Hedge Funds Find Arb Opportunity in SPACs

Hedge funds have found their latest arbitrage opportunity in SPACs, the once-trendy investment beaten down last fall as the fast money set liquidated their holdings, but the window of opportunity could be closing.

Special Purpose Acquisition Companies, or SPACs, are companies whose managers raise funds for an acquisition of an indeterminate private company. SPAC shares, which are priced anywhere from $6 to $10 apiece and whose funds are held in cash-like securities such as Treasury bonds and money-market funds, saw a sharp dislocation in their prices and yields since the fall.

As hedge-fund investors demanded their money back, arbitrage funds and others that used SPACs as a cash-like hedge were forced to liquidate holdings, driving prices into the ground and driving up yields to as high as 15% or 16% last October. ...