.04 percent) following regulatory actions on Tuesday, April 13, that halted administration of the medical device giant’s one-dose vaccine. Per the CDC, Johnson & Johnson’s vaccine has been administered to more than 7 million people as of April 14. Since then, aside from common side effects typically caused by vaccines, there have been six reported cases of a rare blood clotting condition known as cerebral venous sinus thrombosis. The condition has been reported in conjunction with low levels of blood platelets, a condition known as thrombocytopenia, per CDC reports.

All six cases were of women between the ages of 18 to 48, and symptoms were reported to have occurred six to thirteen days after receiving the vaccine. The combination of cerebral venous sinus thrombosis and thrombocytopenia is difficult to treat. The conventional remedy for blood clots, an anticoagulant called Heparin, cannot be used as, according to the CDC, “In this setting, administration of Heparin may be dangerous, and alternative treatments need to be given.”

Although regulatory scrutiny poses significant risk to Johnson & Johnson’s vaccine distribution, JNJ shares have stabilized around $159.59, just 1.24 percent lower than its week high of $161.69, as of Wednesday at 12:40 p.m. EST, following Tuesday’s vaccine halt. Investors appear cautious but, surprisingly, largely unbothered by the halting of the vaccine which has an additional 10 million doses in circulation, on top of the more than 7 million already administered. 

JNJ’s price resiliency is likely due to regulatory language from FDA officials signaling a swift and optimistic outcome for the vaccine. On an April 13 joint media call with CDC officials, Dr. Janet Woodstock, Acting Director of the FDA, iterated that she expects the pause to be a short one: “Well, the timeframe will depend obviously on what we learn in the next few days, however, we expect it to be a matter of days for this pause.” Signaling from the CDC reinforces this rhetoric, depicting the action as precautionary rather than the result of crisis. Per their website, last updated on April 13, the Centers for Disease Control convened an “Advisory Committee on Immunization Practices (ACIP)” with the goal to “review these cases and assess their potential significance.”

On a broader scale, public health officials do not believe this situation will detract from the Biden Administration’s ambitious vaccination efforts, citing the Johnson & Johnson vaccine to be a minority among COVID-19 vaccines distributed. According to Anne Schuchat, Principal Deputy Director of the CDC, over 121 million Americans have been vaccinated with at least one dose of one of the three vaccines from Pfizer, Moderna and Johnson & Johnson. Johnson & Johnson only represents just over 7 million of those doses. Although a prolonged pause on Johnson & Johnson’s vaccine does not pose a robust threat to the larger mass vaccination effort from a supply standpoint, the negative press associated could have potential drawbacks on an American populace that has already struggled to trust the rapidly developed vaccines that are being distributed under emergency use authorization from the FDA. Continued public confidence in the vaccination effort is a key driver to achieving herd immunity and the reopening of the economy that would subsequently follow.

Bill Ackman: famed hedge fund founder and investor, now a SPAC behemoth


Bill O’Brien, Editor


Ackman was ridiculed for turning a $27 million hedge position against markets into $2.6 billion. Just a week before, he had been interviewing on media outlets warning that “Hell is coming” amid COVID-19 concerns.

Few figures have stirred as much buzz in the financial services industry as Bill Ackman. The self-proclaimed activist investor, or contrarian investor as known by others, has been a leader in financial services since 1992 when he founded the hedge fund, Gotham Partners. It was the same year he received his MBA from Harvard Business School. Although Gotham Partners did not pan out as Ackman had probably hoped, his career in asset management would continue to flourish with Pershing Square Holdings, the hedge fund he founded in 2003 and currently manages.

Ackman is currently the CEO and founder of Pershing Square Capital Management, a New York-based hedge fund which, according to SEC filings, boasts private funds with minimum subscriptions between $1 million and $5 million. He’s had a lot of success in the hedge fund industry with a highly profitable and publicized market exit from Wendy’s that netted his investors billions in returns. More recently, Ackman opened hedge positions against financial markets leading up to the COVID-19 pandemic. Ackman closed out the hedge positions for over $2 billion on March 23rd, 2020 following steep market downturns.  The position originally cost a little less than $30 million to take on.

