Billionaire investor Barry Sternlicht told CNBC on Wednesday he believes the SPAC market is “out of control” and argued Wall Street won’t regulate it because they are making too much money.
The CEO and chairman of Starwood Capital, a firm that operates six of its own SPACs, told CNBC’s Becky Quick that although he takes every SPAC deal seriously and stakes his reputation on that claim, not all SPAC sponsors can say the same.
The billionaire investor said these days “if you can walk, you can do a SPAC.”
Sternlicht laid out how his company lost a SPAC deal after it said it would need to do 60 days due diligence before investing and a different SPAC sponsor offered to do the same in just three days.
“Three days due diligence means you check the letterhead and find out if the company exists. It’s a little out of control. No, it’s a lot out of control,” Sternlicht said.
The CEO added that he doesn’t expect Wall Street to regulate SPACs because they are “making too much money.”
Sternlicht said SPAC sponsors today are “failed money managers” and “retired executives” who often don’t know what they are doing. The CEO said people wouldn’t invest their money in hedge funds run by these people, so they should consider why they are putting funds into their SPACs.
The good news for investors is, according to Sternlicht, the buy-side is beginning to do more stringent checks on the blank-check companies.
The Starwood Capital CEO said his SPAC’s merger with Velo3D was one of only a few PIPE investment rounds that got done last week amid the new more “disciplined” research from partners like Fidelity Investments, T. Rowe Price, BlackRock, and others.
“Fidelity and others have said we need three weeks to review these, and that is new,” Sternlicht added.
Sternlicht also noted that ten SPACs went public on Tuesday and all of them now “trade below par.” The market is “maturing,” but it is still a “little bit crazy,” according to Sternlicht.
SPAC IPOs have raised some $95.7 billion this year as of March 22, according to data from SPAC Research.