High risk SPAC investments are once again spiking on Wall Street.
SPAC stands for Special Purpose Acquisition Company. These have been around for a while, but early in the pandemic they skyrocketed in number to new records.
SPACs are publicly traded. But they’re shell companies. They exist to merge with an existing company that’s private in order to take it public. It circumvents to slower IPO process.
I spoke to a number of experts in this area for a story on Marketplace. They told me that, for the most part, a lot of mom-and-pop investors – retail investors – lost money betting on these companies back in 2020 and 2021. The vast majority of SPACs were bad investments.
Now, they’re increasing in number – dramatically – once again, because Wall Street sees an opportunity. Investors are back looking for big gains, because stocks are already highly valued and it’s hard to find bargains or areas that are ripe for growth.
At the same time, there’s a lot of interest in specialized high tech fields right now, especially around artificial intelligence, new nuclear power technologies, cryptocurrencies and more.
So, SPACs are popping up in higher numbers again to offer investment opportunities quickly to investors looking for them.
But the experts I talked to said that despite recent regulatory changes, the main risks with SPACs are still there. The institutional investors, and SPAC sponsors that run the entities, are well positioned to benefit, but everyone else is taking a lot of risk by investing in SPACs.
One expert told me that it would make a lot of sense for retail investors to stand back and see which SPACs end up having successful mergers and which don’t.
In short: take your time before jumping in and know that these structures are often quite complex, and that it’s hard for everyday investors to know what they’re buying into early on.
InterArts Fresno 