SPAC's Wipeout Is Punishing Chamath Palihapitiya's Followers.
Chamath Palihapitiya, who was the face of the SPAC frenzy that engulfed financial markets earlier this year, is now the face of the bust.
Since the market peaked in mid-February, all six of Palihapitiya's Social Capital Hedosophia-linked blank-check firms, including three that have already merged, have fallen more than the wider SPAC market. One of them — Richard Branson's Virgin Galactic Holdings Inc., a space travel company — is down more than 50%. Both of these losses exceed the average decline of 23% in SPACs over that time span, as determined by the IPOX SPAC Index.
The demise of special purpose acquisition companies – bizarre financial structures that played a niche position in markets prior to the recent boom – occurred as part of a wider market-wide cooling of speculative mania. Just a few weeks before, the meme stock fever had finally subsided. Likewise, in penny stocks. Too much supply is one of the factors that contributed to the rise of SPACs. Each week, dozens of new offers – many of them crafted by celebrities – hit the market.
Days before the rout started, Palihapitiya, a 44-year-old venture capitalist with a penchant for self-promotion, declared himself on track to be the generation's Warren Buffett. Buffett said in a Feb. 8 Bloomberg "Front Row" interview, "Nobody is going to listen to Buffett." “However, there must be those who pick up the mantle.”
Requests for comment from Social Capital went unanswered.
To be fair, nearly all of Palihapitiya's SPACs have maintained a positive performance since their market debuts.
Palihapitiya distanced himself from Virgin Galactic, which was established as a result of his initial merger. He sold shares worth approximately $213 million in March to finance what he described as an upcoming investment to assist in the fight against climate change.
The selling occurred less than a month after he stated that he would sell shares in any of his SPACs only in the most exceptional circumstances.
“If I could really go for it, I would never sell a share of something I believe in,” he said during the "Front Row" interview. “However, like anyone else, I sometimes run into liquidity constraints.”
To Palihapitiya's credit, only Clover Health Investments Corp. is currently trading below the $10 unit price at which it was released. Its demise was precipitated by the company's announcement that the Securities and Exchange Commission was investigating a report accusing the health insurer of misleading investors during its initial public offering. Clover Health shares rallied 20% on Friday as chat rooms and social media boards identified the company as a possible target for a short squeeze.
The former executive at Facebook Inc. became the face of the SPAC revival. He earned more than $4 billion from blank-check firms by using his oversized personality to promote his investments and tout his financial acumen on Twitter.
Palihapitiya's SPACs have been among the worst bets for investors who choose to align with a Silicon Valley veteran at the height of a frenzy over the cadre of celebrities, athletes, and politicians who jumped into the room. His three open SPACs are all in the bottom 20% of the market's return distribution after the market's peak.