Alternative Products Spacs Reits

Alternative Products: SPACs and REITs ## Investment Vehicle Characteristics — Series 65 Study Lesson Section II accounts for approximately 25% of the exam (~32 questions), making alternative investment vehicles a meaningful test target. The exam expects you to distinguish SPACs, REITs, and other alternatives from traditional securities and understand their structural, tax, and risk characteristics well enough to apply them in client scenarios. --- ## Special Purpose Acquisition Companies (SPACs) A SPAC (Special Purpose Acquisition Company) is a publicly traded shell company created for the sole purpose of raising capital through an IPO, then using that capital to acquire or merge with a private operating company. SPACs are sometimes called "blank check companies" because investors commit money before knowing exactly which target the company will acquire. ### How SPACs Work 1. Sponsors (usually experienced executives or PE professionals) form the SPAC and take it public. 2. IPO proceeds are held in a trust account, typically invested in short-term Treasury securities or money market instruments. 3. The SPAC has a defined search window (commonly 18–24 months) to identify a target. 4. If a suitable target is found, shareholders vote to approve the de-SPAC merger; if approved, the private company effectively becomes publicly listed. 5. Shareholders who disagree may redeem their shares for their pro-rata share of the trust, making the downside risk relatively limited pre-merger. 6. If no target is found within the window, the SPAC is liquidated and trust funds are returned to investors. ### SPAC Risk Profile | Feature | Detail | |---|---| | Liquidity | Shares trade on exchanges post-IPO — relatively liquid | | Transparency | Low pre-merger; investors don't know the target | | **Dilution…