Charlie Munger, vice chairman of Berkshire Hathaway and long-time partner to Warren Buffett, said on Wednesday that he has avoided the speculative interest surrounding special purposes acquisition companies (SPACs), and urged other traders to consider doing the same.
"I don't participate at all. And I think the world would be better off without them," the 97-year-old billionaire investor said. "I think this kind of crazy speculation in enterprises not even found or picked out yet, is a sign of an irritating bubble."
SPACs (Special Purpose Acquisition Company), or blank-check companies, had a banner year in 2020, raising a record more than $82 billion during the year as Wall Street tycoons and celebrities opted for the unconventional means of bypassing the traditional IPO process. And this momentum has continued into 2021, with SPACs already having raised more than $45 billion so far this year.
SPACs themselves have essentially no commercial operations, but are instead created to raise funds to later acquire a private company to bring it public. Companies from Nikola (NKLA) to Virgin Galactic (SPCE) and DraftKings (DKNG) made their public debuts via SPAC, and some other SPAC mergers including that of electric car-maker Lucid Motors are on the horizon. The $4 billion initial public offering of billionaire investor Bill Ackman's Pershing Square Tontine Holdings SPAC represented the largest SPAC offering last year, but has yet to identify a target for acquisition. And athletes, celebrities and politicians from baseball star Alex Rodriguez, to musician Ciara, to former U.S. House Speaker Paul Ryan have formed or backed SPACs.
However, for all their popularity in recent months, SPACs have not been without their risks and critics. Shares of dozens of the largest SPACs have lagged those of companies that went public by traditional IPO, and can include terms that benefit the SPAC founders more so than individual shareholders.
"It's just that the investment banking profession will sell s— as long as s— can be sold," Munger said.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: