WEBVTT - Bloomberg Businessweek Weekend - October 5th, 2019 0:00:02.520 --> 0:00:06.600 This is Bloomberg Business Week from Bloomberg Radio. Hi, I'm 0:00:06.680 --> 0:00:09.280 Jason Kelly and I'm Carol Master. Welcome to the Bloomberg 0:00:09.280 --> 0:00:12.280 Business Week Weekend podcast. We've got to takeover of the 0:00:12.280 --> 0:00:14.800 finance section, which means a deep dive. We're talking all 0:00:14.840 --> 0:00:18.119 about private equity. It's all about private equity and why now. 0:00:18.400 --> 0:00:22.119 The reason is it has become a hugely influential part 0:00:22.160 --> 0:00:25.000 of the global economy, only getting more important in a 0:00:25.000 --> 0:00:27.760 lot of ways, especially as we get closer and closer 0:00:27.840 --> 0:00:30.680 to that election. Go online, check out the cover of 0:00:30.720 --> 0:00:35.160 the magazine on newstands, because it just shows visually all 0:00:35.200 --> 0:00:37.800 of the aspects of our life where private equity is, 0:00:37.840 --> 0:00:42.040 whether it's housing, whether it's hospitality. I mean they are everywhere, 0:00:42.159 --> 0:00:45.199 whether it's advising the presidents of the world's most important 0:00:45.200 --> 0:00:48.239 countries on how to get along. And a lot of 0:00:48.240 --> 0:00:52.280 the questions we have for this issue really centered around, Okay, 0:00:52.360 --> 0:00:54.560 so what does it mean, What does it mean for 0:00:54.840 --> 0:00:58.320 gender equality, what does it mean for income inequality? What 0:00:58.360 --> 0:01:00.520 does it mean for influence in Washington in and where 0:01:00.560 --> 0:01:02.760 does all that money come from? Exactly? So it's a 0:01:02.840 --> 0:01:05.720 must read. Also this week, a new way to measure 0:01:05.959 --> 0:01:08.720 wealth and Business Week talks. We catch up with the 0:01:08.760 --> 0:01:11.440 CEO of Delta Plus. We've got a tech startup with 0:01:11.480 --> 0:01:14.119 a lot of friends in the administration. First up, though, 0:01:14.160 --> 0:01:16.119 let's get back to the cover story. It's a private 0:01:16.120 --> 0:01:19.039 equity takeover of the finance section. And Jason, this is 0:01:19.080 --> 0:01:21.520 your world. You wrote the intro to the section. Well, 0:01:21.640 --> 0:01:24.319 I did have a hand in doing all this, and 0:01:24.360 --> 0:01:26.640 it was a huge team effort across the news room. 0:01:26.680 --> 0:01:31.320 And that's largely because this is an industry. To call 0:01:31.400 --> 0:01:33.640 it an industry is actually a little bit of an understatement. 0:01:33.880 --> 0:01:36.360 It has its tentacles in so many parts of the 0:01:36.360 --> 0:01:41.720 global economy, the political world as well. Businesses obviously are 0:01:41.760 --> 0:01:44.240 touched by this. You think about it from the perspective 0:01:44.319 --> 0:01:47.800 of retirees even right exactly. And I think that's why 0:01:47.880 --> 0:01:50.080 it's getting more attention, right because we have a lot 0:01:50.120 --> 0:01:53.440 of the public pension funds are getting much more involved. 0:01:53.480 --> 0:01:56.440 They're looking for returns in a low yield environment, and 0:01:56.480 --> 0:01:58.960 so they're increasingly turning to private equity. But as a result, 0:01:59.480 --> 0:02:01.360 private act to get a little bit more scrutiny. Well, 0:02:01.360 --> 0:02:04.720 and let's be fair, it's a four trillion dollar industry. 0:02:04.720 --> 0:02:08.639 That's a massive chunk of the economy. And when you 0:02:08.720 --> 0:02:12.079 think about the number of private equity backed firms, it's 0:02:12.080 --> 0:02:16.679 about eight thousand. That's almost double the number of publicly 0:02:16.760 --> 0:02:19.240 listed firms. So when you think about that, when you 0:02:19.400 --> 0:02:23.360 think about the you know, everything from Jay Crew to 0:02:23.919 --> 0:02:28.480 Supreme to your dentist office to daycare centers. I mean, 0:02:28.600 --> 0:02:30.600 we could go on and on and on right and 0:02:30.639 --> 0:02:32.720 that's not even including all the things they have owned 0:02:32.720 --> 0:02:36.160 in the past, Duncan Donuts, the Weather Channel, Hilton Hotels. 