“Some investors would rather drink rat poison than be identified with Mr. Trump,” Erik Gordon, a professor at the University of Michigan, told DealBook. But others may not be willing to put purpose over profit. (One Digital World backer told The Financial Times that the investment was one of the best they had ever done.) “Other investors will remember the following he had on Twitter and see 12-story-high dollar signs,” he said.
Boaz Weinstein said selling out of a SPAC working with Donald Trump was “the right thing” to do.Heidi Gutman/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images
Not playing the Trump card
News that Donald Trump was bankrolling a new media venture through a SPAC deal sent shares in the blank-check fund soaring some 350 percent. Much of that probably came from individual fans of the former president plowing into the vehicle, Digital World Acquisition. But at least one of the SPAC’s backers, a major hedge fund, pulled out over the Trump connection, and the question now is whether others will follow suit — or chase potential profit.
The hedge fund mogul Boaz Weinstein wanted out once news of the Trump deal emerged. He placed a sell order on all of the unrestricted shares in Digital World that his firm, Saba Capital, owned yesterday morning, though Saba still owns some restricted stock that it can’t sell for six months.
Saba sold its holdings in the first hours of trading, making a small profit — but before Digital World’s shares shot up, missing out on a huge gain. Weinstein said in a statement: “I knew that for Saba the right thing was to sell our entire stake of unrestricted shares, which we have now done.Many investors are grappling with hard questions about how to incorporate their values into their work. For us, this was not a close call.”
Some context: SPAC investors have no clue what the fund will try to buy. Blank-check funds aren’t allowed to disclose prospective takeover targets. But hedge funds have become fans of SPACs in hopes the management team will scout out a good investment — or, at least, because they’re good places to park their money while interest rates are low.
What will others do? Investment funds have become increasingly outspoken about environmental, social and corporate governance issues, and some have even adopted so-called E.S.G. as a central business strategy. And associations with Trump have become a lightning rod for many in corporate America and on Wall Street, with several seeking to publicly distance themselves from him after the Jan. 6 insurrection at the Capitol.
ft.com
A group of 11 hedge funds including DE Shaw and Saba Capital earned millions of dollars in potential gains in a single day after a special purpose acquisition company that merged with Donald Trump’s new social media group rose as much as 421 per cent on Thursday.
The former US president this week launched a social media outlet called Truth Social that aims to compete against the likes of Facebook and Twitter, creating a platform for his rightwing supporters ahead of a potential run for office in 2024.
Shares in the Spac climbed from $9.96 to as much as $51.90. They eventually closed at $45.50, up by 357 per cent compared to the previous day.
In September, the hedge funds bought the initial public offering of a Spac named Digital World Acquisition Corporation, promoted by Patrick Orlando, a sponsor of three other Spacs who formerly traded derivatives at BT Capital Markets and Deutsche Bank.
Hedge fund investors owned nearly all of Digital World’s $293m IPO, which listed 25m units and offered generous incentives to investors participating in what was a poorly received deal. Investors in Spac IPOs have no way of knowing what company it will ultimately merge with and take public.
The deal with Trump has been lucrative. The 25m units from the IPO at times were worth more than $1bn on Thursday. Special incentives also boosted the gains.
Digital World granted each hedge fund 150,000 sponsor shares from the so-called promote of chief executive Orlando and his team at a price of $0.0029 per share, which they cannot sell until after the merger with Trump Media & Technology Group, the Truth Social parent company, closes. At an afternoon high of $51.90, those shares which cost $435, were worth $7.7m.
From the opening bell on Thursday, Digital World was among the most heavily traded stocks in the world, trading nearly 300m shares, or $5bn of volume by lunchtime.
“I assume it’s all retail that’s speculating in this and day trading it,” said Julian Klymochko, a Spac expert and founder of investment firm Accelerate Financial Technologies.
David Puritz of Shaolin Capital Management, a $1.1bn fund that owns just less than 10 per cent of Digital World’s shares, told the Financial Times that “there’s a lot of embedded convexity in the Spac product”, which means that his upside was almost unlimited but the trade held minimal potential for a loss.
“When you partner with the right sponsor teams that have a clear vision on their targets, good things can happen quickly,” Puritz added.
A large investor among the Spac’s IPO consortium called it one of the best trades in their career and said they were selling down their position. Hedge funds will typically sell their Spac units if, after a deal is announced, the stock skyrockets. DE Shaw declined to comment, while other hedge funds listed as investors did not respond to messages seeking comment.
One hedge fund investor who owned nearly 10 per cent of Digital World said he sold every share he could early Thursday morning, before the stock price really got moving.
“The idea that I would help build out a fake news business called Truth makes me want to throw up,” he said.
Craig Samuels, a San Diego-based investor who has been buying Spacs for more than a decade, said buying the Spac on Thursday morning was akin to “being in a casino, walking past the craps table, and throwing out some chips”.
The appeal, Samuels said, is that there is virtually no way to value Trump’s media business, which offered no financial forecasts in its presentation to investors.
“Who knows,” said Samuels, “we’ve seen AMC Entertainment go to $70 and GameStop go to $500?.?.?.?It’s an opportunistic play for momentum traders using Trump cult status to run the stock.”
Added Samuels: “Is it worth $5bn today? Doubtful. But it’s hard to quantify the value of the Trump brand.” |
