Basso Capital Management has been especially bullish of late on SPACs, or special purpose acquisition companies.
In the past few weeks, the hedge fund firm best known for investing in convertible securities recently took sizable positions in at least four SPACs, also known as blank-check companies. All of the investments were made by the firm’s little known, small Basso SPAC fund, which launched in 2011 and is possibly the only hedge fund that is a pure-play in this market.
Basso, founded by Howard Fischer in 2003, had more than $1.3 billion under management as of March 1, according to a regulatory filing. It is not clear how much money is invested in the Basso SPAC fund, which holds positions in equities, warrants, rights and units. A sizable part of Basso Capital’s $525 million U.S. equity portfolio at the end of June was comprised of various securities issued by SPACs, a separate filing shows.
SPACs, generally sponsored by private equity firms, have no assets. They are created to do deals, such as an acquisition, a merger, or other corporate event. After a deal is completed, the investor receives shares of the new company.
Hedge funds like SPACs because they have a finite life of 18 months to 24 months and provide a minimum return of their initial capital before any deal making. That’s because when a SPAC completes an initial public offering, the proceeds are kept in a trust. So, even if the SPAC fails to do a deal, investors can’t lose their initial investment.
Investors in the SPAC receive a unit consisting of stock and warrants when the black-check company goes public. The warrants, which have a five-year life if a deal gets done are essentially free bets that the new operating company will become successful.
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“This is an incredibly interesting market,” Fischer said in a phone interview. “It’s about the downside protection and upside opportunity. It is a way to partner with awesome smart people and you don’t have to pay them.”
In recent years several well-known hedge fund firms have at times invested in SPACs, including Davidson Kempner Capital Management, Highfields Capital Management, Millennium Management, BlueMountain Capital Management, JANA Partners, and Fir Tree Partners.
In any case, on Friday Basso disclosed that as of August 17 it nearly tripled its stake in Draper Oakwood Technology Acquisition to 5.1 percent. The SPAC states that it plans to do a deal with a private technology company that has an enterprise value exceeding $200 million and backing from institutional venture capitalists. The SPAC went public in September 2017.
Basso also recently raised its stake in MTech Acquisition Corp. to 6.4 percent. The SPAC, which began trading on January 30, said it plans to search for companies “ancillary to the cannabis industry,” with a focus that includes compliance, business intelligence, brand development, and media.
The hedge fund firm also said this month that it owned 5.1 percent of LF Capital Acquisition Corp., which went public in June. The company says it is searching for a business in the commercial banking and financial technology industries. Basso did not own any shares of the SPAC as of June 30, according to its most recent 13F filing.
Also this month, Basso said as of July 18 it boosted its stake in Hennessy Capital Acquisition Corp. III to 5.1 percent. The company, which went public in July 2017, said at the time it plans to build an industrial manufacturing, distribution or services business.
In June, Hennessy announced a deal to acquire NRC Group, a provider of environmental, compliance and waste management services to the marine and rail transportation, general industrial and energy markets.