The success of the hedge fund manager has come with a lot of notoriety. Ackman was heavily criticized for a failed short position and a negative media campaign that landed him in hot water with regulators. Pershing Square Holdings also garnered huge losses over a 6-year period until he finally closed out the position in 2018 following an unbridled rise in Herbalife shares. The failed short resulted in losses for investors, but was heavily scrutinized for the negative media campaign Ackman waged against Herbalife that many saw as a means to manipulate the share price of the stock, an issue that has recently been at the forefront of Wall Street criticisms today.

In spite of great shortcomings and even greater successes, Ackman is as active as ever in financial markets and has recently decided to try his hand with SPACs or “Special Purpose Acquisition Companies.” The Collegian covered the upward trend in SPACs in its Sep 23 issue, and they have continued to be on the rise since. SPACs are somewhat known as “blank check companies” because they raise funds on the public markets without having any operational costs and expenses to start with. Their value is derived from investors anticipating the SPAC to merge with or acquire a privately-held company (target company) using the capital it raised from public markets, inherently bringing the target company to public markets in the process. 

Bill Ackman’s Pershing Square Tontine Holdings (NYSE: PSTH) has had the most valuable SPAC initial public offering to date, raising $4 billion from public markets and an additional $1 billion from Ackman’s Pershing Square funds. That $5 billion in available capital to make acquisitions can potentially mean approximately $25 billion in acquisition capital for the SPAC depending on how aggressive a leveraged buyout strategy Ackman chooses to employ.

Pershing  Square Tontine Holdings identifies its target company parameters on their website, “We will prefer targets that have low sensitivity to macroeconomic factors, with minimal commodity exposure and/or cyclical risk. We are willing to accept a high degree of situational, legal, and/or capital structure complexity in a business combination if we believe that the potential for reward justifies this additional complexity, particularly if these issues can be resolved in connection with and as a result of a combination with us.” Also notable, among other parameters, in their acquisition criteria for a target company is “formidable barriers to entry” or “‘wide moats” around their business and “low risks of disruption due to competition, innovation or new entrants.”

The goals of Ackman’s SPAC are nothing short of ambitious, but investors continue to put their faith in Ackman. After pricing at $20 per share during its IPO, Pershing Square Tontine Holdings, still without a business combination, is trading at $29.91 in secondary markets, yielding investors 49.55% since IPO. The premium can be partially accredited to recent buzz surrounding the SPAC potentially finding a target company, market speculation that has not been confirmed yet. Ackman has defended PSTH trading at a premium in Pershing Square’s 2020 semiannual report to shareholders “PSTH trades at a premium to its cash NAV because the market believes that it is probable that we will find an attractive merger candidate and complete a transaction that creates significant shareholder value.”

All of this may be true, but one can be certain PSTH will not be able to retain its value without an acquisition target. Speculation around an impending deal has risen significantly, and some are expecting an announcement when PSTH’s parent company, Pershing Square Holdings, holds its annual investors presentation on Feb 18 at 9:00AM. Market watchers will certainly be keeping their ear to the ground for the next eight days to see what direction Ackman takes his SPAC, if any.

Ant Group’s world record-setting IPO in Shanghai and Hong Kong put on halt by Chinese regulators


Bill O’Brien, Editor

“There’s a saying in China: ‘The tallest nail gets hammered down,'” said Duncan Clark, author of “Alibaba: The House that Jack Ma Built” and founder of investment advisory firm BDA China.

India Today

Jack Ma, pictured above, is not formally associated with the fintech company, Ant Group, but is the company’s controlling shareholder. Analysts are putting blame on the ecommerce mogul for recent statements criticizing Chinese regulators.

As U.S. markets whipsawed for the last 24 hours amid Election Day chaos, a leading fintech company in China experienced a ‘day of reckoning’ of sorts. The unicorn fintech company, Ant Group, was on track to set a record in raising capital from public markets with a $34.5 billion dollar IPO. Ant Group offers numerous services to its consumers, which include mobile payments services, wealth management, a third-party credit rating system and a mutual aid platform which “provides a basic health plan to protect participants against 100 kinds of critical illnesses.”