0:02:36.160 --> 0:02:37.480 A big part of the story is here we are 0:02:37.560 --> 0:02:39.920 ten years out from the financial crisis. These guys, the 0:02:39.919 --> 0:02:42.720 private equity firms. When so many of the financial firms 0:02:42.880 --> 0:02:46.400 needed bailouts from the government, private equity didn't, and they 0:02:46.400 --> 0:02:49.200 saw opportunity, especially when a lot of the valuations came 0:02:49.200 --> 0:02:52.800 down to press properties um literally properties, but lots of 0:02:52.800 --> 0:02:55.520 different businesses and they scooped in and that really has 0:02:55.560 --> 0:02:58.960 been a big reason for their rise. Well, they stepped 0:02:59.000 --> 0:03:01.680 into a lot of play is where people either wouldn't 0:03:01.720 --> 0:03:04.640 go or weren't allowed to go anymore, whether it was 0:03:04.840 --> 0:03:07.880 lending to companies, which a lot of the banks got 0:03:07.880 --> 0:03:10.760 out of, whether it was single family homes. You know, 0:03:10.800 --> 0:03:14.440 Blackstone became one of the biggest landlords in the United 0:03:14.480 --> 0:03:17.000 States because they went and bought up a bunch of 0:03:17.040 --> 0:03:20.120 foreclosed homes and then turned them into rental properties. Yeah, exactly. 0:03:20.120 --> 0:03:22.880 And I also think what's interesting, as you mentioned, uh, 0:03:22.919 --> 0:03:25.280 they are involved in more companies than we see in 0:03:25.320 --> 0:03:28.720 the public markets. And here we are at this interesting 0:03:28.840 --> 0:03:32.600 time in our market environment where you're increasingly seeing companies 0:03:32.639 --> 0:03:35.960 stay private longer. Uh. There's a lot more going on 0:03:36.280 --> 0:03:38.920 because of the investor money that's around in the private 0:03:38.960 --> 0:03:41.720 markets versus the public markets. And uh, I think that's 0:03:41.760 --> 0:03:43.600 why we're also talking little bit more about private equity. 0:03:43.600 --> 0:03:45.680 They're rolled in all of that. And let's also not 0:03:45.840 --> 0:03:49.200 forget that there's an enormous amount of money that's been made. 0:03:49.240 --> 0:03:53.840 This is a business that has minted dozens of billionaires. 0:03:53.840 --> 0:03:56.960 You know, you think about the money that's been generated. 0:03:57.160 --> 0:04:00.400 Largely this is on the basis of a favorable tax treatment. 0:04:00.440 --> 0:04:03.160 Not to get too wonky, but interest here we go, 0:04:03.240 --> 0:04:05.200 here we go. But they've spent a lot of money. 0:04:05.200 --> 0:04:08.120 The industry has sort of fighting to keep that in 0:04:08.200 --> 0:04:13.880 place in Washington, and they have really increased their visibility 0:04:14.040 --> 0:04:16.600 in Washington and that's a big part of this story 0:04:16.640 --> 0:04:18.800 as well, because they've had to so with all this 0:04:18.960 --> 0:04:20.960 going on, one of the stories that we wanted to 0:04:20.960 --> 0:04:23.800 look at is the returns of private equity. So when 0:04:23.839 --> 0:04:26.159 it comes to those returns, actually teamed up with Hema 0:04:26.240 --> 0:04:29.320 Parmer on a story about where all that money is 0:04:29.320 --> 0:04:32.200 coming from. I think, you know, we don't know a lot, 0:04:32.360 --> 0:04:34.640 it feels like about the returns when it comes to 0:04:34.680 --> 0:04:37.000 private equity, and yet we have to assume that they're 0:04:37.000 --> 0:04:40.080 good because they continue to attract a lot of new money. Exactly. 0:04:40.120 --> 0:04:42.280 So if you look over twenty five years and you 0:04:42.320 --> 0:04:44.839 compare how private equity has done compared to the public market, 0:04:44.880 --> 0:04:47.160 if you had invested money, what kind of a chill 0:04:47.160 --> 0:04:49.000 would you have seen from both? You would see a 0:04:49.839 --> 0:04:52.680 gain from private equity versus about nine percent, So they 0:04:53.080 --> 0:04:55.600 so better. So especially over twenty five years. Yeah, quite 0:04:55.600 --> 0:04:59.720 good returns, Okay, but like isn't so clear because they're 0:04:59.760 --> 0:05:04.039 not priced every day. Um, there's not a lot of transparencies. 