SPAC Bust Leaves Hedge Funds With Big Losses

In 2020, Special Purpose Acquisition Companies (SPACs) raised $83 billion from Wall Street, more than they’d raised in the past decade combined.

However, that figure was surpassed by a wide margin in 2021. Almost 800 SPACs filed for IPOs in 2021, raising $162.5 billion — more than half of the $300 billion raised since the financial crisis.

The structure of SPACs means they’re particularly attractive to hedge funds, as there are lucrative returns on offer for minimal risk.

The Hedge Fund Trade

SPACs, or blank check companies, raise money from investors with the goal of buying a private business and taking it public via reverse merger.

Investors are allocated SPAC units at $10 a piece before the company’s IPO. This money is then put into...