The company has made strides outside of the country into Europe as well. Ant Group’s mobile payment platform, Alipay, has existing relationships with numerous European digital wallets apps in Finland, Norway, Spain, Portugal and Austria. The fintech company has made headway in Britain as well, acquiring international money transfer services provider, WorldFirst, for $700 million in 2019 and reaching an agreement with Barlcaycard that enabled British retailers to accept Alipay in their stores.

The fintech company has been making incredible progress, which is why it is unsurprising that Chinese regulators yanking their IPO sent Alibaba, one-third shareholder of Ant Group, reeling. Alibaba, trading off a high of $310.73 early Monday evening (4:00P EST), fell 7.8 percent to $286.31 amid the news before rebounding to around $298.40 this Wednesday afternoon.

Analysts are pointing fingers at the controlling shareholder of the company and founder of Alibaba, Jack Ma, who recently gave a speech criticizing Chinese regulators for their risk aversion. “What we need is to build a healthy financial system, not systematic financial risks,” the Ant Group co-founder said at a conference in Shanghai. “To innovate without risks is to kill innovation. There’s no innovation without risks in the world.” He also highlighted the need for systemic reform in China’s financial sector, describing it as “a legacy of the Industrial Age.” Ma continued, saying, “we must set up a new one for the next generation and young people. We must reform the current system.”

Chinese regulators responded shortly after as if Ma had spit in their face, bringing Ant Group executives and Ma in for “regulatory interviews” which resulted in regulators deciding to suspend the fintech company’s initial public offerings in Shanghai and Hong Kong and prompting Ant Group to release the following statement to investors:

“Ant Group Co., Ltd. (the “Company”) announces that it was notified by the relevant regulators in the PRC today that its proposed A Share listing on the STAR Market is suspended as the Company may not meet listing qualifications or disclosure requirements due to material matters relating to the regulatory interview of our ultimate controller, our executive chairman and our chief executive officer by the relevant regulators and the recent changes in the Fintech regulatory environment. Consequently, the concurrent proposed H Share listing on the Main Board of The Stock Exchange of Hong Kong Limited shall also be suspended. Further details relating to the suspension of the H Share listing and the refund of the application monies will be made as soon as possible.” (ANT GROUP CO., LTD.)

Ant Group has made it clear it still intends to launch an IPO, preferably before the Chinese New Year, but analysts suspect they may need to do so under stricter capital requirements that will be set by the Chinese regulatory authorities or that it may need to sell its microlending business to do so.

Zambia a proving ground in Africa’s debt crisis


Bill O’Brien, Editor

The Economist

Zambia’s debt negotiations with China have largely been behind closed doors, garnering distrust among Zambia’s retail investors.

Last week the Collegian covered the ongoing debt crisis in Africa that has been fueled by Chinese loans, which make up about a third of debt loads in numerous key struggling countries. Chinese lending practices have been judged differently across the board, with U.S. officials calling out the Chinese government for a practice called “debt-trap diplomacy,” a foreign policy strategy in which a lending nation uses looming default on debt to seize strategic assets from the borrowing nation as collateral. Others reject that theory, citing that China lacks a history for seizing assets over debt defaults but rather provides relief and restructuring options to the nations they lent to. For some nations, that debt crisis is coming to a heel. Zambia, a nation that owes a third of its debt to China, is currently in talks with holders of $3 billion worth of Zambian eurobonds. Zambia has already stated that, unless it is granted an interest payment holiday, a request that will be voted on next week by its eurobond holders, it will not be able to service its bonds. A core group of the eurobond holders have already rejected the proposal.

Owing a third of its debt to China, Zambia will undoubtedly have to address how it is going to service its loans from the economic superpower. With about a dozen other nations in talks with China for debt relief, Zambia will be a testing ground, setting a precedent for how future debt negotiations may go. A key part of Zambia’s debt management strategy is to garner relief from the World Bank and the IMF, organizations that have already begun working to stabilize the African debt crisis but fear their efforts may not be enough. The World Bank has already called for an additional $25 billion in relief funding for the world’s poorest nations on top of a debt-relief initiative the Group of 20 just renewed.

