The Role of SPACs in Endowment Portfolios

By Andy Daly, SEI June 17, 2021 June 29th, 2021 Blog Post

Special Purpose Acquisition Companies (SPACs) continue to garner significant negative press and have delivered poor returns, in aggregate, for longer-term investors such as college and university endowments. However, the significant benefits of the SPAC structure applied to a range of constituents most likely means SPACs will continue to grow in popularity for the near future. In response, it is critical for college and university endowment trustees to understand the nuances of SPACs, how they fit into their portfolio and some of the key risks and potential benefits associated with the SPAC structure.

A Special Purpose Acquisition Company (SPAC) is a company with no commercial operations formed strictly to raise capital through an initial public offering (IPO) for acquiring an existing company. SPACs were a once small and neglected area of the market that have become increasingly popular over the last two years.

Since the creation of the first SPAC in 1993, the issuance of new SPACs was extremely limited and issuance sizes were small. Beginning in 2017, the issuance of SPACs starting to see significant increases and then dramatically accelerated starting in 2020. As of April 2021, SPAC issuance this year has already exceeded last year’s total issuance in terms of the number of initial public offerings (IPOs) and proceeds raised. As a result, SPACs have become the dominant form of how private companies go public versus the historical IPO process.

Boards and investment committees for endowments often contain wide ranges of experienced professionals with high levels of knowledge of complex investments. As a result, endowments have historically been on the cutting edge when it comes to incorporating alternative investments into their portfolios. As SPACs continue to evolve in structure and overall use, it is important for endowment trustees to understand the investment opportunities and risks when it comes to these investment vehicles. Find out more by reading the complete paper at seic.com/knowledge-center/spacs.

This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). Investing involves risk including possible loss of principal. There can be no assurance that your investment objectives will be achieved nor that risk can be managed successfully. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds and bond funds will decrease in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.

Andy Daly, CFA is Managing Director at SEI Institutional Group.

With Thanks to AGB Sustaining Champion: SEI Institutional Group

Andy Daly, CFA
Managing Director
SEI Institutional Group
jadaly@seic.com

Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.