MR MONEY MAKER: Don’t lose cash, know your spivs from your spacs! That’s a Special Purpose Acquisition Company to you and me
Forgive me if I depart from my weekly advice on what to do with your hard-earned cash, and highlight one thing not to do.
Those of us of a certain age will recall Private Walker in Dad’s Army, the caricature wartime Cockney spiv who, for the right price, could get you whatever you needed – legal or otherwise, and mostly otherwise. What then is a Spac?
First some history. Back in the early months of 1720, a raft of new companies were floated on London’s burgeoning stock market, which was mostly operating in coffee shops around the Royal Exchange and Exchange Alley.
Be on your guard: For the moment Spacs look far too much like the old spivs
In fact, you can still see the site of the first one, which was called Jonathan’s. This was the era of the South Sea Bubble and other such scams. The most commonly quoted of these ventures was a ‘company for carrying an undertaking of great advantage, but nobody to know what it is’.
Sadly this description did not apply to a real company and was actually just a myth. But it highlighted very well the madcap ventures set up to part fools from money.
Why Does It Matter?
That was history and now we have a (largely) well-regulated market with professional advisers. That idiotic investment offering would never be tolerated today. Now let me introduce you to a ‘Spac’, or Special Purpose Acquisition Company. This is an investment firm designed to invest in, well, something, somewhere at some time. So could we really be so foolish as to repeat the failings and stupidity of something like the infamous South Sea Bubble?
When you look at the number of Spacs in the USA and now coming to the UK, the answer would seem to be – yes!
What Should I Do?
I was always taught by my elders and betters in the investment world that the first rule of money was clear – do not lose the stuff! Rule 2 – refer to Rule 1.
These companies have been designed for the primary benefit of their founders and private investors would only benefit from what might be left.
The London Stock Exchange is considering adjusting its rules to encourage more of these to float in the UK as they have proved very popular in the US.
You are in effect being asked to invest alongside venture capitalist funds, but you will have no idea where your money is going and when you might get it back.
There are going to be some great opportunities in markets this year and not just on the main London Stock Exchange.
For the moment these Spacs look far too much like the old spivs – but at least I knew what I would be getting from Private Walker, even if they were only silk stockings!
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.