WEBVTT - Bridgewater, Coinbase, China, and Commodities (Podcast) 0:00:00.760 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEO's, market pros and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.400 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.680 at Bloomberg dot com slash podcast. Yes you're just dark. 0:00:21.840 --> 0:00:25.160 Eric Schatzker is in the studio. I guess Paul Singer 0:00:25.280 --> 0:00:27.400 is an active guy, right, But I always thought of 0:00:27.400 --> 0:00:30.280 Elliott as a distressed investor because Hans Humes like cut 0:00:30.280 --> 0:00:34.920 his teeth there with Argentina. Elliott certainly started out that way. 0:00:34.960 --> 0:00:38.720 I'd say Elliott is highly opportunistic more than anything else. 0:00:38.760 --> 0:00:41.240 They make long only bets as well. Yes, they function, 0:00:41.400 --> 0:00:45.720 they have an activist profile. They certainly throw their weight around. 0:00:46.840 --> 0:00:50.720 But yes, I would say that bare knuckled distressed investing 0:00:50.840 --> 0:00:53.200 is one of their specialties. It's not why you're in here, though, 0:00:53.240 --> 0:00:56.680 It's not. It's not you got something else to talk about. So, 0:00:57.160 --> 0:01:02.279 Ray Dalio, you broke the story when he officially announced 0:01:02.280 --> 0:01:05.440 he was back in October. Yes, Ray Dalio, after twelve 0:01:05.560 --> 0:01:08.479 years of trying finally let go of the rains at Bridgewater. 0:01:09.080 --> 0:01:11.680 And we've been waiting for five months to find out 0:01:11.720 --> 0:01:15.600 what the new generation of leadership under the CEO near Bardaa, 0:01:15.720 --> 0:01:19.280 former Israeli military guy, really was going to do. And 0:01:19.360 --> 0:01:21.880 now we know. So what are the details? Let us in. 0:01:22.040 --> 0:01:24.000 There is a lot happening, and it is happening on 0:01:24.040 --> 0:01:27.560 a very accelerated timetable. The first thing people are going 0:01:27.600 --> 0:01:30.039 to notice and find surprising is that Bridgewater is cutting 0:01:30.040 --> 0:01:33.200 some jobs. The firm employees about thirteen hundred people and 0:01:33.240 --> 0:01:35.400 it's getting rid of about one hundred and not all 0:01:35.440 --> 0:01:37.240 of those people are junior folks. That will be some 0:01:37.319 --> 0:01:40.920 senior people as well. Why because it wants to deploy 0:01:41.080 --> 0:01:44.240 those resources. There isn't an infinite amount of money, even 0:01:44.240 --> 0:01:47.360 though Bridgewater is a big and very profitable firm, into 0:01:47.400 --> 0:01:50.680 new initiatives and we'll talk about those. The other thing 0:01:50.680 --> 0:01:53.600 that's really worth mentioning is that Bridgewater is capping the 0:01:53.680 --> 0:01:57.080 size of its so called flagship hedge fund strategy. This 0:01:57.160 --> 0:02:00.720 is it has a name Pure Alpha, and it is 0:02:01.200 --> 0:02:05.040 the product, the hedge fund product that Bridgewater offers its clients. 0:02:05.160 --> 0:02:08.600 The idea is that it will over time generate excess 0:02:08.639 --> 0:02:13.680 return in other words alpha hence pure alpha. Bridgewater for 0:02:13.760 --> 0:02:17.720 so many years defied the laws of hedge fund gravity. 0:02:18.000 --> 0:02:22.440 The conventional wisdom was always that strategies outside of equities 0:02:22.800 --> 0:02:27.799 were capacity constrained. Some strategies and things like distressed credit 0:02:27.800 --> 0:02:30.560 are very capacity constrained. There just isn't that much to do. 0:02:30.720 --> 0:02:34.120 So that macroso pretty big, but too much money. They 0:02:34.120 --> 0:02:38.480 can't put it to work. They can't generate high enough returns. Yet, 0:02:38.680 --> 0:02:42.200 as I say, Bridgewater defied gravity because it's two principled strategies, 0:02:42.280 --> 0:02:45.160 pure alpha and the risk parity strategy called all Weather. 