Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How the Ultra-Wealthy Use SPACs as a Private Equity Alternative
Transcript
- Lucas: Luna, I want to talk about a vehicle that the ultra-wealthy have quietly rediscovered over the past eighteen months: the SPAC. Luna: I thought SPACs were kind of dead after the 2021 boom went bust. A lot of retail investors got burned. Lucas: Right. The retail SPAC bubble was a mess. But for family offices and ultra-high-net-worth individuals, the story is different. They never left. In fact, they've been using SPACs in a much smarter way — as a private equity alternative, not as a lottery ticket. Luna: So how does it work for them? A typical wealthy family isn't trying to take a random electric vehicle company public. Lucas: Exactly. Let's use a concrete example. Say a family office with $500 million in assets decides they want to acquire a niche manufacturing company — a specialty aerospace parts supplier, let's call it AeroPrecision, that does $80 million in EBITDA. Instead of going to a traditional PE fund and paying two-and-twenty, they form their own SPAC. They put in $20 million of their own capital as the sponsor — that's the risk capital — and raise maybe $280 million from institutional investors through the IPO. Luna: So they're effectively the general partner. They get the promote, the carried interest, if the deal works. Lucas: Correct. But here's the key difference from traditional PE: the SPAC gives them a two-year window to find the target, and they don't have to deploy capital until they find it. In a PE fund, capital is called and starts earning fees immediately. With a SPAC, the money sits in a trust earning interest — right now, in May 2026, those trust accounts are yielding around 4.5 percent on Treasuries. So even if the deal falls through, the investors get their money back plus interest. Luna: That's actually attractive compared to PE, where you're paying management fees on committed capital from day one, whether the money's deployed or not. Lucas: Right. And the tax treatment is another layer. With a traditional PE fund, the carried interest is taxed as ordinary income if the holding period is under three years, and as long-term capital gains after that. With a SPAC, the sponsor's promote is typically structured as founder shares — which become common stock after the merger. If the family office holds those shares for more than one year, they qualify for long-term capital gains treatment. There's no carried interest recharacterization issue. Luna: But isn't there a risk that the warrants complicate things? I know warrants were a huge issue in the 2020-2021 SPACs — accounting treatment, redemption risks. Lucas: That's a smart point. Warrants are often part of the unit structure. But sophisticated family offices have learned to structure around that. Many now use what's called a 'warrant-free' SPAC — they simply issue common shares and rights. The warrants were problematic because of SEC guidance on liability classification. But post-2024, the market standardised. Now you see sponsors issuing a simple unit of one share plus a fraction of a warrant, or just one share with no warrant at all. The key is that the sponsor's promote — typically 20 percent of the post ipo equity — is in founder shares, which are locked up for a year. That aligns incentives. Luna: And what about the SPAC's timeline? The two-year deadline creates pressure. If you don't find a deal, you have to liquidate and return the money. Lucas: That's actually a feature, not a bug, for wealthy families. They want discipline. In private equity, a fund can sit on dry powder for five years. A SPAC forces decision-making. If the family office can't find a suitable target in 24 months, they get their sponsor capital back — and they've lost only the opportunity cost. Compared to a PE fund where they'd be paying management fees the whole time, it's a lower-cost failure mode. Luna: So what kind of returns are these family-office SPACs targeting? Because if you're a family with $200 million, you're not doing this for a 10 percent IRR. You want pe like returns — 20 percent or more. Lucas: Absolutely. And the data from deals closed in 2024 and 2025 shows that sponsor-backed SPACs — where the sponsor is a single family office — have delivered median internal rates of return around 22 percent for the sponsor equity. That's comparable to top-quartile PE funds. But the risk profile is different. The family office is putting up the sponsor capital — typically 2 to 5 percent of the trust size — and that capital is at risk if the deal fails. But if it works, the promote can be worth 20 percent of the merged company's equity. On a $300 million deal, that's $60 million in equity value for a $15 million sponsor investment. Luna: That's a four-to-one return before you even consider operational improvements. But the public market scrutiny is different from private ownership. You have SEC filings, quarterly earnings calls, shareholder activism risk. Lucas: That's the trade-off. You get liquidity — the family can eventually sell their shares on the open market — but you also get the volatility. A private company owned by a PE fund doesn't have to report earnings every quarter. A SPAC merger target does. Some families are fine with that because they want the option to exit gradually. Others hate it and prefer the privacy of a direct investment. But what we're seeing in 2026 is that more families are using SPACs specifically for the liquidity optionality. The IPO pipeline has been slow this year — we've seen only about 80 traditional IPOs in the first five months of 2026, compared to a pre-pandemic average of 150. So SPACs offer a faster path to public markets. Luna: And with interest rates where they are — the Fed held steady at 4.75 percent last week — the trust yield itself is a