The investment chief at Perceptive Advisors lays out the $8 billion hedge fund's SPAC strategy and why he would rather liquidate than make a bad deal

• Healthcare and biotech specialist Perceptive Advisors has raised four SPACs, and completed three deals.
• The firm's chief investment officer Adam Stone walked Insider through their SPAC strategy.
• The firm has taken Immatics, Cerevel Therapeutics, and Nautilus Biotechnology public via SPACs.

Compared to the average SPAC sponsor, Perceptive Advisors' track record has been phenomenal.

Less than a third of SPACs that took a target company public between 2015 and the summer of 2020 generated positive returns, according to Greenwich-based investment bank Renaissance Capital, yet Perceptive has seen gains so far for the three private companies it has taken public in the last 12 months: German-based biotech firm Immatics, Pfizer spinoff Cerevel Therapeutics, and home fitness product company Nautilus.

Now, as the company has launched a fourth blank-check company called Arya Sciences Acquisition IV, which raised $130 million in an IPO at the end of February, the healthcare and biotech specialist walked Insider through its SPAC strategy.

"We've expanded the firm with the goal of being able to work with any life sciences company or any idea we think is good," said Adam Stone, the $8 billion firm's chief investment officer. Perceptive runs a hedge fund and several credit funds, as well as a venture fund.

SPACs give the firm the ability to make big bets into private companies it believes in, but Stone said "I'd rather not do a deal than massively overpay." While the surge in SPACs has not yet affected valuations in his sector, Stone said the perception of Perceptive in the eyes of the firm's hedge-fund, venture-capital, and credit-fund investors is too important for Stone's SPACs to operate recklessly.

"This is a reputational issue for me," he said. A single SPAC transaction "is not worth ruining our reputation for," no matter how much money it would make Perceptive as the sponsor of the deal, he said.

Without a target, a SPAC liquidates and closes, returning the capital to the blank-check company's shareholders.

Private companies in general have become more comfortable going public through a SPAC over the last 12 months as sponsors become more well-known financial figures, but "there's still a lot of private companies that would prefer to do a [traditional] IPO," Stone said.

"And that's fine with us," he said, noting that Perceptive would then try to invest in the company through the venture fund.

One of the keys to running a successful SPAC, according to Stone, is a solid investor base that will put money in before a SPAC goes public - essentially putting their faith in Perceptive to find a company worth their bet in two years.

"I'm very proud of the investor base we have built in our SPACs," he said, noting it was a combination of hedge funds, long-only managers, specialists, mutual funds, and other fundamental investors. Backers across the different SPACs include Bain Capital, BlackRock, Ayleska, BlueCrest Capital, Franklin Templeton, and more, filings show.

These investors "get a free look at any deal - if they don't like it, then they can redeem or sell."

But if they do like the deal, these investors are often the ones tapped first for PIPE funding - a private investment in public equity deal, which sponsors raise when they find a target and need extra funding. In Perceptive's three successful SPACs, the manager has raised more than $600 million in PIPE funding to complete the transactions.

Either way, Perceptive's SPAC investors have been happy with the results. The economics for the hedge funds and other investors in the SPAC before it goes public are extremely favorable, and that's without considering the success of the deals Perceptive has completed.

"It's essentially getting them a higher likelihood of an allocation in what is hopefully a successful IPO," Stone said.