SPAC means Special Purpose Acquisition Companies which are also known as blank check companies that collect cash from investors for the purpose of investing in a certain industry.
SPACs, in line with private equity firms, have a general manager who creates the SPAC and raises capital to make an acquisition through an initial public offering. But, no one knows in advance what exactly they will buy or where they will invest.
The reason for the popularity of SPAC and cryptocurrency is the vast influx of new investors into the stock market since investing has become much easier. By pressing a couple of buttons, you are investing, and for Gen Z, it’s some kind of new entertainment.
However, SPAC investing has been less profitable for individual investors. Most SPACs underperform when compared to the stock market average and eventually fall below the IPO price. This investment is extremely risky and speculative.
Of course, you can invest in SPACs. But only with a clear understanding of what exactly you are doing and why. You need a certain strategy and, preferably, the help of a professional.
Evgeny Pundrovskiy, CFA, Director of Investment Department UFG Wealth Management
