Traveloka president Henry Hendrawan in a photo taken at their Jakarta office in 2017. Online travel start-up Traveloka — the region’s equivalent of Expedia — is said to be looking for a SPAC. Photo: Bloomberg
There are not many statues of stockbrokers. Abraham van Ketwick, a Dutch stockbroker who died in 1809, deserves one. He is long forgotten, but he is the father of unit trusts.
Unit trusts are a collective investment fund like UOB Asset Management. Most of the trading in stocks and bonds are by unit trusts. They are known as mutual funds in the US.
He was a hustler who was aggressive in pitching to clients. Ketwick was an early version of The Wolf of Wall Street, who was so pushy that clients were drawn to him like a magnet.
Ketwick owned broking houses in Amsterdam. He believed that you can’t put all eggs in one basket. This was not an earth-shattering discovery. But he was the first to make it easy for investors to pool their investments. Ketwick created a diversified bond fund. It would reduce the risk for the ordinary investor. The investor could buy a basket of bonds through Ketwick’s fund.
Ketwick’s idea took over a hundred years to gain ground. It was only in the 1920s that mutual funds took off in the USA. Today, mutual funds like the ones run by Wellington and Capital are the lifeblood of the markets. They have put investing at the doorstep of the common person.
Like van Ketwick’s realisation about eggs in one basket, two New York lawyers stumbled on an innovation in 1993. David Nussbaum and David Miller were law school pals. They realised that it is better to start early than finish late. In investing, early exposure to growth stocks like Tesla, Google (trading under Alphabet) and Facebook can reap massive returns.
Early investing in technology or electric vehicles has been the preserve of private equity funds and venture capital. Private equity and venture capital investing has been closed to ordinary investors.
The two Davids ran a brokerage in New York in the early 1990s. Nussbaum and Miller lacked Ketwick’s persuasive skills. But, their strength was in mastering corporate law. They worked with regulators to create an investment vehicle called special purpose acquisition companies, or SPACs. The duo installed features that protected the investors. These included the right for investors to get their money back, if they did not agree with the acquisition.
SPACs have a blank cheque to acquire other companies. They don’t hold operating assets. The main asset is the cash that they raise when they list. Unlike private funds, they are publicly traded. The SPACs have a set time frame to acquire a private company.
Like Ketwick’s unit trusts, it took a while for SPACs to become popular. It took the Davids 28 years to become “an instant success”. SPACs exploded this year and over US$80 billion ($107.4 billion) have been raised. This is more than the traditional IPO market.
The best example is right here in Singapore, where the world’s biggest SPAC deal is headquartered. Grab has a vice-like grip on ride hailing and food delivery in Asean countries. Its founders chose to list on Nasdaq using a US$40 billion SPAC with Altimeter Growth Corp. They raised US$4.5 billion in a PIPE as part of the SPAC process.
The investor in the SPAC is exposed to the vast prospects of a disruptive company. SPACs offer liquidity in that one can trade in and out of it. There is also optionality. If the investors oppose the merger, investors can veto a SPAC deal. SPACs are also cheaper than traditional IPOs, in terms of the fees that it charges the issuer.
SPACs are now coming to the Singapore Exchange (SGX). Last week, the SGX announced new rules to allow SPAC listings. There would be a minimum market capitalisation of $150 million. The sponsor must take up 2.5% to 3.5% of the issue.
Asean is now the epicentre of the emerging market tech boom. Apart from Grab, there are a host of tech unicorns on the cusp of growth. For instance, online travel start-up Traveloka — the region’s equivalent of Expedia — is said to be looking for a SPAC. The SGX would be a natural venue for them to consider.
SPACs are an asset class whose time has come. Like Ketwick, the Davids may be forgotten, but their innovation would outlive them.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column
