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February 22, 2008
Investing in a real intangible
It is generally supposed that, with most investments, the investor knows something about what they are getting -- even if it is a highly complex financial instrument that is multiple derivatives away from a hard asset. Even in venture capital, there is an idea -- not withstanding the fact that VCs will tell you that they invest in people not necessarily the idea. Now a new investment vehicle which invests in the pure intangible of the fund manager.
As the Washington Post reports The New Way To Make Deals: Blank Checks:
Also known as special-purpose acquisition companies, or SPACs, blank-check firms raise money by selling stock to the public and then scouring the world for businesses to buy. They are the current rage among dealmakers, but have drawn some skepticism from critics who say investors don't know what they are buying when the SPAC goes public.
In many ways, blank-check companies are bets on the dealmaking prowess of their founders. In this case, investors are counting on the connections that Kemp, Aaron, Tavares and Cuomo bring.
"The more I looked at it, the more I realized that the potential for sports properties and entertainment in a global economy is huge," said Kemp, who runs Kemp Partners, a Washington-based investing firm, and is chairman of Sports Properties. "SPACs are hot."
The New York Time's DealBook blog explains - Million to Burn, With a Catch:
Here’s how it works: Average Joe buys shares in an initial public offering for an investment company with no assets to speak of other than the pot of money from the I.P.O. The company’s sole mandate is to make one big acquisition. Average Joe has no idea what it will buy. And frankly, neither do the folks running the investment company. It’s a blind bet that the Masters of the Universe will live up to their name.
But, haven't investors been doing that forever? Isn’t that what the “blind trust” is all about? And how many investors look beyond the historical rate of return in their mutual fund to analyze the portfolio?
Investing has always been about intangibles – especially that intangible of competency. The only question in my mind is not about the blind nature of the bet – but how quickly these things can blow up.
Posted by Ken Jarboe at February 22, 2008 7:59 AM
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