0:02:45.720 --> 0:02:49.640 Hoovered up assets at an unbelievable pace. In two eleven 0:02:49.680 --> 0:02:52.680 it crossed one hundred billion dollars in total assets, and 0:02:52.720 --> 0:02:55.600 then more recently it has been north of one hundred 0:02:55.600 --> 0:02:58.960 and fifty. Wow, and now you know, the natural laws 0:02:58.960 --> 0:03:01.800 of the universe appear to be taking hold. Bridgewater's performance 0:03:02.200 --> 0:03:07.240 during the twenty tens was you know, this is an understatement, uninspiring, 0:03:08.000 --> 0:03:12.440 and they've gone back to the well look, gave themselves 0:03:12.480 --> 0:03:14.680 a hard look in the mirror and recognize that things 0:03:14.720 --> 0:03:18.880 had to change. The inference I can draw from my 0:03:19.000 --> 0:03:22.720 reporting is that it was harder to change. While Ray 0:03:22.880 --> 0:03:27.119 was still there. He'd built the firm, He'd created its unusual, 0:03:27.280 --> 0:03:31.639 some would say odd culture, transparency, and he was, as 0:03:31.720 --> 0:03:34.120 any founder would be, very attached to a certain way 0:03:34.160 --> 0:03:37.160 of doing things. Now he's gone, a much younger generation 0:03:37.200 --> 0:03:43.480 of leadership is in charge, and you can also infer 0:03:43.560 --> 0:03:45.880 that they've been chomping at the bit because here are 0:03:45.880 --> 0:03:48.200 some things that they're doing that it would have been 0:03:48.280 --> 0:03:51.600 very difficult to see Bridgewater do if Ray were still 0:03:51.720 --> 0:03:53.840 in command. All right, Eric, so we have, as you mentioned, 0:03:53.920 --> 0:03:57.320 the new chief executive officer near Bardea. That's correct, former 0:03:57.400 --> 0:04:00.520 Israeli military guys I mentioned he was a contoon leader. Interesting, 0:04:01.400 --> 0:04:04.440 what does a new team? What are they looking to 0:04:04.440 --> 0:04:07.280 do in terms of new initiatives changes? Yes, we need 0:04:07.320 --> 0:04:09.680 to get into this. There's four areas they're pushing ahead. 0:04:09.720 --> 0:04:12.960 In one is Asia. They want a bigger footprint in Asia. 0:04:13.000 --> 0:04:15.320 They're adding people. In Singapore, they want to get closer 0:04:15.360 --> 0:04:18.960 to some of the institutional clients there. You can draw 0:04:19.520 --> 0:04:22.360 some conclusions about who those might be. Gic, for example, 0:04:22.440 --> 0:04:27.600 Tamask both like in love with China as well. Ray 0:04:27.720 --> 0:04:31.279 said some controversial things about China and I talked to 0:04:31.360 --> 0:04:35.000 Near about China. Their position on China is not ideological. 0:04:35.040 --> 0:04:36.839 They want to be able to invest in China and 0:04:36.880 --> 0:04:39.919 to be able to offer clients exposure to Asia. Why 0:04:40.160 --> 0:04:43.520 because half of the world's economy is driven by Chinese 0:04:43.560 --> 0:04:48.480 monetary policy in Chinese credit creation and China and Asia 0:04:48.560 --> 0:04:52.480 more broadly are generating are adding to global GDP at 0:04:52.520 --> 0:04:55.240 double the rate the US and Europe are. So it's 0:04:55.240 --> 0:04:58.760 a place to simply have to be. Forget about anything 0:04:58.800 --> 0:05:01.680 that Ray may have said or things that people might 0:05:01.720 --> 0:05:04.279 believe have believed about his views on China. So Asia 0:05:04.360 --> 0:05:07.200 is number one. They want to be much bigger in equities, 0:05:07.200 --> 0:05:10.640 specifically long only equities. This is something their clients want 0:05:10.680 --> 0:05:13.480 and it's not a long short equity fund. What they're 0:05:13.480 --> 0:05:16.200 doing is taking their macro views. This is the specialty 0:05:16.200 --> 0:05:19.279 at Bridgewater, the so called compounded understanding that they've built 0:05:19.600 --> 0:05:23.240 over forty seven years and expressing it through equities. So 0:05:23.279 --> 0:05:28.440 if pure alpha again the flagship strategy would have shorted bonds, 0:05:28.560 --> 0:05:33.240 shorted treasuries in if it anticipated a rising rate environment, 0:05:33.920 --> 0:05:37.160 a long only equity strategy would have minimized its exposure 0:05:37.200 --> 0:05:40.719 to interest rate sensitive stocks or similarly, if pure alpha 0:05:40.800 --> 0:05:44.039 was going to go long copper because it believed copper 0:05:44.040 --> 0:05:46.240 prices were going to rise and industrial production was going 0:05:46.279 --> 0:05:49.560 to boom, the long only equity strategy, again expressing a 0:05:49.600 --> 0:05:54.440 macro view, would buy copper miners. The third area machine 0:05:54.480 --> 0:05:58.360 learning and artificial intelligence. This is not a chat GBT thing. 