Hedge funds that invested in the blank-check acquisition company that made a US$875 million deal to merge with former U.S. President Donald Trump's new social media venture are set to make five times their investment, regulatory filings show.
It is the biggest gain investors in so-called special purpose acquisition companies (SPACs) have ever recorded on the first day after a deal was announced, according to SPAC Research.
Nearly a dozen hedge funds invested in the SPAC, Digital World Acquisition Corp, in its initial public offering (IPO) in September, according to the filings. Like other SPACs, Digital World did not disclose which company it was seeking to buy.
Hedge funds have pumped hundreds of billions of dollars into these types of vehicles in the past two years.
The investor excitement had fizzled in the past few months as some companies that merged with SPACs failed to deliver on their bullish projections and retail investors nursed losses. Stock market reaction has been so poor to recent deals that some hedge funds only make pennies on the dollar by buying into the IPOs of SPACs and then selling their shares in the stock market or redeeming them for their IPO price.
But the hedge funds that invested in Digital World's IPO are set to quintuple their investment after Digital World's shares jumped more than 400per cent after the deal with newly launched Trump Media and Technology Group was announced. They were hovering around US$50 in late afternoon trading on Thursday, giving Digital World a market value of US$1.7 billion.
The hedge funds included D.E. Shaw, which oversees US$60 billion in assets, and Yakira Capital Management, which invests some US$472 million, according to a regulatory filing.
Meteora Capital Partners, an affiliate of heavy SPAC investor Glazer Capital LLC, Sander Gerber's Hudson Bay Capital, Boothbay Fund Management, Boaz Weinstein's Saba Capital, Shaolin Capital Management, K2 Principal Fund and Radcliffe Capital Corp, another heavy SPAC investor, also put in money, the filings show.
Representatives for the firms either did not respond to requests seeking comment or declined to comment.
The rally in Digital World shares is also a boon to Trump because most stock market investors who buy the shares for much more than their US$10 IPO price will not seek to redeem them at that price, ensuring that Trump Media and Technology Group will receive most if not all of the US$293 million it is entitled to under the merger.
Some founders of the hedge funds donated to the Democratic Party, including to President Joe Biden, who defeated Trump in the 2020 U.S. election. Others backed Republican candidates including Trump.
Hudson Bay's Gerber donated to Trump in last year's election and backed the two Republican candidates for Senate in Georgia. Weinstein donated to Biden and supported the Democratic candidates in Georgia, among other donations.
David Shaw, who founded DE Shaw, donated millions of dollars to liberal political action committee Priorities USA Action, filings show. Representatives for the firms either did not respond to a request for comment or declined to comment.
Most hedge funds invest regardless of party affiliation.
(Corrects name of Gerber's fund to Hudson Bay Capital instead of Boothbay Fund Management, paragraph 9)
(Reporting by Svea Herbst-Bayliss in Boston; Additional reporting by Anirban Sen in New York; Editing by Greg Roumeliotis and Will Dunham)