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SPAC Definition

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The strategic SPAC serves a similar purpose as VC.
Photo by Markus Winkler

SPACs (Special Purpose Acquisition Companies) have become an attractive investment vehicle during the recent Covid-19 crisis, the number of SPAC IPOs in 2020 has doubled compared to 2019.

SPACs raise capital through the traditional IPO way to acquire a privately held company.

Why SPACs are Attractive?

SPAC sponsors are the big winners of the recent boom, receives 20% of the shares of the SPAC as “founders shares”.

Many SPAC sponsors are well-known in their field, institutional investors (pension funds, hedge funds, mutual funds) have long invested in SPACs.

The strategic SPAC serves a similar purpose as VC (venture capital), becoming a typical pitch for the tech companies searching to go public quickly.

SPAC Procedure

A SPAC deal is appealing to some companies to the traditional IPO because of speed and strategic partnerships.

The traditional IPO takes years to complete but the SPAC sponsor typically has 24 months to acquire a company, raise capital and go public.

The capital raised from the SPAC IPO is placed into a trust account until the shareholders approve the acquisition.

Shareholders may vote against the acquisition and redeem their shares.

The sponsors can promote the SPAC deal to institutional investors for additional funds by PIPE (Private Investment in Public Equity) transaction – called De-SPAC’ing process.

Warren Buffett found PIPEs are attractive because they could buy shares or securities at a discount rate.

In recent times, Wall Street investment banks are heavily involved in the PIPE deal as placement agents.

Successful SPAC IPOs

Virgin Galactic Holdings (SPCE) founded by Sir Richard Branson went public via a SPAC IPO in 2019 has appreciated 146% returns in the year.

Pershing Square Capital Management founded by hedge fund manager Bill Ackman, raised a $4B SPAC in 2020 — the largest SPAC to IPO to date.

SoftBank, the world’s largest tech-focused VC firm, distributes $100M+ rounds to smaller private companies in a wide range of sectors.

References:

  • The fast track IPO – Success factors for taking firms public with SPACs – papers.ssrn.com
  • EMERGING TRENDS IN THE SPECIAL PURPOSE ACQUISITION COMPANY MARKET: IMPLICATIONS OF FRONT-END IPO UNDERPRICING – repository.tcu.edu
  • How special purpose acquisition companies (SPACs) work – pwc.com
  • SPAC Research – spacresearch.com
  • A SPAC is a high-risk but potentially profitable way to get in on the ground floor of a new stock — here’s everything investors need to know – businessinsider.com
  • Almost everything you need to know about SPACs – techcrunch.com
  • What Is A SPAC? – cbinsights.com
  • Special Purpose Acquisition Company (SPAC) – investopedia.com

Berkshire Hathaway Annual Letter 2020

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Photo by AARON BURDEN

Over the last 40 years, Warren Buffett releases his annual letter to Berkshire Hathaway shareholders, become required to read across the investment community.

Berkshire’s Class A stock, the most expensive share price of any company in history costing $330,000, has increased by more than 2,700,000% since 1965.

Mr. Buffett has been the CEO and chairman of Berkshire Hathaway since 1970, the longest-term CEO in the S&P 500.

What He’s Saying

1. Stock Repurchase – In 2019, Berkshire spent $5 billion on repurchasing its stock, about 1% of the company.

2. Succession Plan – Mr. Buffett told shareholders that Berkshire is “100 % prepared” for the day that he and his business partner Charles Munger will leave the scene, and in the meantime has no plans to retire anytime soon. Ajit Jain and Greg Abel have been speculated as potential successors.

3. Insurance Success – Berkshire praised Jain’s 2012 $221 million purchase of GUARD Insurance Group, based in Pennsylvania. In 2019, GUARD had a volume of $1.9 billion, surged 379% since 2012, and the revenue float by 265%. A ridiculously rare insurance record.

4. Big Acquisitions – “Elephant-Gun”, Mr. Buffett’s favorite description of that $128 billion cash hoard. Berkshire did not make a major acquisition in 2019, marking the 3rd year in a row. Saying, volatile market prices were preventing him to buy large positions in publicly-traded companies that meet his standards.