0:05:58.480 --> 0:06:02.200 Bridgewater has been experimented for a decade with these tools, 0:06:02.320 --> 0:06:05.400 but it now wants to build them out, engineer something 0:06:05.440 --> 0:06:09.320 that it can put to work making investment decisions. Again, 0:06:09.520 --> 0:06:13.200 humans still part of the picture. And finally, sustainability. You'll 0:06:13.200 --> 0:06:17.600 recall that Karen Carnial Tambour, only thirty seven years old, 0:06:17.720 --> 0:06:21.359 was recently elevated from co chief of Sustainability to co 0:06:21.640 --> 0:06:28.080 CIO at Bridgewater, and clearly you know her hand. Her 0:06:28.080 --> 0:06:34.040 fingerprints are on some of this. Bridgewater is has to 0:06:34.080 --> 0:06:37.400 respond to client demand for more products and sustainability, and 0:06:37.480 --> 0:06:40.120 they want to do sustainability and equities and they want 0:06:40.120 --> 0:06:43.160 to generate. Up until now, their sustainability product has been 0:06:43.240 --> 0:06:47.440 BEATA driven. They they want alpha strategies in sustainability and 0:06:47.520 --> 0:06:51.440 they want to express their views on sustainability. Similarly, inequities 0:06:51.839 --> 0:06:56.160 four areas in which Bridgewater believes it can amass billions 0:06:56.240 --> 0:06:59.880 upon billions of dollars, and if it's successful, they'll ultimately 0:07:00.160 --> 0:07:02.400 be less reliant on what we were talking about before 0:07:02.440 --> 0:07:05.000 pure Alpha and always that's interesting. Vanguard just did a 0:07:05.000 --> 0:07:08.560 study on its ESG products and showed they had no 0:07:08.720 --> 0:07:13.000 outperformance versus I guess, well, Vanguard is let's not forget 0:07:13.040 --> 0:07:15.680 apart from the subadvised funds at Vanguard, Vanguard is a 0:07:15.680 --> 0:07:19.640 beta shop, right. Vanguard is the pioneer of indexing, and 0:07:20.440 --> 0:07:26.000 I'm not disputing Vanguard's conclusions right. What I am saying, 0:07:26.160 --> 0:07:28.280 and what's clear to me is that clients, for better 0:07:28.320 --> 0:07:32.560 or for worse, want Bridgewater to offer them more in sustainability. 0:07:32.800 --> 0:07:35.760 The clients might be wrong, that's for us. It doesn't matter. 0:07:35.840 --> 0:07:37.800 That's fascinating that people want to put their money there. Still, 0:07:37.840 --> 0:07:40.520 after the backlash that we've seen, you know against uh, 0:07:40.720 --> 0:07:43.520 you know, Larry Fink and black Rock, what about the 0:07:43.600 --> 0:07:49.640 radical transparency that to me defined Bridgewater's culture. I only 0:07:49.680 --> 0:07:52.200 know it obviously through reading your reporting for the most part. 0:07:52.240 --> 0:07:55.040 But that's changed. Is that going to change? Because it 0:07:55.040 --> 0:07:59.520 seems like they weren't terribly transparent about Dahlia's fight for 0:07:59.560 --> 0:08:02.760 more money on his way out. Well, there are people 0:08:02.800 --> 0:08:05.880 in Bridgewater who would dispute the account that you've you're 0:08:05.880 --> 0:08:10.080 referring to in another publication. Yes, but the culture is changing, 0:08:10.080 --> 0:08:12.360 of Horse, it's changing. They're younger people in charge now. 0:08:12.360 --> 0:08:16.800 They're no longer so attached to the pain buttons that 0:08:16.960 --> 0:08:19.760 you know, these these these apps, if you will, that 0:08:20.520 --> 0:08:23.720 Bridgewater developed under Ray the baseball cards that you know, 0:08:24.120 --> 0:08:28.920 tried to capture, you know, somebody's entire personality in every 0:08:28.920 --> 0:08:32.160 decision he might make in the years ahead. Those things 0:08:32.160 --> 0:08:40.360 still exist. Are they as popular as as frequently utilized today? 0:08:40.640 --> 0:08:42.360 Hard for me to know. I'm not inside the firm, 0:08:42.400 --> 0:08:44.640 But the distinct impression I get is that Bridgewater has 0:08:44.679 --> 0:08:46.439 moved on from some of that stuff, and they were 0:08:46.520 --> 0:08:51.680 definitely softening the approach that they took to designing things 0:08:51.679 --> 0:08:54.840 like the baseball cards even before Ray left the firm. 0:08:55.120 --> 0:08:57.600 All right, Eric, great, great stuff. One of the top 0:08:57.600 --> 0:08:59.880 red stories on the Bloomberg terminal will be for the 0:09:00.080 --> 0:09:05.600 entire day, I predict Eric Schatzker, Bloomberg News. Excellent reporting Greenby. 