0:05:04.240 --> 0:05:06.560 So can we take that at face value? So there 0:05:06.560 --> 0:05:08.520 are a number of concerns that people have with how 0:05:08.560 --> 0:05:11.760 these returns are calculated, and one of them is the 0:05:11.800 --> 0:05:14.760 math around what's called the internal rate of return, which 0:05:14.960 --> 0:05:18.400 is um metric. Yeah, exactly. It's a key metric that 0:05:18.440 --> 0:05:21.039 investors used to gauge how private equity fund is doing 0:05:21.040 --> 0:05:23.520 and if they want to consider them to invest and 0:05:23.640 --> 0:05:27.960 so UM. The math around that basically is that the 0:05:28.360 --> 0:05:31.679 shorter amount of time you can invest the investors actual money, 0:05:32.040 --> 0:05:34.839 the better the returns will look. So sometimes what funds 0:05:34.880 --> 0:05:38.080 can do is they can take a loan, invest the 0:05:38.200 --> 0:05:41.159 leverage capital into the investment, and then at a later 0:05:41.279 --> 0:05:44.239 date called the investors actual money, put that to work, 0:05:44.680 --> 0:05:47.080 and then that shortens the amount of time and it 0:05:47.120 --> 0:05:50.119 can pump up and I r our return by about 0:05:50.120 --> 0:05:52.400 three percentage point because it's a shorter duration. That money 0:05:52.440 --> 0:05:55.000 isn't sitting for a long time, because private equity investments 0:05:55.000 --> 0:05:58.560 tend to be not always short terms right there, multiple years. 0:05:58.960 --> 0:06:01.159 I think that's interesting, as we talked so much about 0:06:01.200 --> 0:06:03.680 all the dry potter that's sitting around, it's not actually 0:06:03.680 --> 0:06:06.920 sitting in the private equity offices, right it's waiting till 0:06:06.960 --> 0:06:08.920 they find an investment and then they tap their investor 0:06:08.960 --> 0:06:11.960 pool precisely, And that's him. A Parmer, my co writer 0:06:12.600 --> 0:06:17.920 on that story about PE and returns. So the explosive 0:06:17.920 --> 0:06:19.720 growth of private equity has been fueled in part by 0:06:19.760 --> 0:06:22.479 big checks from large public pension plans, which are increasingly 0:06:22.560 --> 0:06:26.359 vocal about social responsibility. They're asking a lot more questions 0:06:26.400 --> 0:06:28.680 than they used to about how the money is being 0:06:28.680 --> 0:06:32.280 made and also who's making the money. So that raises 0:06:32.320 --> 0:06:35.080 the question how much are they looking and how much 0:06:35.080 --> 0:06:38.120 are they concerned about the lack the utter lack we 0:06:38.160 --> 0:06:41.279 should say, of gender equality across the private equity industry. 0:06:41.279 --> 0:06:43.920 Serena Wilmore, she's been food the story for quite some time, 0:06:43.960 --> 0:06:48.520 one of our top pe reporters. This story a great analysis. 0:06:49.080 --> 0:06:52.560 Help us understand what you found? Well. I looked at 0:06:52.600 --> 0:06:56.440 the top ten buyout firms by assets and tried to 0:06:56.440 --> 0:06:59.440 look at the number of women on these buyout teams 0:06:59.480 --> 0:07:02.919 that are actually making investments. And what I found is 0:07:02.960 --> 0:07:07.040 that there are very few women and most of these 0:07:07.080 --> 0:07:10.240 firms only have one or two women on these teams 0:07:10.280 --> 0:07:14.800 that are made up of dozens of investment professionals. And 0:07:15.960 --> 0:07:21.440 Apollo has one helmet in Freedman and uh and also 0:07:21.520 --> 0:07:24.920 Carlile only has fifteen. So and what kind of positions 0:07:24.960 --> 0:07:28.440 are they are? They typically in the most senior. Yeah, 0:07:28.600 --> 0:07:32.640 I looked at the top two senior positions at each 0:07:32.880 --> 0:07:38.720 firm and yeah, so it's basically only positions where they're 0:07:38.960 --> 0:07:42.560 investing money and buyouts. To be fair, Sabrina and I 0:07:42.560 --> 0:07:44.680 feel like we need to like talk about the Wall 0:07:44.760 --> 0:07:48.240 Street or financial community overall. Are they kind of the 0:07:48.280 --> 0:07:50.240 same as what we see on Wall Street and at 0:07:50.280 --> 0:07:53.840 investment banks or the big banks or is it worse? Well, 