Chamath Palihapitiya says the SPAC boom will revive a shrinking stock market concentrated in FANG

Published Tue, Sep 15 202010:14 AM EDTUpdated Tue, Sep 15 202011:11 AM EDT

(This story is for CNBC Pro subscribers only.) This year's eye-popping boom in special purpose acquisition companies could help revive a shrinking stock market that's grown highly concentrated in the so-called FANG names, according to Chamath Palihapitiya, who just unveiled a $4.8 billion SPAC for real estate start-up Opendoor. SPACs have become Wall Street's latest craze, with total proceeds surging to a record $33 billion this year, a more than 260% jump from a year ago, according to Refinitiv. Funds raised via such blank-check deals have also exceeded traditional IPOs for the past two months straight. Involvement from high-profile investors including hedge fund billionaire Bill Ackman and Oakland A's executive Billy Beane brought more hype to this booming IPO alternative vehicle. "I don't think there's that much of a frenzy if you take a step back and zoom out of it," Palihapitiya said on CNBC's " Squawk Box " on Tuesday. "In the year 2000, there were more than 8,000 public companies on American stock exchanges. In the year 2020, there are about 4,000. So we shrank the investable universe in half." "At the same time, you've had 10x in the amount of money that's gone into the public markets. And you've had 10x in the number of people that [practice] public market investing via hedge funds. So you have a real supply demand imbalance. ... There needs to be more and better ways for companies to be able to raise the capital they need." Many on Wall Street have sounded alarms on SPACs' recent explosive growth. As these deals go public without having a real business, some say it speaks to a speculative behavior among investors with the market roaring back from the coronavirus sell-off. A SPAC is formed to raise funds to finance a merger or acquisition within two years typically. The target firm will be taken public through the acquisition. However, Palihapitiya believes the SPAC structure could allow a variety of companies to go public in a backdoor way, which helps diversify a tech-heavy stock market. "I think what SPACs do, and direct listings do the same thing, is we expand the aperture, we start to break up the oligopoly that's existed for a long time," Palihapitiya said. "If they can do that in the public markets, it not only creates opportunities for them, but it also creates opportunities for folks like us who can help identify partner with businesses and invest. I think that's good for every investor." "Over time, I think what we want to see is the number of public companies go back to 8,000 or frankly be it 10,000 or 12,000, and in that you will see a lot of people being able to generate returns. Otherwise, we will be sitting here, and like every episode on CNBC, we will just talking about FANG over and over again." The five biggest tech names — Apple , Microsoft , Alphabet , Amazon and Facebook — have become more and more dominant in the stock market. The five stocks combined now account for more than 20% of the cap-weighted S & P 500 as these giants led the market's historic comeback rally. Palihapitiya announced Tuesday his SPAC Social Capital Hedosophia II will acquire Opendoor, an online marketplace for buying and selling houses. Opendoor will receive $414 million from the capital generated from the April initial public offering of his SPAC. The deal values Opendoor at $4.8 billion — nearly equal to its 2019 revenue.

Chamath Palihapitiya

Cameron Costa | CNBC

(This story is for CNBC Pro subscribers only.)

This year's eye-popping boom in special purpose acquisition companies could help revive a shrinking stock market that's grown highly concentrated in the so-called FANG names, according to Chamath Palihapitiya, who just unveiled a $4.8 billion SPAC for real estate start-up Opendoor.