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SPAC and ESG fads on collision course with billions at stake

(Bloomberg) – Two of the hottest stock market trends are heading for a shock, as some ESG investors are having doubts about the blank check companies that flooded the market. The first signs show that money managers are linked to environmental, social and governance issues and are reluctant to buy special purpose acquisition companies before a target is identified. This could potentially cut SPACs from an investment class that is underway to exceed $ 53 trillion by 2025, according to Bloomberg Intelligence. Analysts at Sanford C. Bernstein are among those who question whether blank check listings are a good option for investors looking to direct capital to businesses and activities that support a greener and more just society. Amundi SA, Europe’s largest asset manager, says it is reluctant to hand over its clients’ money to third-party SPAC sponsors. “Does the prospect of buying an acquisition vehicle before making your investment seem strange, from a governance point of view, with the increase in investments directed at ESG? ”Bernstein analysts led by Inigo Fraser-Jenkins asked in a note on Wednesday. For some investors, the answer to that question is yes. “From an ESG perspective, it is very difficult to invest in pre-trade SPACs,” said Ross Klein, founder and chief investment officer at Changebridge Capital, adding that without a proper view of destination acquisition, there is no way to assess the environmental impact or business. “There is an interesting tug of war at stake between the two trends,” he said. This is how an agreement is announced that there is an opportunity to review the initial financial disclosures and speak to management, customers and competitors, he said. SPACs are blank investments because there’s no “good visibility into where the money will go in the future; for this reason, they’re not just an institutional way of investing money,” said Fabio di Giansante, head of European large-cap stocks at Amundi. These concerns did not prevent a flood of SPAC listings, especially in the United States. In early 2020, blank check companies raised about $ 140 billion, according to data compiled by Bloomberg. Typically, sponsors – well-known executives, or even private or venture capital companies – create a SPAC with no real business money raised to invest in another company that has not yet been identified. If no target is found in its two-year period, the blank check firm is dissolved and investors get their money back. In the case of an acquisition, shareholders can hold their shares or redeem their shares if they do not like the business. With these options available, not all market participants see dumping funds in SPACs as a violation of ESG principles. Investors can question the people who drive the vehicle about the type of target and can sell if they don’t like SPAC’s acquisition, said Gavin Launder, fund manager at Legal & General Investment Management. “The lack of transparency about the final goal does not necessarily make these vehicles incompatible with ESG.” Going green In addition, some SPACs are following the ESG theme, seeking to profit directly from the flood of money pouring into green investments. ESG Core Investments BV raised 250 million euros ($ 303 million) this month in the first IPO of a blank check company focused on sustainability in Europe. The SPACs that have listed so far have completed more technology deals than any other sector, with energy and utilities staying at the lower limit, although acquisitions in those sectors are heavily exposed to renewable energy, according to Bernstein. Still, the rush of SPAC listings, exceeding the highs seen in the early 2000s, left some investors concerned about the quality of offers reaching the market. Investors should study the history of the sponsoring team and assess the attractiveness of the targeted sector before putting money in a blank check firm, said Daniel Pinto, CEO of Stanhope Capital. “What concerns us is the ease with which people, even those without a public record or proven ability to invest well, can raise money in SPACs,” he said, adding that the traditional IPO process places more regulated requirements on issuers. (Updates with a comment by Daniel Pinto of Stanhope Capital in the penultimate paragraph.) For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted business news source. © 2021 Bloomberg L.P.

Paula Fonseca