In a recent newsletter to investors, hedge fund firm Marshall Wace co-founder Paul Marshall issued a warning regarding the surge in special purpose acquisition companies (SPACs). This according to an article in Bloomberg.

SPACs, also referred to as “blank check companies,” raise money through IPOs and “seek private companies to merge with,” the article explains. In his letter, Marshall told investors that the life cycle of SPACs is full of “perverse incentives” for investors, sponsors and companies using the “shortcut” route to come to market. He added that SPACs have delivered “awful returns” and that newer issuances will continue that trend.

“The SPAC phenomenon will end badly and leave many casualties,” Marshall wrote, noting that his firm has more than $1 billion of gross exposure to these entities in its flagship $21 billion Eureka hedge fund. He also noted that his firm owns or has owned “almost every SPAC” on the long side and is now also betting on their prices to collapse.

The article notes that the warning “follows a stampede to list SPACs—more than 300 raised in excess of $100 billion this year alone—that’s sparked scrutiny and regulatory overhang.” In recent weeks, it says, the SEC set forth new guidance that warrants, which are issued to early investors in SPAC deals, “might not be considered equity instruments and may instead be liabilities for accounting purposes. The regulator also warned listing candidates that structuring as a SPAC isn’t a way to avoid disclosing key information to investors.”