Chamat Palipitiya, an entrepreneur and investor in SPAC funds whose value is estimated at over a billion dollars, blames the Federal Reserve’s zero interest rate policy over the years for the state of the market today.
In a conversation at a conference of the American news site Iox, the super-investor, known as the “King of the Spike”, said that years of zero interest rates created an “unnatural” market, a situation from which the central bank profited at the height of the corona epidemic.
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Peliafitia spoke at the conference about the factors that contributed to the sharp rise and fall in the SPAK investment market, in which he specializes. The popularity of the SPAK investments – which provide financing to companies that want to go for an initial public offering, but do not have the ability to conduct independent fundraising – grew greatly during the Corona crisis. But now, with the decisions of the central banks, they are taking a step back.
Peliafitia, a former Facebook executive, owns several SPAC funds, two of which were recently closed after no companies were found to merge with them.
“The problem in the market is that for more than a decade there was zero interest,” said Palihapitiya. “The zero interest rate created an unnatural market and created investment bubbles in every sector of the economy.” He explained that the zero interest rate made people misjudge the risks of investments.
But Peliafitia claims that the SPAC investments were not more severely affected than other sectors, and “now, when the cheap money is over, investment ‘madness’ will also decrease, and the market will correct itself. It is a healthy process.”
“But we mustn’t forget,” Peliafitia concluded his words, “that although I blame Fed Chairman Jerome Powell for the damage created by the zero interest rate, I also benefited from it. The zero interest rate brought in investors who hardly had any other profitable channel, which allowed us to invest in many companies, some of which were not worth the investment. Now we are starting to filter good investments from bad ones.”