The Looming SPAC Meltdown [Forbes]
The SPAC boom of 2020 is probably the biggest Wall Street story of the year, but almost no one has noticed the quiet force driving this speculative bubble: a couple dozen obscure hedge funds like Polar Asset Management and Davidson Kempner, known by insiders as the “SPAC Mafia.” It’s an offer they can’t refuse. Some 97 percent of these hedge funds redeem or sell their IPO stock before target mergers are consummated…. Though they’re loath to talk specifics, SPAC Mafia hedge funds say returns currently run around 20%....
There’s only one loser in this equation. As always, it’s the retail investor, the Robinhood novice, the good-intentions fund company like Fidelity. They all bring their pickaxes to the SPAC gold rush, failing to understand that the opportunities were mined long before they got there—by the sponsors who see an easy score, the entrepreneurs who get fat exits when their companies are acquired and the SPAC Mafia hedge funds that lubricate it all.
Dow futures extend losses following Wednesday’s sell-off [CNBC]
“This is the perfect day that describes what we’re calling the ‘Covid air pocket.’ We have a linearity issue, which is that you can’t get there from here without going through a lot of bad news and some slowdown in the real economy,” Alicia Levine, chief strategist at BNY Investment Management, said…. Thursday morning will bring another look at how the labor market recovery is faring amid rising cases of Covid-19. Economists surveyed by Dow Jones expect the reading for initial jobless claims to come in at 710,000, roughly flat compared with the prior week.
Is the Traditional Christmas Nightmare for Funding Markets Over? [WSJ]
In recent years, short-term borrowing costs in U.S. dollars, particularly for investors overseas, have often surged in December as major banks rein in activity to prevent regulatory charges…. This year, the chance of a sudden blowup looks low. But with so much riding on a combination of central bank support and regulatory happenstance, the conditions that made it so could be fleeting. Christmas panic in dollar funding is likely to be canceled this year, but the tradition can’t be consigned to history yet.
Banks May Be Office Landlords’ New Problem Tenants [WSJ]
Public-sector tenants have been a bright spot for real-estate owners. Less exposed to the business cycle, they have doubled their usual share of overall leasing activity in Europe since the pandemic began, data from real-estate services giant CBRE shows. Tech companies’ share was 17.9%, in line with the average between 2012 and 2019…. Banks look far more cautious. Finance companies’ share of overall European leasing activity dipped to 9% during the second and third quarters, from their 17% average.
AQR to Liquidate Some Funds After ‘Persistent Outflows’ [II]
Next month, the alternative investment firm plans to shut down several liquid alternative mutual funds, including a multi-strategy alternative fund, high- and low-volatility funds, and a volatility risk premium strategy, and according to Securities and Exchange Commission filings….
Sources say AQR is shutting down funds because there hasn’t been enough demand from investors to justify the products. Indeed, the funds are small. According to Morningstar, the multi-strategy alternative fund, similar in strategy to AQR’s Delta hedge fund, had $33 million in assets. Delta had $1.2 billion as of September 30. The AQR Style Premia Alternative LV Fund had $39 million at the end of October, while the AQR Volatility Risk Premium Fund had $11.5 million, Morningstar said. Both are being liquidated.
Fannie, Freddie Should Hold $280 Billion in Capital, FHFA Says [WSJ]
The decision sets a high hurdle for the companies. Based on their combined size earlier this year, Fannie and Freddie would have to hold about $283 billion. At present, they hold roughly $35 billion and would need to make up the difference through a combination of retained earnings and possible future stock sales…. The FHFA is seeking to put the companies—which guarantee about half the $11 trillion mortgage market—on a sound financial footing before returning them to private ownership. It is unclear if there is enough time to carry out those plans ahead of the Jan. 20 inauguration of President-elect Joe Biden, who is considered unlikely to continue the effort.
China Borrows at Negative Rates for the First Time [WSJ]
The deal was worth €4 billion, the equivalent of $4.74 billion, and split between 5-, 10- and 15-year bonds. The 5-year bonds were priced late Wednesday to yield negative 0.152%, while the 10- and 15-year securities were sold with positive yields of 0.318% and 0.664%, respectively…. Public debt has ballooned around the globe as countries raise funds to fight the pandemic. Moody’s projects that China’s public-sector debt, including borrowings by governments and state-owned enterprises, will rise to 185%-190% of gross domestic product in 2020-2021 from 167% in 2019.
Beaten-up Paramount rejects buyout, but is taking offers [TheRealDeal]
“Our board and management team remain open-minded,” Paramount chairman and CEO Albert Behler said in a letter to Bow Street managing partners Akiva Katz and Howard Shainker.
Paramount, which has a market value of $2 billion, is much smaller than office behemoths like Vornado and SL Green Realty and could still be acquired.