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- Higher interest rates are creating unprecedented headwinds for businesses, according to Chamath Paliphitiya.
- In a letter, Paliphitiya pointed to “destruction” across multiple sectors, thanks to tighter financial conditions.
- Some companies that Paliphitiya helped take public via SPAC have faltered as rates surged.
Higher interest rates are sowing chaos across businesses and whole sectors of the market, according to “SPAC king” Chamath Palihapitiya.
In an annual letter to investors on Tuesday, the Social Capital CEO leveled more criticism at the Federal Reserve over its aggressive rate hikes over the past year. The policy move has weighed heavily on risk assets, and helped burst the bubble in so-called blank-check firms that Palihapitiya rode during the pandemic boom of 2020 and 2021.
“The amount of absolute value destruction, not just in companies, but entire sectors … was alarming,” Palihapitiya said, pointing to the decline in areas like crypto and special purpose acquisition companies, shell companies that raise capital to expedite the IPO of an existing company.
The pain of higher rates has already been felt in the stock market and by some of the companies Palihapitiya helped take public via SPAC. Paliphitiya used blank-check companies to bring 10 businesses public in recent years, including Virgin Galactic and Opendoor, which have both plunged from their highs of 2021.
“This has created a wave of destruction with many unintended consequences,” Palihapitiya added, calling 2022 one of the “toughest years” he’s faced as a business executive.
In a previous interview with the New York Times, Palihapitiya attributed investors’ losses to the Fed’s rate hikes, blaming the difficult operating environment primarily on the central bank and Fed chair Jerome Powell.
“The era of excess, abundance, and zero interest-rate policy has come to an end. Last year, we likened it to ending the best party in town – but instead of simply turning on the lights, the past year has been more akin to getting cold water thrown in our faces,” Palihapitiya added.
Other commentators have warned the market is headed into a new regime defined by higher interest rates and persistent inflation. BlackRock warned recently that the global economy had already entered a new age of elevated volatility, and investing approaches that worked over the prior decade won’t fly in the new macro environment.