Mr. Buffett is still on the hunt for big acquisitions that meet 3 criteria.

  • 1st, the business must earn good returns in their operation.
  • 2nd, the business must be run by able and honest managers.
  • 3rd, the business must be available at a sensible price.

5. Berkshire Hathaway Energy (BHE) – BHE is now supplying Iowa wind power, will be 100% “wind self-sufficient” by 2021.

6. Berkshire’s Newspaper Holdings – The sale of Berkshire’s newspaper holdings, was a sign that Mr. Buffett gave up on the news business.

References:

  • Buffett talks investing, takeovers and ‘Dancing with the Stars’ in letter – here are highlights – cnbc.com
  • 26 Lessons From Warren Buffett’s Annual Letters To Shareholders – cbinsights.com
  • Read Warren Buffett’s annual letter to Berkshire Hathaway shareholders – cnbc.com
  • Warren Buffett Praises Performance, but Offers No Surprises in Annual Letter – nytimes.com
  • Here are the biggest takeaways from Warren Buffett’s annual letter – markets.businessinsider.com
  • Warren Buffett releases annual letter, reassures investors about future of Berkshire Hathaway – axios.com
  • 6 Big Surprises From Warren Buffett’s 2019 Shareholder Letter – fool.com

Hedge Fund Giant is Shifting to Green Radical

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Hedge Fund Giant is Shifting to Green Radical
Photo by Johannes Plenio

London-based hedge fund manager Sir Christopher Anthony Hohn has a reputation for an aggressive activist investor, fighting against global warming and committed to reducing carbon pollution.

The founder of TCI Fund Management now manages $30 billion AUM, became one of the industry’s successful hedge funds, and posted a strong performance in 2019.

Due to his concerns over climate change, Hohn took his corporate activism in a new direction, saying he would shake up corporate boards to comply with environmental transparency and disclose their carbon dioxide emissions.

If they failed to do so, he says “he’ll dump their shares or oust their boards.”

He wants banks to stop lending to corporates that ignore climate change as well.

Hohn’s approach to tackling the global warming crisis is to take power away from regulators and into the hands of investors.

Hohn explained, “Investors should fire asset managers that do not disclose their carbon dioxide emissions, and should use their voting power to force change on companies who refuse to take their carbon pollutions seriously”.

Hone’s campaign is finally shaking up the whole asset management industry, and this movement falls in step with BlackRock’s announcement to ban fossil-fuel stocks.

References:

  • The World’s Most-Profitable Hedge Fund Is Now a Climate Radical – bloomberg.com
  • The most profitable hedge fund in the world is going green – thehill.com
  • Billionaire Chris Hohn Becomes A Hedge Fund Giant – forbes.com
  • Hedge fund goes climate radical – thestar.com.my

Innovative Industrial Properties (NYSE: IIPR)

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Innovative Industrial Properties (NYSE: IIPR) is the popular cannabis real estate investment trust (REIT).
Photo by Esteban-Lopez

Innovative Industrial Properties (NYSE: IIPR) is the popular cannabis real estate investment trust (REIT).

Their business strategy creates a highly predictable cash flow with reliable returns.

IIPR stock is remarkably transparent, as a REIT focused on purchasing income-producing real estate for the medical cannabis growing space.

IIPR stock is considered a conservative way to invest in the cannabis market, supported by the tremendous momentum of state legalization of medical-use cannabis in the US.

Recently, over 70% of IIPR shares were owned by institutional investors and hedge funds.

References:

  • Innovative Industrial Properties in 3 Charts – fool.com
  • Innovative Industrial Properties Stock Forecast: The Cannabis REIT – financhill.com
  • IIPR / Innovative Industrial Properties, Inc. – Institutional Ownership and Shareholders – fintel.io

Hedge Fund Definition

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Hedge funds are investment funds to generate absolute returns regardless of how the market goes.
Photo by Markus Spiske

Hedge funds, which are alternative investment funds, engage in a variety of strategies to generate absolute returns regardless of how the market goes.

Capital is pooled from accredited investors or institutional investors and managed with sophisticated portfolio structure and risk management techniques.

The global hedge fund industry’s AUM (assets under management) had risen to $3 trillion by 2015.