Thomas Kirchner invests in SPACs as manager of the Pennsylvania Avenue Event-Driven Fund, and noted the trend in his blog in January. Kirchner says opportunities have largely disappeared, as dollars chasing the strategy exceed the opportunities, especially with fewer funds available to invest in. "You could buy SPACs last year at 15% discounts to their liquidation values," Kirchner says in an email. "Now, you're lucky to get annualized returns of more than 5% on that strategy." Still, the strategy hasn't gotten as much attention as another popular arbitrage strategy that hedge funds have been using, which involves bets on the debt and equity of major financial institutions like Citigroup ( C), AIG ( AIG), Bank of America ( BAC), Wells Fargo ( WFC) and JPMorgan Chase ( JPM). But some top SPACs like Victory Acquisition Corp. ( VRY), Triplecrown Acquisition Corp. ( TCW) and Liberty Acquisition Holdings Corp. ( LIA) have received more liquidity as more funds became interested in the trade. The trend has rendered SPAC warrants nearly worthless, leaving investors with dwindling opportunities to buy SPAC shares at big discounts. With all the sideline cash flooding into the relatively small market, it may not be long before yields shrink to nil. "At some point," says Tina Pappas, a managing director at Morgan Joseph, "arbitrage opportunity disappears when everyone finds out about it."