The liberalisation of rules concerning special purpose acquisition companies (SPACs) in the UK market is set to boost the country's competitiveness as a financial centre, but the proliferation of "blank cheque" vehicles so far in 2021 spells heightened risk for investors and could indicate bubble territory.
"While the quality of 'people' is critical to any investment, it is usually the business fundamentals and the valuation paid for it that drives the return outcome," said Staveley.
"Some of those reputations will be deserved and the SPAC will buy a great business for an attractive valuation, however many will misstep."
IG's Dickens explained that SPACs may allow founders to exit without the same "scrutiny and rigmarole" as an IPO, while they may also limit shareholder power by "circumnavigating" standard share class structures.
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"Investing in some SPACs may… need to be approached in a similar way to investing in a venture capital or private equity fund," he added.
"[Investors should] consider whether management has relevant experience identifying the type of investments they wish to buy within the SPAC."
Devan Kaloo, global head of equities at Aberdeen Standard Investments, agreed: "You are not buying a proven business model. Effectively, you are buying the credibility of individuals and handing them cash, particularly at the first stage of investment."
The surge of interest in SPACs has led some to suggest this is a sign that market sentiment is becoming overheated, and to draw parallels with the South Sea bubble of the 1720s and the period prior to the Global Financial Crisis of 2008, which were also boom periods for the vehicles.
While Kaloo believes the recent SPAC boom is "exciting in terms of new opportunities for investors to access," he agreed these may be apt historical comparisons.
He said: "There is a lot of frothiness in markets right now, underpinned by easy money and low interest rates. We are right to fly bubble warnings amid increasing speculative activity. The question is 'when does
that change?'"
John Plassard, investment specialist at Mirabaud, added: "In view of the enormous appetite for SPACs, one can legitimately wonder if a bubble is a possibility."
