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Exclusive: Accelerate CEO On SPAC Arbitrage, Why You Can't Always Bet On SPAC Sponsors

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Exclusive: Accelerate CEO On SPAC Arbitrage, Why You Can't Always Bet On SPAC Sponsors

Julian Klymochko, the CEO and founder of Accelerate, joined Benzinga's "SPACs Attack" YouTube show to discuss the concept of SPAC arbitrage and a look at the SPAC market.

About Julian Klymochko, Accelerate: Klymochko worked at Ross Smith Asset Management, BMO Capital Markets and other funds before creating Accelerate in 2018.

Klymochko said he used to make rich people richer and decided to launch funds for everyday investors with hedge fund ETFs. Klymochko designed the strategies for the four Accelerate Fund ETFs.

The Accelerate Arbitrage Fund (TSX: ARB) provides exposure to SPAC and merger arbitrage investments. The fund holds over 80 SPACs and is highly diversified, according to Klymochko.

Accelerate Funds also runs the Accelerate Absolute Return Hedge Fund (TSX: HDGE), Accelerate Enhanced Canadian Benchmark Alternative Fund (TSX: ATSX) and Accelerate Private Equity Alpha Fund (TSX: ALFA).

Klymochko is a chartered financial analyst charterholder, the author of the book "Reminiscences of a Hedge Fund Operator" and the host of the "Absolute Return" podcast. Klymochko is also active on Twitter, sharing his thoughts on SPAC and merger deals.

SPAC Arbitrage Strategy: “Merger arbitrage is a strategy that has been around for many many decades,” Klymochko said, noting that Warren Buffett used the strategy years ago.

The Accelerate Funds founder broke down some examples of SPAC arbitrage on the show and in the video below.

“We really like SPAC arbitrage given that it's low risk as long as we’re buying at or below NAV.”

A phrase used by Klymochko is “heads we win, tails we win big.”

He told Benzinga there are several scenarios that play out in a SPAC arbitrage bet when buying shares below their net asset value. 

Buying a SPAC at $9.95 and owning shares and warrants presents a worse-case scenario of liquidating and getting back the $10-plus accrued interest, which generates around a 1% return.

The middle case scenario sees about a 6% to 7% return by redeeming shares and warrants on the deal.

The "tails, we win big" scenario is to buy below net asset value and then see the market respond well to an announced deal, sending shares higher, he said. 

SPAC Performance: Klymochko monitors over 225 SPACs and is looking at acquiring companies trading below their net asset value.

The Accelerate Arbitrage ETF launched in April, but uses a strategy that has been tracked by Klymochko for years.

“Diamondpeak Holdings for us was a big winner,” Klymochko said of the former SPAC that now trades as Lordstown Motors (NASDAQ: RIDE). The fund bought the SPAC below $10 and watched shares trade into the $30s.

Another winner for the Arbitrage Fund has been LifeSci Acquisition Corp (NASDAQ: LSAC), which is merging with Vincera Pharma. Shares were bought below $10 and are now trading above the $16 level.

Klymochko told Benzinga that betting on the sponsors or names behind SPACs doesn’t always work. He mentioned the difference in performance in Social Capital Hedosophia II (NYSE: IPOB) and Social Capital Hedosophia Capital III (NYSE: IPOC) despite both announcing deals and coming from the same sponsor.

“Only betting on the sponsor is not guaranteed to work.”

 

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