The SPAC Resurgence with Julian Klymochko - The Special Situations Report Episode #30

Episode Summary

Executive Summary: Julian Klimochko of Accelerate explained how his career in M&A and hedge funds shaped a selective, risk-focused approach to merger arbitrage, SPAC arbitrage, and liquid alternatives via ETFs. He argued that transparency, liquidity, and investor access make ETF-based hedge fund strategies superior to traditional private funds, and discussed regulatory, political, and borrow-cost risks that drive opportunity in special situations.

Main Topics: Career path into arbitrage and special situations (Priority: 5/5): Klimochko described discovering finance in university, moving from engineering into finance, starting in investment banking, then joining a hedge fund during the GFC where he learned arbitrage and risk management before launching Accelerate. Why Accelerate uses ETF structures (Priority: 5/5): He explained that ETFs were chosen to democratize hedge-fund-like strategies, offering daily liquidity, transparency, lower friction, and accessibility for non-wealthy investors who were historically excluded from alternatives. Merger arbitrage process and screening discipline (Priority: 5/5): Klimochko detailed his daily workflow, data sources, and checklist for evaluating deals, emphasizing selectivity rather than buying every spread and focusing on liquidity, buyer credibility, financing, regulatory risk, and deal terms. Regulatory, political, and headline risk in M&A (Priority: 5/5): The conversation highlighted how antitrust, CFIUS, foreign investment review, activist pressure, and political intervention can widen spreads and delay or derail deals, making regulatory analysis central to the strategy. SPAC arbitrage and crypto treasury companies (Priority: 4/5): He described SPAC arbitrage as buying IPOs near trust value with optional upside if a good merger is announced, and discussed the recent boom in crypto treasury companies that replicate the MicroStrategy/Strategy model. Retail trading, meme stocks, and market inefficiency (Priority: 4/5): Klimochko discussed research showing retail investors spend very little time researching stocks and argued that social-media-driven flows create persistent inefficiencies and short-squeeze risk that professionals can sometimes monetize. Resources and personal habits for investing longevity (Priority: 3/5): He recommended classic investing books and emphasized physical training, sleep, and discipline as essential to performing in a high-stress, constantly changing event-driven investing career.

Key Arguments: ETFs are a better delivery vehicle for alternatives because they provide daily liquidity, low minimums, and easier access than private funds. The best investment strategies should not be reserved only for wealthy investors; liquid alternatives can democratize access. Merger arbitrage requires selectivity because not all deals are equal, and market-cap-weighted passive approaches are inferior due to size, timing, and regulatory-risk concentration. The main job in merger arbitrage is to avoid deal-break losses, since one failure can wipe out profits from several successful trades. Buyer credibility, financing certainty, and deal structure matter more than simple headline spread when screening M&A opportunities. Regulatory review is often the most complex part of the trade because antitrust, CFIUS, foreign investment, and political backlash can each alter outcomes. SPAC arbitrage offers asymmetric optionality: downside is generally limited to trust value, while successful deals can create large upside spikes. Retail-driven trading has made markets more inefficient and more prone to episodic dislocations, short squeezes, and non-fundamental price moves. Borrow availability and shorting costs can make apparently wide all-stock spreads untradeable in practice. The growth of crypto treasury companies shows how market enthusiasm can create new special-situation structures and opportunities.

Data Points: Years following CNBC/Jim Cramer as an early catalyst: about 20 years ago - Klimochko said CNBC and Jim Cramer helped spark his interest in stocks while in university. Career exposure to 2008 GFC: 2008 - He said the global financial crisis taught him early lessons in risk management. Initial hedge fund results during GFC: up 8% - He said his fund was up in 2008 while stocks were down sharply, illustrating arbitrage resilience. Experience analyzing M&A deals: about 5,000 deals - He referenced the volume of transactions he has reviewed over his career to illustrate pattern recognition. Typical success rate of U.S. M&A deals: 94% success / 6% fail - He cited long-run U.S. merger completion rates in assessing risk. Failure rate for large-cap deals over $10B: 15% - He said larger deals fail more often and therefore require more scrutiny. Current merger arbitrage book size: 15 to 20 deals - He said Accelerate typically holds positions in about a quarter or less of North American definitive deals. Outstanding North American deals at any time: 80 to 90 deals - Used as the universe from which his team selects positions. Selectivity rate: about 25% or less - His current book covers roughly one-quarter or fewer of available public definitive agreements. Average retail research time: 6 minutes - Referenced academic research on how little time the median retail investor spends researching a stock before buying. Retail share of U.S. stock volume: one-third to one-half - He said retail accounts for a very large portion of trading activity. CoreWeave borrow cost: 300% - He said shorting CoreWeave in the Core Scientific all-stock deal was uneconomical due to extreme borrow fees. Typical stock borrow cost: 55 basis points - Used as a comparison to show how abnormal CoreWeave borrow was. SPAC IPO trust value: $10+ - He described SPAC arbitrage as buying near $10 in trust and earning accrued interest if the deal fails or liquidates. MicroStrategy/Strategy Bitcoin holdings: about $60B+ of Bitcoin - He cited Strategy as the template for crypto treasury companies. Strategy market value vs Bitcoin NAV: roughly double NAV - He said the company trades far above the value of the Bitcoin it holds. Cantor Equity Partners upside: from $10 to as high as $50 - He cited a recent SPAC/crypto treasury example with explosive upside after announcement. Churchill SPAC / Lucid example: from $10 to the 50s - He used CCIV-Lucid as another example of SPAC upside optionality. Large historic merger arb outperformance vs S&P index: about 700 bps per year - He said his team has materially outperformed the S&P merger arbitrage index.

Pivotal Quotes: "I always thought it was unfair that the best investment strategies were only reserved for the wealthy, particularly given that I didn't come from money." — Julian Klimochko: Explaining why he wanted to create ETF-based alternatives accessible to a wider investor base. "The number one job is to not lose money on any one investment." — Julian Klimochko: Describing the core discipline behind merger arbitrage selection and risk control. "It's like Netflix to Blockbuster." — Julian Klimochko: His analogy for why ETF-based liquid alternatives are superior to traditional private hedge funds.

Implications: For investors, the episode highlights that special situations are increasingly shaped by regulation, borrow costs, and retail behavior. It also suggests liquid alternative ETFs may keep expanding as a democratized way to access hedge-fund-like strategies.