To make matters worse, Zambia has been running into roadblocks earning the good faith of their eurobond holders. They have isolated their talks with China, and conducted negotiations with the People’s Republic behind closed doors, spurring distrust of its retail lenders. Its eurobond holders and retail investors are concerned that China is seeking to gain more favorable loan restructuring terms in closed negotiations and have expressed extreme caution in coming to terms with a deal until China comes to the table with them.

In the next couple of months, Zambia will be heavily reliant on relief coming from organizations like the G20, World Bank and the IMF, and they will have to strike a deal with their debt holders before their inevitable default. Conducting transparent talks with China will be key to earning the good faith of their retail bondholders, including the eurobond holders that vote next week on whether to give Zambia an interest payment holiday.

Special Purpose Acquisition Corporations: Innovation in IPO Markets

Business, Uncategorized

Bill O’Brien, Editor


Special Purpose Acquisition Companies (SPACs) have been fueling IPO markets in recent months, generating buzz around the investment vehicles that have been around since the 1980’s.

There are sharks in the water in today’s markets, and no, I don’t mean that there are savvy investors with gills making trades from coves below sea level. In recent years, SPACs, or special purpose acquisition companies have taken on a much larger role in market participation and the initial public offering (IPO) scene than they have in previous years. SPACs themselves are actually quite an intriguing investment vehicle. Special purpose acquisition companies, essentially, pool money from investors, whether it’s from institutions or the general public, and use that pooled capital to acquire a stake within a company and bring it to the public market through a merger. SPACs provide companies with an alternate and “fast-tracked” means of gaining access to public funds.

Investment bank Goldman Sachs has had a lot to say about SPACs in recent months. Olympia McNerney, a member of Goldman’s equity capital Markets and alternative capital markets group in New York, spoke on the bank’s podcast, “Exchanges at Goldman Sachs” to talk about the trend. “Right now there are about 100-plus SPACs that are on the hunt for acquisition and to frame that in terms of dollars, that’s about $30 billion dollars of capital on the hunt to bring companies to bring companies into the public market.” That figure is further amplified by SPACs proclivity to make leveraged acquisitions so, in Olympia’s words, “that $30 billion, think of it as probably $150 of market cap that SPACs are on the hunt for, so a very very large number.” In discussing what is driving SPAC popularity with investors, Olympia discusses a number of reasons.

Evolution in the “profile” of the investment vehicle over “not just the last 2 to 3 years” but even over the last “6 to 12 months,” growing comfortability among institutional investors in understanding the economics of SPACs and SPAC economics becoming “more friendly” for the market makers invested in them and the companies looking to merge with them are just a few. Also discussed in Goldman’s podcast were the unique pros to working with a SPAC instead of having an IPO for a company. A potentially faster path to public markets, potentially more certain valuations around the company, and potentially more proceeds than an IPO could deliver, especially in today’s climate are pros Olympia cited as well

To Olympia’s point, SPACs are gaining traction in the world of high finance. Bill Ackman, founder of hedge fund Pershing Square Capital Management and notorious Valeant Pharmaceuticals investor, founded his own SPAC this year, Pershing Square Tontine Holdings. It is currently the largest SPAC ever founded at $4 billion. The popularity is not surprising, as the IPO market experienced a lull due to pandemic-related market volatility, and we are not out of COVID-19 waters yet. SPACs are inherently more resilient to broad market sentiment considering the investors they attract, so they can create great opportunities for corporations looking to go public during an economic downturn.

Special purpose acquisition companies are becoming more popular in the investment community and are innovative instruments in the IPO market. What were once transactions that were exclusive to private equity funds are now open to the general public, along with the prospect of the lucrative returns they can bring. In a world with increasingly suppressed yield fixed income markets and high price-to-earnings equity markets, these kinds of instruments will likely become more popular to both the institutional investor and retail investor alike.

ESG investing: a path to a resilient portfolio


Bill O’Brien, Editor

Goldman Sachs

Photographed above is Goldman Sachs Senior Advisor Steve Strongin. As the former head of Goldman’s Global Investment Research Division, Strongin has lead Goldman’s research efforts on ESG investing.