0:07:53.880 --> 0:07:57.360 according to Prequin which did a study earlier this year, 0:07:57.400 --> 0:07:59.520 it was mostly of asset managers. I don't think they 0:07:59.560 --> 0:08:02.560 included thanks in the study, but they compared private EQUITYO 0:08:02.600 --> 0:08:05.120 hedge funds, in venture capital. It looks like they have 0:08:05.160 --> 0:08:10.320 worse representation than even those industries which are known for 0:08:10.480 --> 0:08:14.080 not having women. And most of the women are in 0:08:14.080 --> 0:08:18.240 investor relations and marketing positions and financial roles. And so 0:08:18.320 --> 0:08:20.000 when you talk to them, because you talk to these 0:08:20.000 --> 0:08:23.240 firms all the time, like what do they say? Well, 0:08:23.280 --> 0:08:27.480 they say that they obviously need to improve their numbers 0:08:27.720 --> 0:08:31.120 and they're doing the best they can to promote more women, 0:08:31.480 --> 0:08:33.960 and they say some of them say it's a pipeline 0:08:34.120 --> 0:08:36.960 issue and they're trying to push the boundaries a little 0:08:36.960 --> 0:08:39.960 bit more because they pull from you know, the typical 0:08:40.040 --> 0:08:45.720 banks and private equity the pipe Yeah, exactly in the 0:08:45.760 --> 0:08:50.960 same schools. So I actually interviewed a recruiter from Wressell Reynolds, 0:08:50.960 --> 0:08:54.120 Heather Hammond, who said that she's pushing her clients to 0:08:54.240 --> 0:08:58.360 look outside at these firms and look at corporations, corporate 0:08:58.400 --> 0:09:03.400 development roles, um at companies where you can apply those 0:09:03.440 --> 0:09:07.800 skills to private equity investing. That's Sabrina Wilmer and looking 0:09:07.800 --> 0:09:10.640 at a really important issue, right, equality when it comes 0:09:10.679 --> 0:09:13.360 to private equity firm. So what's fascinating Jason, as women 0:09:13.400 --> 0:09:17.280 are especially lacking in running or co managing the buyout businesses, 0:09:17.320 --> 0:09:20.280 which is historically right, the harder private equitator. And that's 0:09:20.280 --> 0:09:22.920 where you make the money totally, and that's where you 0:09:23.040 --> 0:09:26.760 make the money. That's where you get the experiences, absolutely, 0:09:26.920 --> 0:09:29.560 and that gives you the impetus to go start your 0:09:29.600 --> 0:09:33.200 own thing. And so they talk about the pipeline. Investors 0:09:33.320 --> 0:09:35.200 you know have said, oh, this is a real problem, 0:09:35.240 --> 0:09:38.400 but they're really not doing anything about it. The numbers 0:09:38.440 --> 0:09:41.800 don't lie exactly well, speaking of private equity, I did 0:09:41.800 --> 0:09:43.520 get a chance this week Carroll to catch up with 0:09:43.559 --> 0:09:47.319 Mike Arrogetti. He's a co founder and CEO of Aries 0:09:47.400 --> 0:09:49.400 Capital Management. This is a firm that's a little bit 0:09:49.400 --> 0:09:53.199 outside the traditional private equity definition. They really focus more 0:09:53.240 --> 0:09:56.920 on private credit, but they have been a big beneficiary 0:09:56.960 --> 0:10:00.360 of a space where big banks are no longer playing. 0:10:00.720 --> 0:10:04.000 We talked about lots of different things, including the global 0:10:04.000 --> 0:10:06.880 macro environment. Markets crave certainty and we don't have a 0:10:06.880 --> 0:10:08.840 lot of it right now. And you could look at 0:10:08.960 --> 0:10:11.679 what's happening in the economy. Fundamentals in the U. S. 0:10:11.720 --> 0:10:16.160 Economy very strong, but a bifurcation between the manufacturing sector 0:10:16.200 --> 0:10:18.840 and the service sector. Questions about the health of the 0:10:18.840 --> 0:10:22.080 consumer relative to the lack of health in the in 0:10:22.160 --> 0:10:26.400 the manufacturing community. So generally, the folks that we talked 0:10:26.400 --> 0:10:30.760 to are optimistic, cautiously. Balance sheets are strong and healthy, 0:10:31.160 --> 0:10:33.800 revenues are up, profits are up. But I think we're 0:10:33.800 --> 0:10:36.200 all starting to talk ourselves into a slowdown and we're 0:10:36.200 --> 0:10:38.800 starting to see a little bit of a shift in sentiment. 