0:09:05.679 --> 0:09:08.880 For those who know about Bridge Ray Dalio, the changes, 0:09:08.920 --> 0:09:11.160 they're good stuff. We appreciate Eric being in on our studio. 0:09:14.040 --> 0:09:16.480 All right, we want to get into the private equity space, 0:09:16.920 --> 0:09:19.000 one of my favorite spaces. And quite frankly, I've been 0:09:19.040 --> 0:09:20.560 on Wall Street for thirty years. I kind of feel 0:09:20.559 --> 0:09:24.360 like it's the last place where you can make outsized returns. 0:09:24.360 --> 0:09:27.120 That's just my personal opinion. Hedge fund business game over 0:09:27.800 --> 0:09:32.720 traditional Wall Street game over in terms of making outsized returns. 0:09:32.720 --> 0:09:34.360 And that's why I like it. If I were a 0:09:34.360 --> 0:09:36.480 young person, I'd be going into private equity right away. 0:09:36.520 --> 0:09:39.120 Andrea Auerback joins us. She's head of private Investments at 0:09:39.160 --> 0:09:42.079 Cambridge Associates. She gets a gold star because she is 0:09:42.160 --> 0:09:45.840 Live and our Bloomberg Interactive Brooker's studio. Andrea talked to 0:09:45.920 --> 0:09:48.600 us about the last I don't know, three or four years. 0:09:48.640 --> 0:09:52.520 The whole world's been upside down, markets all over the place. 0:09:52.559 --> 0:09:55.000 Now we've got a Federal Reserve raising rates and all 0:09:55.000 --> 0:09:58.160 this kind of stuff from the private equity space. Just 0:09:58.160 --> 0:10:00.160 give us when you go talk to clients, how do 0:10:00.200 --> 0:10:04.920 you frame up the last few years? Wonderful question typically, 0:10:04.920 --> 0:10:07.640 and good morning, by the way, big question, good morning 0:10:07.640 --> 0:10:11.320 to you as well. Typically, when folks are asking us 0:10:11.360 --> 0:10:13.760 about what's happening in the private equity space. I kind 0:10:13.760 --> 0:10:16.520 of roll it back a few decades, okay, right, So, 0:10:17.080 --> 0:10:20.120 as you started out with your morning comments, private equity 0:10:21.200 --> 0:10:24.640 has only been institutionalizing since the eighties. It's basically forty 0:10:24.720 --> 0:10:27.160 years old. I wish I were forty years old again, 0:10:27.960 --> 0:10:32.080 and so it's constantly evolving, and so what you've been 0:10:32.120 --> 0:10:34.320 seeing in the last couple of years is really building 0:10:34.320 --> 0:10:36.440 off of a lot of phases that the industry has 0:10:36.440 --> 0:10:39.840 already moved through. Leveraged buyouts are now referred to fondly 0:10:39.840 --> 0:10:42.680 as private equity, and right, little euphemism twists there, but 0:10:42.840 --> 0:10:45.440 part of the reasons for that is that private equity 0:10:45.559 --> 0:10:47.640 isn't just about applying a lot of leverage to a 0:10:47.679 --> 0:10:52.280 company anymore. It's immensely diversified space and ecosystem. So it's 0:10:52.320 --> 0:10:54.880 not just the one thing people tend to think about. Well, 0:10:55.000 --> 0:10:58.360 one thing I think about, and I've spent the last 0:10:58.400 --> 0:11:02.000 six years going to the super Return conference in Berlin, 0:11:02.320 --> 0:11:05.959 is just how much money private equity has a mass. 0:11:06.080 --> 0:11:07.920 You know, every year that I went it was a 0:11:08.000 --> 0:11:13.160 new impossible to understand figure like one point seven trillion, 0:11:13.200 --> 0:11:15.400 and then it was two point three trillion, and just 0:11:15.480 --> 0:11:19.160 so much dry powder that I always wondered, you know, 0:11:19.240 --> 0:11:22.200 with that much money chasing the same assets, is it 0:11:22.280 --> 0:11:25.200 possible to get a decent price? Is that still the 0:11:25.240 --> 0:11:28.839 case that private equity has so much cash and is 0:11:29.440 --> 0:11:32.360 just impossible for them to put it to work. So 0:11:32.400 --> 0:11:34.560 the answer to that, so the big, the big headline 0:11:34.640 --> 0:11:36.839 number that