meaningful return. In 2021, trust accounts earned basically nothing. Now they're earning 4.5 percent. That changes the calculus for investors who might otherwise sit on cash. Lucas: Exactly. If the deal takes 18 months to close, the trust earns interest that accrues to the shareholders. So the institutional investors who put in $280 million get their 4.5 percent annualised while they wait. That's a much more attractive proposition than in 2021, when trust yields were near zero. And for the family office sponsor, that interest doesn't go to them — it stays with the public shareholders. But the sponsor benefits because the trust size grows, giving them more firepower for the acquisition. Luna: I want to ask about the tax side. You mentioned the promote being taxed as capital gains. But what about the SPAC's structure as a corporation? In a traditional PE fund, the fund is a partnership, and income flows through. A SPAC is a corporation. Doesn't that create double taxation on the operating earnings? Lucas: It can, but sophisticated structures avoid that. Most SPACs that are formed by family offices elect to be taxed as corporations at the SPAC level, but then after the merger, the combined company typically elects REIT or RIC status if it qualifies — real estate or regulated investment company — or it simply operates as a C-corp and pays corporate tax. But the family office sponsor can also structure their ownership through a blocker corporation or a charitable remainder trust to manage the tax. There's a lot of nuance. The bottom line is that if you're a family with a good tax advisor, the SPAC structure can be tax-efficient relative to PE, especially if you plan to hold for more than a year. Lucas: And there's a specific technique some families use: they'll put their sponsor equity into a grantor retained annuity trust, or GRAT. That way, the appreciation on the sponsor shares passes to the next generation without gift tax. It's an estate planning overlay that's hard to do with a PE fund interest. Luna: That's really clever. So the SPAC isn't just an investment vehicle — it's also a wealth transfer tool. Lucas: Right. And that's the angle that's underreported. Most of the media coverage of SPACs focuses on the retail disaster. But for families with serious capital — say $50 million or more in liquid assets — the SPAC is a legitimate alternative to private equity, with better liquidity, lower fees, and estate planning benefits. If today was actually useful to you, the way these stay ad-free is listener support. If you've gotten something out of our conversations, you can help keep them going at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to make sure we can keep digging into these structures without worrying about sponsors. And it really does help. Lucas: So back to the mechanics. One risk I want to highlight is the dilution from the sponsor promote. In a typical SPAC, the sponsor gets 20 percent of the post ipo equity for a nominal investment. That dilutes the public shareholders. If the deal performs poorly, that dilution can hurt. But for a family office that is both the sponsor and a major public shareholder — they often take a large anchor position in the IPO — the dilution is offset by their alignment. They own the promote and the common stock, so they're incentivised to make the deal work. Luna: So the family office is essentially eating its own cooking. That's the opposite of what we saw in 2021, where sponsors had no skin in the game beyond their promote. Lucas: Exactly. Today's family office SPACs are usually sponsored by the family itself, not by a third-party sponsor. The family puts its own capital at risk. That changes the dynamic completely. And the data backs it up: SPACs sponsored by family offices have a higher completion rate — around 85 percent — compared to third-party sponsors, which complete about 60 percent. And the post-merger stock performance is better, too. A 2025 study by the University of Chicago found that family office sponsored SPACs outperformed third-party SPACs by an average of 12 percent in the first year after merger. Luna: That's a significant edge. What's the minimum size for a family to do this effectively? You mentioned $50 million in liquid assets, but is that enough to sponsor a SPAC? Lucas: Typically, you need at least $100 million in liquid assets to justify the legal and advisory costs. Setting up a SPAC costs about $2 million in legal, underwriting, and filing fees. Then you need to put up sponsor capital — usually 2 to 5 percent of the trust. For a $200 million trust, that's $4 to $10 million. So you need to be able to risk that amount. But many family offices pool resources. We've seen two or three families co-sponsor a SPAC, sharing the promote and the risk. Luna: And are there any regulatory changes on the horizon? The SEC has been looking at SPACs for a while. Lucas: The SEC's 2024 rules already tightened disclosure requirements and expanded liability for forward-looking statements. But those rules actually helped legitimise the market. They scared away the bad actors. For family offices, the new rules are manageable because they already have robust compliance. The bigger risk is the potential for the IRS to reclassify the sponsor promote as compensation rather than investment gain. But so far, the IRS hasn't issued formal guidance. It's a grey area that tax advisors monitor closely. Luna: So the bottom line: if you're a wealthy family looking for pe like returns with more liquidity and lower fees, a SPAC is worth considering — but only if you have the capital and the patience for a 24-month process. Lucas: That's it. And always work with a law firm that specialises in SPACs. This is not a DIY structure. But for families who get it right, it's one of the most efficient ways to put capital to work in today's market.