Lloyd Blankfein explains how PSPC rush could go wrong for investors



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Former Goldman Sachs CEO Lloyd Blankfein sees problems ahead for PSPCs, the special-purpose acquisition companies used to go public.

While the SPAC trend shows no signs of abating amid strong demand for shares from new companies, investors should be careful, Blankfein said Monday on Squawk Box. That’s because the PSPC process bypasses the rigorous due diligence of the normal IPO process, according to Blankfein.

“You make companies public, but you make them public in a two-step process where one element of an IPO is abandonment,” Blankfein said.

“When the initial SPAC goes public, you are looking at a shell company, maybe the reputation of the sponsor,” he continued. “When this company takes out the PSPCs and merges, it’s a merger, it’s not an IPO with a lot of due diligence.”

PSPCs have been around for years, but their popularity exploded last year. PSPCs raised $ 64 billion in 2020, almost as much as traditional IPOs, according to Renaissance Capital.

Blankfein, who as a former Goldman CEO led one of Wall Street’s top IPO advisers for more than a decade, suggested that PSPC attendees had no incentive to avoid paying too much for their target companies. This could lead to situations where “some people make a lot of money and investors lose money,” he said.

“In the absence of due diligence, that’s what’s going to happen,” Blankfein said. “There are going to be things that go wrong.”

The larger backdrop is that the behavior seen in PSPCs and other areas like bitcoin are signs of ‘bubble elements’ due to central banks’ response to the coronavirus pandemic, a point Blankfein said. has argued in the past.

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