As SPAC Bubble Burst, Hedge Funds Doubled Their Holdings

Marshall Wace now owns the most SPACs, with $5.3 billion worth.

Marshall Wace is headquartered in London, UK (Hollie Adams/Bloomberg)

Marshall Wace is headquartered in London, UK

(Hollie Adams/Bloomberg)

The SPAC bubble burst last year, resulting in hedge funds holding $170.5 billion worth of special purpose acquisition companies — more than double what they owned at the end of 2020.

Hedge funds, nicknamed the “SPAC Mafia” because they are the dominant buyer of SPAC IPO shares and warrants, owned only $82.4 billion at the end of 2020, according to SPAC Research, a data provider.

The current glut of SPACs is, in part, due to the difficulty these blank-check companies have had in hooking up with merger partners. Almost 800 SPACs filed for IPOs last year, raising $162.5 billion — more than half of the $300 billion raised since the financial crisis of 2008, SPAC Insider reports.

But last year only 71 merger deals were announced, and just 53 completed. As the mania subsided, retail investors fled and SPACs fell back to their IPO price of $10 — or slightly below that — per share, prompting more hedge fund arb players to move into the market. Before a merger is finalized, SPAC owners are guaranteed their net asset value, typically $10 per share, if they redeem at that time. That’s also the case even if the SPAC ends up in liquidation, and many observers expect liquidations to increase as SPACs reach the two-year time limit they have to find a merger partner.

Marshall Wace is among those that bulked up on SPACs during the year. The London-based hedge fund is now the top SPAC owner among hedge funds, holding almost $5.28 billion — up from less than $1 billion at the end of 2020, according to SPAC Research. It bought almost $1 billion of SPACs during the fourth quarter.

Its biggest holdings include SPACs sponsored by private equity firms Apollo, KKR, and Fortress, as well as the latest offered by former Citi banker Michael Klein (Churchill Capital VII), former Goldman Sachs CEO Gary Cohen, and Bill Ackman’s Pershing Square Tontine Holdings.

Another big SPAC gainer among hedge funds is SABA Capital Management, which became the fourth-biggest SPAC hedge fund investor at the end of 2021. SABA bought $2 billion worth during the quarter to end the year with $4.26 billion in SPACs. At the end of 2020, it only owned SPACs worth about $81 million.

Millennium Management, which had been the top hedge fund SPAC investor for most of 2021, fell to second place, with $4.89 billion, an increase of only about $400 million during the year.

Citadel ranked third, with $4.31 billion, up from $1.37 billion at the end of 2020.

Meanwhile, Glazer Capital — which had been one of the top three players last year — sold almost $2 billion worth during the last six months of 2021. Glazer ended 2021 with a little under $3 billion in SPACs, compared with $4.82 billion at the end of June. It fell to eleventh place in the SPAC ownership ranking.

Other top SPAC-owning hedge funds at yearend include D.E. Shaw, with $4.25 billion; Magnetar Financial, with $4.25 billion; Aristeia Capital, with $3.78 billion; Periscope Capital, with $3.59 billion; Radcliffe Capital, with $3.04 billion; and Sculptor Capital, with $3 billion.