TheChek News Flow

The hedge fund is looking to raise more than $1 billion for the vehicle

Call them spactavists.

Elliott Management Corp., the hedge fund best known for its high-profile shareholder-activist campaigns, is looking to join the sizzling SPAC craze.

The firm, founded by billionaire Paul Singer, has been meeting with bankers about raising more than $1 billion for a special purpose-acquisition company, according to people familiar with the matter. They cautioned the process is at an early stage and plans could change.

Assuming Elliott moves forward, it could use the proceeds to buy a sizable company—potentially worth double-digit billions based on the targets similarly sized blank-check companies have agreed to combine with.

SPACs are empty shells that raise money with the sole purpose of looking for a target to merge with and in the process take public. They have exploded in popularity because they offer a lucrative shortcut to the public markets. So far this year, at least 116 SPACs have raised $35 billion, putting the market on track to blow through last year’s record of over $80 billion, according to SPAC Research. There were 10 new SPACs launched Friday alone.

They often feature big-name investors or celebrity backers such as former Yankees star Alex Rodriguez and ex-House Speaker Paul Ryan. Many of Elliott’s hedge-fund rivals already have raised their own SPACs but Elliott, an inveterate deal maker, had been a notable absence from the party.

It isn’t clear which industries Elliott might have its sights on. SPACs typically give investors an idea of the type of company they might target, but can easily change course.

Elliott, with roughly $42 billion under management, has run campaigns at companies as diverse as AT&T Inc. T 0.14% and Marathon Petroleum Corp. MPC 0.68% in recent years. Its private-equity affiliate, Evergreen Coast Capital, focuses on technology, having previously participated in the acquisitions of health-care software firm Athenahealth Inc. and business-software company LogMeIn Inc. Elliott also bought bookseller Barnes & Noble Inc. in 2019.

Other activists with SPACs already hunting for targets include Jeffrey Smith’s Starboard Value LP and William Ackman’s Pershing Square Capital Management LP. Mr. Ackman’s vehicle, Pershing Square Tontine Holdings Ltd. PSTH 1.18% , raised $4 billion last summer, making it by far the largest SPAC ever and setting him up to potentially land a very large target. SPACs often raise additional funds in conjunction with a deal, known as a private investment in public equity, or PIPE, which can send deal values even higher.

The largest SPAC deal in 2020 took mortgage originator United Wholesale Mortgage public at a valuation of roughly $16 billion, and was followed by a $12.5 billion deal to merge two investment firms—Owl Rock Capital Partners LP and Dyal Capital Partners—and take them public simultaneously.

Short squeeze that sent price of GameStop rocketing has hurt some carefully placed bets

Two Sigma Investments and DE Shaw, two of the biggest names in the hedge fund industry, have posted losses after an army of retail investors on Reddit upended markets.

The co-ordinated short squeeze that sent the price of GameStop and other lowly priced stocks rocketing in late January has shaken many hedge funds by hitting some of their carefully placed bets. Melvin Capital, which lost 53 per cent in January, is the highest-profile casualty, but many other funds suffered losses, particularly on bets against stocks they expected to suffer during the pandemic.

New York-based Two Sigma, which manages about $48bn in assets and was set up in 2001 by computer scientist David Siegel and mathematician John Overdeck, lost 5.3 per cent in its Absolute Return fund and 8.6 per cent in its Absolute Return Enhanced fund, say people who have seen the numbers.

Two Sigma declined to comment. Its Compass macro fund and risk premia funds were about flat last month, one of the people said.

David Shaw’s DE Shaw, which manages about $27bn, gained 0.9 per cent in its main Composite fund but lost 2.3 per cent in its global macro Oculus fund, according to people familiar with its performance. The firm declined to comment.

The losses mark a reversal for DE Shaw after a strong year of returns in 2020. However, like many other quant funds, Two Sigma has struggled in some of its funds during the pandemic.

While many hedge funds, particularly those run by human traders, made large gains last year, many computer-driven funds were caught out by the markets’ sharp swings.

This year, some funds’ models that look to exploit tiny mispricings across hundreds of stocks have been hard hit as retail investor interest has pushed some stocks far above previous valuations. GameStop, the focus of Redditors’ attention, soared 1,625 per cent last month, while BlackBerry rose 112 per cent.

Among other funds to suffer this year is Jim Simons’ Renaissance Technologies, which had already posted double-digit losses last year. It lost 9.5 per cent this year to late January in its Institutional Equities fund, according to numbers sent to investors and seen by the Financial Times.

