NEW YORK — Sept. 21, 2021 — CrossingBridge Advisors, LLC (“CrossingBridge”), an investment management firm specializing in ultra-short and low duration strategies, including special purpose acquisition companies (SPACs), today announced the launch of the CrossingBridge Pre-Merger SPAC ETF [NASDAQ: SPC].
Typically, SPACs are fully collateralized by U.S. government securities with a mandatory liquidation date within two years. SPC will purchase SPACs at or below collateral value with the intent of disposing of the shares prior to, or at the time of, a business combination. Consequently, CrossingBridge believes that a portfolio of pre-merger SPACs will provide investors with higher yields than other fixed-income products while significantly limiting downside risk.“SPC is a renter, not an owner,” said CrossingBridge’s Founder and Portfolio Manager, David Sherman. “In other words, we aim to capture the fixed income nature of pre-merger SPACs purchased at a discount-to-collateral value with a potential equity pop from shareholders reacting favorably to an announced deal. But we are not interested in being an equity investor post-business combination – that is a whole different ballgame.”
According to CrossingBridge, SPACs offer very similar characteristics to fixed income securities, which include:
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- SPACs have a liquidation date which is equivalent to a bond’s maturity date.
- SPAC common stock shareholders have a full-redemption right upon a business combination, similar to a change-of-control Put provision found in corporate debt indentures.
- SPACs are fully collateralized by U.S. government securities for the benefit of SPAC common stock shareholders to be released upon a redemption or liquidation. Hence, when an investor purchases SPAC common stock below its pro rata trust account value and holds the security to redemption or liquidation date, the investor will receive a positive yield, similar to a fixed income security’s yield to maturity.
- SPACs may have equity upside by participating in an attractive business combination. This upside is similar to a convertible bond with the added feature that SPAC investors may redeem their common shares for their collateral value rather than continue ownership post-transaction.
SPACs are not a new asset class for Sherman; he made his first SPAC investment over 15 years ago. Given the increased popularity and capital flowing into SPACs, Sherman has significantly increased the firm’s exposure to SPACs during the past few years. CrossingBridge believes the market is now large and liquid enough to effectively manage SPAC-dedicated strategies.
“Our guiding principle has been, and will continue to be, that return of capital is more important than return on capital,” emphasized Sherman.