0:10:39.080 --> 0:10:41.040 And when you think about sort of the more traditional 0:10:41.120 --> 0:10:44.960 buy out space, where do you see valuations and how 0:10:45.000 --> 0:10:46.640 does how does that play out through the balance of 0:10:46.640 --> 0:10:49.679 the year and into so still a lot of capital 0:10:49.679 --> 0:10:51.640 in the in the private equity market. Right so if 0:10:51.640 --> 0:10:54.400 you look at it, there's eight hundred billion dollars of 0:10:54.520 --> 0:10:59.160 dry powder to be deployed. Um. Deal flow is still adequate, 0:10:59.200 --> 0:11:02.319 but obviously just price multiples are elevated and have been 0:11:02.400 --> 0:11:04.839 for a very long time. I'd expect that to continue. 0:11:05.160 --> 0:11:06.840 I think the bigger challenge that we're gonna have as 0:11:06.880 --> 0:11:10.360 private equity since its inception, has made its most money 0:11:10.440 --> 0:11:13.680 by making companies that invest in better. For the last 0:11:13.679 --> 0:11:17.559 ten years, through the use of leverage, cheap cost of debt, 0:11:17.640 --> 0:11:21.320 and just value. You know, multiple accretion folks have been 0:11:21.360 --> 0:11:24.680 able to generate very very attractive returns. I think those 0:11:24.720 --> 0:11:28.600 procyclical strategies are not going to work going forward. So 0:11:28.800 --> 0:11:31.839 right now, valuation is still very very stable, Liquidity is 0:11:31.880 --> 0:11:34.040 still very good. But as we get later in the cycle, 0:11:34.480 --> 0:11:38.000 the ability to improve companies operationally and drive cash flow 0:11:38.040 --> 0:11:41.160 growth is going to be paramount to actually outperforming. When 0:11:41.200 --> 0:11:44.520 you think about valuations, you've got to think about sort 0:11:44.520 --> 0:11:47.040 of private market versus public market, and we have seen 0:11:47.080 --> 0:11:49.760 that writ large. It feels like here in twenty nineteen, 0:11:49.800 --> 0:11:52.800 as companies have gone public, maybe with some discipplinting results 0:11:52.840 --> 0:11:54.880 at least when it comes to valuations. I look back 0:11:54.880 --> 0:11:58.400 at Peloton just last week. How do you sort of 0:11:58.679 --> 0:12:02.559 square that bit? Given your work both in the private 0:12:02.600 --> 0:12:04.840 and the public markets, how does that work itself out? 0:12:05.320 --> 0:12:07.240 I think there are two questions in there. One is 0:12:07.280 --> 0:12:10.360 just how are the private markets developing relative to the 0:12:10.360 --> 0:12:12.600 public markets, not just in terms of evaluation, but in 0:12:12.679 --> 0:12:15.360 terms of capital flow and so part of this, this 0:12:15.559 --> 0:12:18.439 ongoing conversation that I think we'll be having for decades 0:12:18.679 --> 0:12:22.160 is are the private markets, because of their structure, how 0:12:22.200 --> 0:12:25.000 they're funded, and what we as capital providers can do 0:12:25.080 --> 0:12:28.439 for private companies, is that affecting ultimately the structure of 0:12:28.480 --> 0:12:31.160 our public markets. I think the answer is yes, Uh, 0:12:31.320 --> 0:12:35.440 companies are staying private longer. The private markets, private equity 0:12:35.480 --> 0:12:38.800 and private credit are being becoming more flexible than what 0:12:38.840 --> 0:12:41.600 they can do for a private company. That's obviously impacting 0:12:41.640 --> 0:12:43.600 what's going on in the public market. And so when 0:12:43.600 --> 0:12:46.120 you look at what's happening in the public markets, fewer 0:12:46.120 --> 0:12:49.760 public companies and we've ever had higher concentration of market 0:12:49.800 --> 0:12:53.480 cap in the hands of very few companies in concentrated sectors, 0:12:53.920 --> 0:12:58.040 and passive investing now out passing active investing. So when 0:12:58.080 --> 0:13:00.760 you factor all of that in this disconnect, it's very 0:13:00.800 --> 0:13:03.800 interesting because the companies that need to go public are 0:13:03.800 --> 0:13:07.319 really the very largest or those that have evaluation disconnect. 