Overall, hedge funds gained 0.9 per cent last month, according to data group Hedge Fund Research, although those focused on technology, or trying to balance bets on rising prices against bets on falling prices, lost money.

*VEOLIA OFFERS TO BUY REST OF SUEZ FOR EU18/SHR

Rishi Sunak needs to spell out in his budget that he understands why this needs to happen, and how

On March 3, Rishi Sunak, UK chancellor, will present a Budget. I have no idea what he will say. But it is clear what he should say.

It is far too soon to detail the fiscal adjustment that will eventually be needed in the aftermath of Covid-19 and Brexit. The economy has too uncertain a future and will continue to need robust fiscal support. Sunak must show he understands this. But what he also must do is prepare the ground for coming tax rises — and the tax reforms that should accompany them.

The Office for Budget Responsibility’s central case last November was for a jump of 20 percentage points in the ratio of net public debt to gross domestic product between 2019-20 and 2023-24. Combined with Brexit, the pandemic will also cause a permanent reduction in real GDP, relative to prior expectations. So, in the end, there will have to be a large fiscal adjustment.

Public debt is also on a rising long-term trajectory, largely because of an ageing population. While curbs on spending may contribute to the adjustment, it is politically inconceivable that they will contribute as much as they did after the 2008 financial crisis. So, the ratio of government receipts to GDP must rise. The chancellor has to say so, whatever his party’s resistance. That is his duty. It is also not the end of the world. Many countries have higher ratios of tax receipts to GDP than the UK, as well as higher real incomes per head. Among these are Canada, Denmark, Germany, Netherlands and Sweden.

The UK tax system is such a mess that reform makes sense anyway. But it is even more urgent if the tax burden is to rise. It is time to consider who taxes, what to tax and how to tax.

Under “who taxes?” the biggest issue is the centralisation of tax-raising powers and, in particular, the negligible fiscal autonomy of local government. That needs to change, along with reform of property taxation.

Under “what to tax?”, there is a simple hierarchy: tax “bads” and rents, and then wealth, spending and incomes. Under taxing “bads”, the obvious priority is environmental taxes, especially a rising tax on carbon dioxide emissions. As for rents, there are many possibilities, including taxing land values and supernormal profits. Under “how to tax”, there are principles of neutrality, simplicity and equity that today’s messy system violates.

Here, then, are just a few important areas of reform for consideration.

As a recent report from the Institute for Fiscal Studies argues: “There is a large, unjustified and problematic bias against employment and labour incomes and in favour of business ownership and capital incomes.” The tax treatment of returns to investment is a mess: incentives depend on the asset type, source of finance and legal structure, and range from large subsidies to large penalties. There is also a strong incentive to turn employees into self-employed and so expand the “gig economy”. This is bad policy.

Corporate taxation today also has a destructive bias against investment and in favour of borrowing. More fundamentally, it is hard nowadays to design a workable system based on taxing companies where they make or do things. It would be better, some argue, to tax corporations where they sell, instead. A cash flow destination tax would be more difficult to avoid and would raise more money, more easily.

There is now an increasingly vigorous discussion of wealth taxes. Yet, without going there now, the UK’s inheritance tax is an unjust lottery which burdens the heirs of the middle and upper middle classes, but not those of the rich. Taxing large lifetime receipts would be fairer and more effective.

Then there are council tax and business rates, which make up the residue of an older and more rational system of property taxation. The Fairer Share manifesto provides a compelling attack on council tax. It should be reformed, together with business rates and stamp duty, and incorporated into a system of property taxation that is less unjust and encourages new development and more efficient use of developed urban land.

Far more needs to be looked at. But the big points are clear. The UK must consider its fiscal priorities and its tax system, strategically. This has long been important. The shocks of Brexit and Covid-19 make it essential. If Sunak is to be more than another forgotten chancellor, he needs to explain the long-term realities of the UK’s fiscal position. He must also examine the opportunities for radical fiscal reform that will make today’s system less distorting economically and raise more money. Now, above all, is the time to start.

*YELLEN: I HAVE TO WORRY ABOUT ALL RISKS TO THE ECONOMY

*YELLEN: STIMULUS PACKAGE NEEDS TO ADDRESS `FULL RANGE' OF NEEDS

*YELLEN: VALID TO THINK ABOUT INFLATION, HAVE TOOLS TO ADDRESS

*YELLEN: RISK OF A `LONG, SLOW' RECOVERY IF STIMULUS INADEQUATE

*YELLEN: COULD BE AT FULL EMPLOYMENT IN 2022 W. RIGHT STIMULUS

*YELLEN: DETAILS STILL BEING WORKED OUT ON STIMULUS CAPS