Jeremy Grantham: “SPACs should be illegal”

Special-purpose acquisition companies (SPACs) should be illegal, according to Jeremy Grantham, as they escape regulatory oversight and encourage the “most obscene type of investing.”

Grantham is the co-founder and chief investment strategist of Grantham, Mayo, & van Otterloo (GMO), a Boston-based asset management firm. He was interviewed via webinar on December 7 by Vikram Mansharamani as part of his “Think for Yourself” series.

Grantham’s criticism of SPACs was part of a broader condemnation of some aspects of our capitalistic economy and a warning to investors about bubble-like valuations in U.S. equities.

“I am not a great fan of today’s western capitalist model,” he said.

His concerns about capitalism are driven by the increased power that corporations have gained through the Citizens United decision, decreased regulation and unfettered growth of companies that have become effective monopolies.

Those have contributed to rising inequality in the U.S., which he said has become less equal than any other developed country. According to Grantham, inequality has contributed to poor outcomes in the U.S. when it comes to education, life expectancy, prison populations and other metrics.

But his most direct criticism was of SPACs.

A SPAC is a “blank check” investment vehicle. It is typically led by a person (the “sponsor”) who forms the SPAC to raise money via an initial public offering (IPO). Once the IPO is completed, the sponsor then has two months to use the funds to purchase a privately held company. The privately held company becomes a public firm without having to undergo the regulatory process and “dog-and-pony shows” that accompany an IPO. There are now 251 active SPACs that have raised almost $79 billion, including 200 SPACs that raised $69 billion in 2020 alone.