0:13:07.640 --> 0:13:09.640 So from a private equity standpoint, when you look at 0:13:09.640 --> 0:13:13.319 companies like a Peloton or we Work, we're trained to 0:13:13.360 --> 0:13:18.000 look at cash flow, underwritable, sustainable EBITDA and ultimately how 0:13:18.040 --> 0:13:21.080 that converts to value. The public markets, at least historically 0:13:21.080 --> 0:13:23.520 have shown a willingness to price in the value of 0:13:23.559 --> 0:13:27.800 innovation and disruption, sometimes detached from the actual cash flow 0:13:28.160 --> 0:13:30.079 performance of the business. And I think what we're seeing 0:13:30.120 --> 0:13:33.599 now is a public market pushback on funding that innovation 0:13:34.200 --> 0:13:38.000 uh and expressing as value. That's Michael eric Getty. He's 0:13:38.040 --> 0:13:42.160 the CEO co founder of Aries Capital Management, a big 0:13:42.200 --> 0:13:45.960 player in private credit, which really gives him some insights 0:13:46.000 --> 0:13:50.080 into where the world is going. We're in globally uncertain times, 0:13:50.080 --> 0:13:52.280 to say the least. If you're tired of not being 0:13:52.280 --> 0:13:54.640 included on the World's list of millionaires or billionaires a last, 0:13:54.679 --> 0:13:58.000 don't despair. I am tired of that well included. Business 0:13:58.000 --> 0:13:59.760 Week now has a list that includes you and me, 0:14:00.080 --> 0:14:02.440 all right, the haves and the have nots. The haves 0:14:02.520 --> 0:14:04.920 and the have not. Well, he's got all the answers. 0:14:04.920 --> 0:14:07.199 Peter Cole here with this in New York City, So 0:14:07.360 --> 0:14:09.040 how did you come up with this? What? What's the 0:14:09.040 --> 0:14:12.240 deal here? I was looking to all these articles about 0:14:12.559 --> 0:14:16.360 taxing the wealthy and Elizabeth Warren started talking about ultra 0:14:16.480 --> 0:14:20.920 millionaires and what's really an ultra millionaire? And I realized 0:14:20.960 --> 0:14:23.800 that the gradations when we talk about wealth they're not 0:14:24.200 --> 0:14:27.120 fine enough. So people say a millionaire, but what's a million? 0:14:27.120 --> 0:14:30.240 There could be anybody from Joe blow with million dollars 0:14:30.240 --> 0:14:33.880 and net worth on after somebody worth nine million. That's 0:14:33.920 --> 0:14:35.520 a big gap. It's a very big gap. And the 0:14:35.560 --> 0:14:38.160 same thing with billionaires on the big difference between your 0:14:38.600 --> 0:14:45.040 Joe Schmo local one billionaire and somebody like Jeff Bezos 0:14:45.120 --> 0:14:49.520 or Bill Gates who have like over one hundred billion 0:14:49.560 --> 0:14:53.600 of net worth. So the idea is scientific notation, which you, 0:14:53.720 --> 0:14:56.840 of course you call from fifth grade. Do you actually 0:14:56.920 --> 0:15:00.680 think so? Like a million is one times tend to 0:15:00.680 --> 0:15:03.640 the sixth So if you're just a simple millionaire, you're 0:15:03.680 --> 0:15:07.280 a six. A thousand tend to the third power, so 0:15:07.320 --> 0:15:11.920 that makes you a three. Most people probably are worth 0:15:11.960 --> 0:15:14.360 more than a thousand dollars, we hope. But so that 0:15:14.360 --> 0:15:17.640 that gives it all the way down to minus two, 0:15:17.680 --> 0:15:20.880 which would mean tend to the negatives two, which is 0:15:20.960 --> 0:15:25.160 one penny. So everybody from a negative two on up 0:15:25.200 --> 0:15:28.960 to an eleven is on this wealth scale. So eleven 0:15:29.080 --> 0:15:34.480 is a Bezos not not Buffett. Not Buffett anymore. There's 0:15:34.480 --> 0:15:37.680 only two two elevens in the world who right now 0:15:37.680 --> 0:15:40.240 are eleven? Is? Uh? There wasn't on a one or 0:15:40.320 --> 0:15:46.600 no the French billionaire but alas he's below the town. Yeah. 0:15:46.720 --> 0:15:48.120 Well see that's what I kind of love about it, 0:15:48.240 --> 0:15:49.920 right you can, like, you know, you're growing up and 0:15:49.920 --> 0:15:51.720 you're thinking, man, I want to be a seven or 0:15:51.720 --> 0:15:55.400 an eight or yeah eleven? Yea, well, thank you. But 0:15:55.480 --> 0:15:58.800 I mean it does create this kind of metric for me. 0:15:58.920 --> 0:16:02.400 I mean, it's nice, tended to engender jealousy. That's not 0:16:02.520 --> 0:16:05.720 the point. It's really just a scientific metric abused for 0:16:05.800 --> 0:16:08.880 good or ill. And so why do you think this 0:16:08.960 --> 0:16:14.240 is Did I say it's important? Alright? But this was 0:16:14.280 --> 0:16:18.880 a task all right? No? So seriously, I just feel 0:16:18.920 --> 0:16:24.080 as though, like any scientific measure, it gives you more specificity. 