Markets are rapidly evolving in nature, especially in today’s climate as they continue to reel in volatility amid a global pandemic. No one can deny that COVID-19 has been a catalyst for drastic change in society and markets, but it is important for investors and people to see that it can catalyze positive change as well. One trend we are looking at moving forward is how investors embrace environmental, sustainability and governance (ESG) investing. Wall Street’s sentiment on ESG investing ranges from stark pragmatism to optimism and hopefulness depending on what financial institution you are asking. 

Earlier this summer, Goldman Sachs covered the topic on their podcast, “Exchanges at Goldman Sachs,” where they cover trends shaping markets. The episode, titled “Sustainable ESG Investing: Turning Promises into Performance,” featured Steve Strongin, a senior advisor at Goldman and former head of its Global Investment Research division. Strongin outlines a report he and his team drew up on ESG investing, outlining a pragmatic viewpoint on how investors should shape their ESG investment strategies. One of the first points he makes is how investors need to think long-term in regards to generating return from ESG-centric strategies. The key idea behind ESG investing is when companies care about the environment, diversity and, overall, how their company is governed, then they will be able to take advantage of greater opportunities in the future and the seizing of those greater opportunities is what garners return in the long haul. Strongin specified that investors should expect a liability of no less than three years, with the possibility of needing to extend that liability based on market conditions. 

Perhaps the most interesting point Strongin made is that people mistake ESG as more of a “bumper sticker” than an investment style, in that they do not view it pragmatically enough: “[People think that] as long it’s on the right side of history, it’s supposed to be a good investment — the world isn’t that kind.” Instead, he brought up carbon as an example of how investors should view ESG as a style of investing. According to Strongin, someday, within the next 5 to 10 years, we will end up with a price of carbon, within the regulations, that will set the “efficient frontier” for addressing climate change. Opportunities investors should look out for are investments that can help companies operate in regulatory environments that are more focused on climate change; for example, a tech company that helps automakers decrease the carbon emissions of their vehicles. 

BlackRock’s “The Bid” lends a different perspective on how sustainability should be factored into investment decision-making in a post-COVID world. Host Mary-Catherine Lader, in the episode titled “Can sustainability accelerate economic recovery?”, brings together some of the brightest minds in the ESG investment space to discuss how ESG investing can spur an economic recovery after the pandemic, which caused massive economic contractions across the globe. Globally, $12 trillion dollars is being injected into the global economy and, as a society, we can use that money to shape markets around sustainability or revert them back to a “business-as-usual, highly fossil fuel driven economy.” Guests on the show made it clear that there is a great opportunity ahead, in large part due to COVID-19, to change course toward sustainability. Guest on the show, Fiona Reynolds, CEO of Principles for Responsible Investment, discussed how people are now beginning to understand how interconnected issues are throughout the world — “if you don’t have healthy people, and you don’t have a healthy planet, then you can’t possibly have a healthy economy. The three things go together.” What this should mean for the investment industry is clear: ESG, or lack thereof, poses risk to markets and participants investing in them. Peter Bakker, CEO and President of World Business Council for Sustainable Development (WBCSD), echoed this sentiment and took it a step further, stating that investors need to begin factoring in companies’ performance in sustainability into its cost of capital.

It sounds far-fetched, but his rationale is based on the assumption that Steve Strongin of Goldman Sachs spoke about: companies that care about the environment, diversity and, overall, how their company is governed, will see higher returns in the long-run and, if we accept this to be correct as it is becoming the overwhelming consensus, we should find ways to price companies based off of their performance in ESG. Financial institutions are beginning to see this as reality more and more but, as guests on “The Bid” later discuss, convincing individuals has been the latest hurdle in convincing the world that ESG investing is an incredible investment opportunity and not just an obligation that must be fulfilled on behalf of all mankind. Guests on the show all agreed that acting as soon as possible is imperative to avoiding the costs that will be incurred for not paying mind to sustainability in our environment and our society. They suggest that, in order to convince policymakers to jump in on that action, the data we use to measure sustainability impact still needs to come a long way. The reality is the more case studies that can be used to demonstrate where sustainability created a value add-on for a portfolio and for markets, the more likely individuals of our society will jump onto the ESG train and pressure their elected officials and other policymakers to do the same.