you just mentioned is immense, but it breaks 0:11:36.880 --> 0:11:40.040 down pretty quickly into different categories. Right. So, as we mentioned, 0:11:40.440 --> 0:11:42.880 private equity has been evolving over decades, and so there 0:11:42.880 --> 0:11:46.720 are five thousand gps walking around who have raised some 0:11:46.880 --> 0:11:49.640 part of that one point trillion number that you gave us, 0:11:49.920 --> 0:11:51.760 and they're trying to deploy it within the space that 0:11:51.800 --> 0:11:54.720 they're occupying. Right. So when you break down that overhang 0:11:54.800 --> 0:11:57.240 that you talk about and we define that, i'd like 0:11:57.280 --> 0:11:59.640 to think we're the first to define it actually being honest. 0:12:00.000 --> 0:12:04.160 Amage Associates, Yes, many moons ago. Half of that belongs 0:12:04.200 --> 0:12:06.480 to funds that have five million or more in capital 0:12:06.600 --> 0:12:09.480 under management, right, And so a lot of the larger 0:12:09.480 --> 0:12:13.120 funds have the big money, the more money more problem problem, 0:12:13.440 --> 0:12:16.959 which is they're all maybe looking for a smaller group 0:12:16.960 --> 0:12:19.719 of assets, whereas there's another cohort which might have less 0:12:19.720 --> 0:12:22.520 than a billion in capital, under management and they have 0:12:23.160 --> 0:12:26.160 a broader ecosystem to play in and go find a company, 0:12:26.280 --> 0:12:30.160 and don't forget there's something like six million private businesses 0:12:30.200 --> 0:12:33.800 in the US. They're not all private, private equity owned yet, right, 0:12:34.320 --> 0:12:38.400 all right, So twenty twenty two, the sixty forty portfolio 0:12:38.480 --> 0:12:42.880 for most investors crushed. He couldn't make money anywhere this year. Well, 0:12:42.880 --> 0:12:46.560 you could make money if you owned oil in alternative assets. Well, 0:12:46.559 --> 0:12:50.040 Welisha Brahmas has apartment. Yeah, I mean there's there were 0:12:50.080 --> 0:12:52.480 places where people knocked it out of the park, right, yeah, 0:12:52.480 --> 0:12:54.960 but most sixty forty folks, most it did not. So 0:12:55.040 --> 0:12:56.800 tough times. You come here to twenty twenty three. Now 0:12:56.840 --> 0:13:00.400 we've got a FED reserve kind of reversing raising ray. 0:13:00.559 --> 0:13:03.840 People are concerned, what's the private equity market like today? 0:13:04.000 --> 0:13:06.120 What are you telling clients? What are you hearing from 0:13:06.120 --> 0:13:09.160 your clients? As you'd asked, right now, the private equity 0:13:09.160 --> 0:13:12.959 market is sort of on pause, right, just like most markets. 0:13:13.000 --> 0:13:15.240 Most folks who want to do a transaction, like I 0:13:15.280 --> 0:13:17.520 don't know how to forecast what's about to happen and 0:13:17.559 --> 0:13:19.960 it's impact on the companies I want to buy, and 0:13:20.000 --> 0:13:22.439 if I can't, if I can't forecast. I can't come 0:13:22.520 --> 0:13:25.000 up with an accurate valuation that I'm willing to pay. 0:13:25.040 --> 0:13:26.719 And I also don't know how these companies are going 0:13:26.760 --> 0:13:29.760 to perform because a lot of unknowns just became known 0:13:29.880 --> 0:13:32.280 over the last year or so, right, And so the 0:13:32.320 --> 0:13:35.320 market itself, transaction volumes have been on pause, waiting to 0:13:35.360 --> 0:13:37.439 sort of sort itself out. I think there's a lot 0:13:37.440 --> 0:13:40.600 of pent up transaction volume that will start to come 0:13:40.600 --> 0:13:43.480 to market once folks decide and settle out like this 0:13:43.520 --> 0:13:46.400 is our go forward operating environment. So it's been on 0:13:46.440 --> 0:13:48.280 pause right now, and it's sort of like, you know, 0:13:48.520 --> 0:13:51.040 you check your belongings. Do I have my wallet, my keys? 0:13:51.400 --> 0:13:54.679 Are the companies that I own currently? Are they performing okay? 0:13:54.760 --> 0:13:56.880 Given a lot of the changes that have been coming 0:13:56.880 --> 0:14:01.360 at us all right, higher inflation, higher interest rates, you know, 0:14:01.480 --> 0:14:05.640 difficulty finding good labor, difficulty getting your supply chain moving, 0:14:05.720 --> 