0:16:24.120 --> 0:16:27.320 It's just one order magnitude rather than three, which is 0:16:27.560 --> 0:16:30.080 when you talk about a millionaire or a billionaire. Well, 0:16:30.120 --> 0:16:33.400 and I think it is important going back to Elizabeth Warren, 0:16:33.400 --> 0:16:37.400 because we are having a much more serious conversation about 0:16:37.520 --> 0:16:40.480 the haves and the have not. And it's not binary. 0:16:40.520 --> 0:16:43.280 It's not a haven have not the world necessarily sometimes 0:16:43.280 --> 0:16:46.320 it feels that way in this age of income inequality. 0:16:46.440 --> 0:16:52.400 But ultimately, when policy comes from all the politics, there 0:16:52.400 --> 0:16:55.440 are going to have to be decisions made about tax 0:16:55.560 --> 0:17:00.400 rates and when you reach certain thresholds. Right, And I 0:17:00.440 --> 0:17:02.200 like what you said about have and have not because 0:17:02.200 --> 0:17:04.520 if you think about that, that's very much a binary world, 0:17:04.960 --> 0:17:08.600 one or the other. And yet there are gradations. There's 0:17:08.600 --> 0:17:11.600 some people, I mean, to somebody who's living on the 0:17:11.640 --> 0:17:16.600 street in a cardboard box, a person with a thousand 0:17:16.600 --> 0:17:20.399 dollars in a bank seems incredibly wealthy, and so on. 0:17:20.640 --> 0:17:23.480 You know, there are millionaires who feel poor because they 0:17:23.480 --> 0:17:25.879 look at their neighbors who have more than they do. 0:17:26.320 --> 0:17:29.000 This just kind of gives it a way to quantifile, right. Well, 0:17:29.000 --> 0:17:32.160 And what's interesting as part of your reporting, you guys 0:17:32.160 --> 0:17:34.000 do include, you know, a chart that kind of looks 0:17:34.000 --> 0:17:35.439 at all the different levels and you give us an 0:17:35.440 --> 0:17:37.320 idea of how many people are in it, and when 0:17:37.320 --> 0:17:39.360 we talk about half and half nots. I do think 0:17:39.359 --> 0:17:41.239 it's important to kind of start whittling it down so 0:17:41.240 --> 0:17:45.240 we really understand, you know, where the wealth is, the 0:17:45.320 --> 0:17:47.359 true wealth, and where it is not. Right. So I 0:17:48.040 --> 0:17:52.040 worked with Bloomberg folks who do the billionaires rankings for 0:17:52.119 --> 0:17:55.480 the top scales, and that's how we have two hundred 0:17:55.520 --> 0:17:58.960 billionaires and we Bloomberg guestmates about a hundred and fifty. 0:17:59.240 --> 0:18:03.600 That's a lot have ten two hundred billion, and then 0:18:03.920 --> 0:18:09.080 roughly another are a billion to ten. It's all a 0:18:09.119 --> 0:18:11.040 lot of people in the world. You put all the 0:18:11.080 --> 0:18:14.280 billionaires into one room, it's a very crowded room. And 0:18:14.280 --> 0:18:17.879 then credit Swiss Global Wealth Report we relied on for 0:18:17.960 --> 0:18:20.920 the rest of the numbers. And of course these are 0:18:20.920 --> 0:18:25.120 a ballpark, you know, but like there's for example, one 0:18:25.160 --> 0:18:27.199 and a half billion people who are worth less than 0:18:27.200 --> 0:18:29.600 a thousands. But this is global, right, So if you 0:18:29.640 --> 0:18:32.439 think about a lot of developing economies, right that you 0:18:32.560 --> 0:18:36.560 understand how that number well. You also wonder if now 0:18:36.600 --> 0:18:39.080 that you have this way of looking at it, if 0:18:39.119 --> 0:18:42.640 you start to think about different geographies to your point 0:18:42.680 --> 0:18:46.280 about emerging markets, and and what being a three or 0:18:46.320 --> 0:18:49.600 a four or five means in the United States versus 0:18:49.640 --> 0:18:52.679 other countries, are even in different parts of the United 0:18:52.720 --> 0:18:55.560 So that's the concept of purchasing power parity. So this 0:18:55.640 --> 0:19:00.000 is all done in dollar numbers, but a dollar or 0:19:00.040 --> 0:19:02.680 or its equivalent in local currency buys a lot more, 0:19:03.200 --> 0:19:06.400 say in the developing world, so you can you can 0:19:06.520 --> 0:19:09.479 have a net worth of a thousand or a hundred 0:19:09.520 --> 0:19:14.040 bucks and actually be doing okay, I mean surviving anyway, 0:19:14.359 --> 0:19:17.760 feeding your family and so on in a poor emerging market. 