CNBC: Blank check funds are hot but may be risky: ‘The trust level is through the roof’
CNBC, Feb. 17, 2021 — In today’s issue of CNBC, reporter Greg Iacurci@GREGIACURCI explains:
- SPACS, or special purpose acquisition companies, are a hot-ticket item on Wall Street. Retail investors are taking part in the frenzy.
- The number of SPAC IPOs quadrupled in 2020. They’re on pace to quadruple again in 2021.
- There are reasons for caution, according to financial experts. Investors seem to be chasing past returns and buying star power of managers like Bill Ackman, Shaquille O’Neal, Alex Rodriguez, and Colin Kaepernick.
He turned to Marguerita Cheng, CFP®, for insight:
“Just like with anything, there could be some risks,” said Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. “They’re not appropriate for everybody in every situation.”
As a result, investors won’t necessarily recoup everything. They’re entitled to $10 a share plus some interest. If they bought higher-priced shares on the open market — say, for $12 — they’d take a loss (around $2 per share, in this example). Shares in the combined entity may also fall below $10 when they start trading.