0:14:08.720 all those things. So I think the industry itself has 0:14:08.880 --> 0:14:11.480 been a little bit on pause. Check your belongings before 0:14:11.559 --> 0:14:14.720 maybe moving forward into this environment with a plan. But 0:14:14.880 --> 0:14:17.920 sixty forty people for the most part are like you know, 0:14:17.960 --> 0:14:21.840 me and Eric, retail guys who until recently haven't had 0:14:22.000 --> 0:14:26.160 access to alternative assets. Paul is probably an incredited investor, 0:14:26.280 --> 0:14:29.360 so he could. We've had more and more guests on 0:14:29.440 --> 0:14:34.960 their giving access to private investments to retail investors in 0:14:35.080 --> 0:14:38.320 various ways, with various platforms. Is that growing in private 0:14:38.840 --> 0:14:42.800 equity as well? Yes. And one of the reasons for 0:14:42.840 --> 0:14:45.320 this is there's a long term there's a long term trend. Right. 0:14:45.400 --> 0:14:49.360 So when my dad, if you will, was actively working, 0:14:49.600 --> 0:14:54.000 he was receiving a pension right now, lucky I know exactly, 0:14:54.480 --> 0:14:57.200 and a lot of pensions because they were more institutionally 0:14:57.280 --> 0:15:02.560 managed by a centralized, centralized tea. They were pursuing private investments, 0:15:02.840 --> 0:15:05.120 and so a lot of our dads, I guess and 0:15:05.480 --> 0:15:08.720 moms could benefit from having some exposure to alts in 0:15:08.760 --> 0:15:11.960 their retirement program. Now I'm of a different generation. I'm 0:15:11.960 --> 0:15:14.480 in the four o one K class, right, and so 0:15:14.600 --> 0:15:17.600 four oh one k's typically don't have access to privates. 0:15:17.840 --> 0:15:20.440 One of the classic k I want some of that 0:15:20.600 --> 0:15:23.400 is the returns of privates have stood the test of 0:15:23.480 --> 0:15:27.119 time over a forty year period, still a very productive 0:15:27.200 --> 0:15:29.760 returning asset class. And I think a lot of folks 0:15:29.800 --> 0:15:32.680 who don't have access to pensions anymore would like some 0:15:32.800 --> 0:15:36.320 access to the sasset class and then enter stage left 0:15:36.600 --> 0:15:39.280 private equity firms and others trying to figure out how 0:15:39.280 --> 0:15:43.440 to provide exposure to private investments in an appropriate way 0:15:43.760 --> 0:15:45.360 to a four oh one K investor or to a 0:15:45.400 --> 0:15:49.880 retail investor. And that's regulators must and regulators must want 0:15:49.920 --> 0:15:52.760 to help out as well, because it's just really not 0:15:52.880 --> 0:15:56.480 fair if you're a Now we're a whole generation of 0:15:56.520 --> 0:15:58.560 four oh one k people, right, so all of a 0:15:58.600 --> 0:16:03.240 sudden that exposure is gone for retirement accounts, meaning the 0:16:03.360 --> 0:16:05.920 returns are going to be smaller for us than they 0:16:05.960 --> 0:16:09.480 were maybe for pension people. I wonder if you'll see 0:16:09.560 --> 0:16:14.920 changes in regulation or new products that allow retail investors 0:16:14.920 --> 0:16:17.800 to get in in a safe way. It's been interesting 0:16:17.840 --> 0:16:21.480 to watch this. So at Cambridge Associates, we're globally focused, right, 0:16:21.520 --> 0:16:24.280 so we're glad explain to us, really what Cambridge Associates does. 0:16:24.360 --> 0:16:27.000 I mean, you've been there for quite a while, yes, 0:16:27.080 --> 0:16:29.240 quite a while. Thank you, Thank you for being gracious 0:16:29.280 --> 0:16:32.800 there Cambridge Associates. So we advise and manage capital on 0:16:32.840 --> 0:16:37.920 behalf of endowments and foundations, pensions, sovereign wealth funds, and families. 0:16:37.960 --> 0:16:41.400 So we really advise and invest on behalf of a 0:16:41.440 --> 0:16:45.080 broad swath of family office people. Yeah, family offices, and 0:16:45.120 --> 0:16:48.360 we operate globally. One of the fun things about being 0:16:48.400 --> 0:16:51.080 able to operate globally is you can watch to your 0:16:51.160 --> 0:16:54.840 retail exposure to private equity in different parts of the world. 0:16:54.880 --> 0:16:57.880 They're trying to crack this not themselves, in different ways, 0:16:58.040 --> 0:17:00.880 and so depending on where you are, there is opportunity 0:17:00.920 --> 0:17:04.960 to participate in publicly traded private equity funds or be 0:17:05.040 --> 0:17:08.439 able to participate in a slice of private equity as 0:17:08.480 --> 0:17:12.040 provided to you by a government entity. So they're interesting 0:17:12.119 --> 0:17:15.040 things that I think US investors are looking at for 0:17:15.119 --> 0:17:17.800 ways to innovate and bring that here or to sort 0:17:17.800 --> 0:17:20.080 it out in a way that's American. Can you talk 0:17:20.119 --> 0:17:22.600 to just briefly about private credit, Matt, and I hear 0:17:22.640 --> 0:17:25.560 a lot more about that than we did. It's just 0:17:25.600 --> 0:17:29.439 so hot, yeah, yeah, yeah. Private So private credit. As 0:17:29.440 --> 0:17:33.160 you're probably aware, the area exploded after the GFC right 0:17:33.520 --> 0:17:36.680 and really became quite significant, and the amount of direct 0:17:36.880 --> 0:17:39.800 private direct lending exploded tenfold. I think it was one 0:17:39.880 --> 0:17:43.040 hundred and thirty billion in volume back into eight it's 0:17:43.040 --> 0:17:45.840 now upwards of one point three trillion in volume today, 0:17:46.280 --> 0:17:49.919 so it's definitely a blooming space, right And one of 0:17:49.920 --> 0:17:52.679 the reasons for that is because of the GFC, you 0:17:52.680 --> 0:17:54.800 had some of the changes in the regulations that really 0:17:54.800 --> 0:17:58.840 had to move lending out of banks into where into 0:17:58.840 --> 0:18:01.600 private credit and here comes the growth of that particular 0:18:01.640 --> 0:18:04.320 swath of industry. So private credit has been around for 0:18:04.320 --> 0:18:06.760 a while, it's gotten much more interesting right now, obviously 0:18:06.800 --> 0:18:09.840 because interest rates. Yep. Right, all right, Andrea, thank you 0:18:09.920 --> 0:18:12.920 so much for joining us. Really appreciate that very fascinating story. 0:18:12.960 --> 0:18:16.480 Andrea our backhead of private Investments at Cambridge Associates, joining 0:18:16.520 --> 0:18:21.160 us live here in our Bloomberg Interactive, a broker studio. 0:18:22.000 --> 0:18:25.040 We welcome now our Bloomberg TV viewers and radio listeners 0:18:25.040 --> 0:18:28.400 on Shinnali Bathik. And joining me now is Brian Armstrong 0:18:28.480 --> 0:18:30.879 coin Base, the CEO. Brian, thank you so much for 0:18:30.960 --> 0:18:34.360 joining us. You recently made this big interesting bet as 0:18:34.359 --> 0:18:39.399 a centralized exchange on decentralization a year or so ago. 0:18:39.560 --> 0:18:44.000 You know, decentralization was a big worry for traditional financial players, 0:18:44.440 --> 0:18:46.640 but more so now there are a lot of concerns 0:18:46.680 --> 0:18:50.320 about the space. So what is the case for traditional 0:18:50.359 --> 0:18:54.639 financial players to care about Defy. Yeah, well, we're definitely 0:18:54.680 --> 0:18:56.800 excited about a coin base, and we want to make 0:18:56.800 --> 0:18:59.159 sure we help build the future of this technology here 0:18:59.200 --> 0:19:02.159 in America. Actually, a lot of traditional financial services firms 0:19:02.160 --> 0:19:06.439 are integrating this technology. I mean everybody from you know, JP, Morgan, 0:19:06.920 --> 0:19:10.760 Visa and MasterCard, Franklin, Templeton, They're all they have projects 0:19:10.760 --> 0:19:13.680 and teams internally working on how to integrate crypto into 0:19:13.680 --> 0:19:16.000 their services. And I think the reason for that is that, 0:19:16.040 --> 0:19:18.159 you know, eighty percent of Americans are not happy with 0:19:18.160 --> 0:19:20.880 the current financial system as it is today. They think 0:19:20.920 --> 0:19:23.280 it's it's too slow, the fees are too high, it 0:19:23.320 --> 0:19:26.080 doesn't serve everybody equally, and a lot of the technology 0:19:26.160 --> 0:19:28.160 was built forty years ago. The laws we're one hundred 0:19:28.200 --> 0:19:31.080 years ago, and so people are really excited about how 0:19:31.200 --> 0:19:34.600 crypto as a technology can help improve and update the 0:19:34.640 --> 0:19:37.080 financial system, and that's why that's why we're here at 0:19:37.119 --> 0:19:38.760 coin base. We want to make sure that we enable 0:19:38.800 --> 0:19:42.120 that as well. But there are still near term challenges 0:19:42.160 --> 0:19:44.280 and which are the biggest among them. Are they the 0:19:44.560 --> 0:19:47.320 idea of hacks and any vulnerabilities in the system, or 0:19:47.400 --> 0:19:49.960 is it the regulatory environment in the United States. Yeah, 0:19:49.960 --> 0:19:52.119 I mean, my number one priority this year is the 0:19:52.160 --> 0:19:55.040 policy environment, so we need to make sure that gets 0:19:55.040 --> 0:19:56.800 to a good place in the US. You know, the 0:19:57.240 --> 0:19:59.600 rest of the world has actually embraced crypto. We've seen 0:19:59.600 --> 0:20:02.760 all the your financial hubs Singapore and Hong Kong and London, 0:20:02.800 --> 0:20:05.879 and you know, the EU just passed comprehensive crypto legislation. 0:20:05.960 --> 0:20:08.280 So really, what I believe should happen in the United 0:20:08.280 --> 0:20:11.359 States is that we need a clear rule book so 0:20:11.400 --> 0:20:12.920 that this industry can be built here. You know, we 0:20:12.920 --> 0:20:15.200 don't want it to be like five G or semiconductors 0:20:15.240 --> 0:20:18.000 that went offshore. It's actually a matter of national security. 0:20:18.040 --> 0:20:20.720 We get the future of the financial system built here 0:20:20.760 --> 0:20:23.280 inside the United States. And so I've been spending more 0:20:23.280 --> 0:20:25.760 time in DC here in New York, but in DC 0:20:25.960 --> 0:20:28.560 in particular, we're trying to meet with the relevant folks 0:20:28.560 --> 0:20:31.479 that could help draft legislation so Congress can come in 0:20:31.640 --> 0:20:34.600 and pass comprehensive legislation before we get to the Washington 0:20:34.680 --> 0:20:36.680 of it all. I want to still look out five 0:20:36.760 --> 0:20:39.800 years from now, because there are a lot of financial players, 0:20:39.800 --> 0:20:41.879 as you say, that are looking at tokenization. A lot 0:20:41.920 --> 0:20:44.520 of it's happening in the private markets to the extent 0:20:44.640 --> 0:20:48.480 that you think traditional securities can be tokenized five years 0:20:48.560 --> 0:20:51.720 from now. Are you working with collaborating with any banks 0:20:51.800 --> 0:20:55.760 to get to that point. Yeah, So crypto is many 0:20:55.760 --> 0:20:58.760 different things. Right There are crypto securities, which we believe 0:20:58.800 --> 0:21:01.120 there should be a robust market for that in the US. 0:21:01.160 --> 0:21:03.680 In fact, we acquired a broker dealer license that it's 0:21:03.680 --> 0:21:05.480 still dormant right now, but we'd like to work with 0:21:05.480 --> 0:21:08.000 the sec to activate that and create a healthy market 0:21:08.040 --> 0:21:10.800 structure to trade crypto securities. Now, you know, of the 0:21:10.880 --> 0:21:13.040 thousand assets we've looked at coin base, you know, eight 0:21:13.080 --> 0:21:14.800 hundred of them we've rejected. We don't think we have 0:21:15.200 --> 0:21:17.639 maybe their securities. Two hundred or so of them we 0:21:17.680 --> 0:21:19.960 have listed on our platform. We believe those are commodities, 0:21:20.280 --> 0:21:22.120 and so we're going to continue to build that piece 0:21:22.160 --> 0:21:24.800 of our business. We're regulated by the CFTC for instance, 0:21:25.080 --> 0:21:26.720 and make sure we grow that piece as well. But 0:21:26.800 --> 0:21:30.399 cryptos many things. It's commodities, it's securities, it's stable coins, 0:21:30.400 --> 0:21:34.640 it's artwork, it's decentralized identity systems, and so it's tough 0:21:34.680 --> 0:21:36.320 for people to wrap their head around, but it's ultimately 0:21:36.359 --> 0:21:38.560 going to have many different regulators, you know, before we 0:21:38.560 --> 0:21:40.199 get to the regulatory part of this too, we were 0:21:40.200 --> 0:21:43.120 talking kind of about traditional financial players and what role 0:21:43.200 --> 0:21:45.720 they have in this place, in this system. What kind 0:21:45.760 --> 0:21:48.199 of relationship do you have to high frequency trading firms 0:21:48.520 --> 0:21:50.880 prior to the implosion of FTX, who saw them working, 0:21:50.880 --> 0:21:53.760