0:19:18.119 --> 0:19:20.600 And that's Peter Coy. I gotta tell you that guy 0:19:20.640 --> 0:19:24.600 is so clever and fun. And you know, I always 0:19:24.600 --> 0:19:26.960 thought you were at ten, but I think you're not. 0:19:27.080 --> 0:19:29.199 I'm not not when it comes to this new scale, 0:19:29.240 --> 0:19:33.040 new index in terms of wealth. Your wealth number, is 0:19:33.040 --> 0:19:34.720 it a one, is it a five? Is it a ten? 0:19:35.119 --> 0:19:37.320 That story is great. I think everybody wants to be 0:19:37.359 --> 0:19:40.080 in eleven. So one of the feature stories this week 0:19:40.160 --> 0:19:42.480 is about a tech startup back by a tech billionaire 0:19:42.480 --> 0:19:45.560 who also backs President Trump. And this startup it is 0:19:45.600 --> 0:19:47.880 making its mark on the defense industry and a lot 0:19:47.880 --> 0:19:50.119 more well. And there's so much to dig into in 0:19:50.200 --> 0:19:53.920 this story. It's one of these companies where the more 0:19:54.000 --> 0:19:56.760 you get into it, you think, wow, people really should 0:19:56.800 --> 0:20:00.720 know about this because it's complicated and important. Josh Resting 0:20:00.840 --> 0:20:03.560 is back with us in New York. You dug into 0:20:03.560 --> 0:20:05.480 this company, tell us what it is and what it's 0:20:05.480 --> 0:20:08.080 all about. Yeah. So the company is called and Roll, 0:20:08.840 --> 0:20:13.720 and it is describes itself as aspiring to be the 0:20:13.840 --> 0:20:17.360 UM Operating System of the Defense Department, which would basically 0:20:17.400 --> 0:20:21.360 be the software that kind of connects all the systems, 0:20:21.400 --> 0:20:25.959 whether those are surveillance cameras and you know, dash cams 0:20:26.000 --> 0:20:29.920 on jeeps or aircraft carriers UM. And so that's a big, 0:20:29.920 --> 0:20:33.080 big goal. But they've started kind of small, obviously, as 0:20:33.080 --> 0:20:36.359 you do. Their first deployment was actually with Customs and 0:20:36.480 --> 0:20:41.439 Border UM protection on the Mexican border UM, which is 0:20:41.680 --> 0:20:44.159 in and of itself a pretty controversial place to start, 0:20:44.800 --> 0:20:46.920 and UM things have kind of taken off from there. 0:20:47.080 --> 0:20:49.560 Well and okay, and just by saying that, we know 0:20:49.640 --> 0:20:52.240 there's controversy here, so talk to us about because I 0:20:52.280 --> 0:20:54.760 think it's put it. The story talks about one of 0:20:54.800 --> 0:20:58.640 the you know, Silicon Valley's most controversial startups. Tell us 0:20:58.800 --> 0:21:01.920 about all the controversy surrounding this company. Yeah, I think 0:21:02.040 --> 0:21:07.200 there's really every every ingredient of controversy is here. The 0:21:07.280 --> 0:21:10.480 founder of Andrew is a guy named Palmer Lucky. He 0:21:10.600 --> 0:21:14.159 founded before this the Oculus rift headset. Um. If you 0:21:14.240 --> 0:21:17.440 might remember, there was this little piece of technology industry 0:21:17.480 --> 0:21:19.639 lore that was bought on The company was bought by 0:21:19.680 --> 0:21:23.760 Facebook for two billion dollars, and then right before the election, 0:21:24.000 --> 0:21:27.520 came out that Palmer Lucky was secretly funding a group 0:21:27.640 --> 0:21:32.240 that was posting insulting billboards of Hillary Clinton. Suddenly he 0:21:32.280 --> 0:21:36.120 disappeared from Facebook and was eventually he says he was fired. Um. 0:21:36.200 --> 0:21:39.520 Mark Zuckerberg says he was not fired for political reasons. Um. 0:21:39.520 --> 0:21:41.680