This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Hedge Funds Find Arb Opportunity in SPACs

Stocks in this article: TCW LIA

"Typically, it would be priced at $10 and trade at about $10," says Danics. "It wasn't a typical IPO where it's priced at $10 and can trade at $7."

Beginning in 2005, SPACs trading on the open market became flooded with funding from hedge funds and institutional investors. That boom ended as the financial crisis heated up last year -- creating a strange but immensely profitable scenario in an ordinarily sleepy market.

For example, recently an investor could purchase a share of Advanced Technology for $7.73, which carries an implied yield of 15.4% if held to maturity, according to investment bank Morgan Joseph. The maturity comes to pass in just over two months, when Advanced Technology is scheduled to submit a letter of intent on June 22. At that point, shareholders will vote on a deal, if announced, and be eligible to receive their portion of Advanced Technology's assets.

"SPACs became interesting because just like any of these kinds of closed-end funds, some of them are very compelling and trading at such huge discounts to net-asset value," says Andrew Schneider, managing partner and founder of HedgeCo Networks. "You can get in right now in some of these at 50%, 60%, 70% discounts to NAV -- even computed in a conservative fashion."

But the SPAC window of opportunity may soon be closing. HedgeCo has consulted about 10 new hedge funds with $500 million in assets dedicated to SPAC arbitrage and other closed-end fund strategies. AQR Capital -- a Greenwich-based alternative investment firm with $20 billion under management -- is one such company, whose diversified arbitrage mutual fund launched in January.

2 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs