Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. Hi, I'm
Speaker 1: Jason Kelly and I'm Carol Master. Welcome to the Bloomberg
Speaker 1: Business Week Weekend podcast. We've got to takeover of the
Speaker 1: finance section, which means a deep dive. We're talking all
Speaker 1: about private equity. It's all about private equity and why now.
Speaker 1: The reason is it has become a hugely influential part
Speaker 1: of the global economy, only getting more important in a
Speaker 1: lot of ways, especially as we get closer and closer
Speaker 1: to that election. Go online, check out the cover of
Speaker 1: the magazine on newstands, because it just shows visually all
Speaker 1: of the aspects of our life where private equity is,
Speaker 1: whether it's housing, whether it's hospitality. I mean they are everywhere,
Speaker 1: whether it's advising the presidents of the world's most important
Speaker 1: countries on how to get along. And a lot of
Speaker 1: the questions we have for this issue really centered around, Okay,
Speaker 1: so what does it mean, What does it mean for
Speaker 1: gender equality, what does it mean for income inequality? What
Speaker 1: does it mean for influence in Washington in and where
Speaker 1: does all that money come from? Exactly? So it's a
Speaker 1: must read. Also this week, a new way to measure
Speaker 1: wealth and Business Week talks. We catch up with the
Speaker 1: CEO of Delta Plus. We've got a tech startup with
Speaker 1: a lot of friends in the administration. First up, though,
Speaker 1: let's get back to the cover story. It's a private
Speaker 1: equity takeover of the finance section. And Jason, this is
Speaker 1: your world. You wrote the intro to the section. Well,
Speaker 1: I did have a hand in doing all this, and
Speaker 1: it was a huge team effort across the news room.
Speaker 1: And that's largely because this is an industry. To call
Speaker 1: it an industry is actually a little bit of an understatement.
Speaker 1: It has its tentacles in so many parts of the
Speaker 1: global economy, the political world as well. Businesses obviously are
Speaker 1: touched by this. You think about it from the perspective
Speaker 1: of retirees even right exactly. And I think that's why
Speaker 1: it's getting more attention, right because we have a lot
Speaker 1: of the public pension funds are getting much more involved.
Speaker 1: They're looking for returns in a low yield environment, and
Speaker 1: so they're increasingly turning to private equity. But as a result,
Speaker 1: private act to get a little bit more scrutiny. Well,
Speaker 1: and let's be fair, it's a four trillion dollar industry.
Speaker 1: That's a massive chunk of the economy. And when you
Speaker 1: think about the number of private equity backed firms, it's
Speaker 1: about eight thousand. That's almost double the number of publicly
Speaker 1: listed firms. So when you think about that, when you
Speaker 1: think about the you know, everything from Jay Crew to
Speaker 1: Supreme to your dentist office to daycare centers. I mean,
Speaker 1: we could go on and on and on right and
Speaker 1: that's not even including all the things they have owned
Speaker 1: in the past, Duncan Donuts, the Weather Channel, Hilton Hotels.
Speaker 1: A big part of the story is here we are
Speaker 1: ten years out from the financial crisis. These guys, the
Speaker 1: private equity firms. When so many of the financial firms
Speaker 1: needed bailouts from the government, private equity didn't, and they
Speaker 1: saw opportunity, especially when a lot of the valuations came
Speaker 1: down to press properties um literally properties, but lots of
Speaker 1: different businesses and they scooped in and that really has
Speaker 1: been a big reason for their rise. Well, they stepped
Speaker 1: into a lot of play is where people either wouldn't
Speaker 1: go or weren't allowed to go anymore, whether it was
Speaker 1: lending to companies, which a lot of the banks got
Speaker 1: out of, whether it was single family homes. You know,
Speaker 1: Blackstone became one of the biggest landlords in the United
Speaker 1: States because they went and bought up a bunch of
Speaker 1: foreclosed homes and then turned them into rental properties. Yeah, exactly.
Speaker 1: And I also think what's interesting, as you mentioned, uh,
Speaker 1: they are involved in more companies than we see in
Speaker 1: the public markets. And here we are at this interesting
Speaker 1: time in our market environment where you're increasingly seeing companies
Speaker 1: stay private longer. Uh. There's a lot more going on
Speaker 1: because of the investor money that's around in the private
Speaker 1: markets versus the public markets. And uh, I think that's
Speaker 1: why we're also talking little bit more about private equity.
Speaker 1: They're rolled in all of that. And let's also not
Speaker 1: forget that there's an enormous amount of money that's been made.
Speaker 1: This is a business that has minted dozens of billionaires.
Speaker 1: You know, you think about the money that's been generated.
Speaker 1: Largely this is on the basis of a favorable tax treatment.
Speaker 1: Not to get too wonky, but interest here we go,
Speaker 1: here we go. But they've spent a lot of money.
Speaker 1: The industry has sort of fighting to keep that in
Speaker 1: place in Washington, and they have really increased their visibility
Speaker 1: in Washington and that's a big part of this story
Speaker 1: as well, because they've had to so with all this
Speaker 1: going on, one of the stories that we wanted to
Speaker 1: look at is the returns of private equity. So when
Speaker 1: it comes to those returns, actually teamed up with Hema
Speaker 1: Parmer on a story about where all that money is
Speaker 1: coming from. I think, you know, we don't know a lot,
Speaker 1: it feels like about the returns when it comes to
Speaker 1: private equity, and yet we have to assume that they're
Speaker 1: good because they continue to attract a lot of new money. Exactly.
Speaker 1: So if you look over twenty five years and you
Speaker 1: compare how private equity has done compared to the public market,
Speaker 1: if you had invested money, what kind of a chill
Speaker 1: would you have seen from both? You would see a
Speaker 1: gain from private equity versus about nine percent, So they
Speaker 1: so better. So especially over twenty five years. Yeah, quite
Speaker 1: good returns, Okay, but like isn't so clear because they're
Speaker 1: not priced every day. Um, there's not a lot of transparencies.
Speaker 1: So can we take that at face value? So there
Speaker 1: are a number of concerns that people have with how
Speaker 1: these returns are calculated, and one of them is the
Speaker 1: math around what's called the internal rate of return, which
Speaker 1: is um metric. Yeah, exactly. It's a key metric that
Speaker 1: investors used to gauge how private equity fund is doing
Speaker 1: and if they want to consider them to invest and
Speaker 1: so UM. The math around that basically is that the
Speaker 1: shorter amount of time you can invest the investors actual money,
Speaker 1: the better the returns will look. So sometimes what funds
Speaker 1: can do is they can take a loan, invest the
Speaker 1: leverage capital into the investment, and then at a later
Speaker 1: date called the investors actual money, put that to work,
Speaker 1: and then that shortens the amount of time and it
Speaker 1: can pump up and I r our return by about
Speaker 1: three percentage point because it's a shorter duration. That money
Speaker 1: isn't sitting for a long time, because private equity investments
Speaker 1: tend to be not always short terms right there, multiple years.
Speaker 1: I think that's interesting, as we talked so much about
Speaker 1: all the dry potter that's sitting around, it's not actually
Speaker 1: sitting in the private equity offices, right it's waiting till
Speaker 1: they find an investment and then they tap their investor
Speaker 1: pool precisely, And that's him. A Parmer, my co writer
Speaker 1: on that story about PE and returns. So the explosive
Speaker 1: growth of private equity has been fueled in part by
Speaker 1: big checks from large public pension plans, which are increasingly
Speaker 1: vocal about social responsibility. They're asking a lot more questions
Speaker 1: than they used to about how the money is being
Speaker 1: made and also who's making the money. So that raises
Speaker 1: the question how much are they looking and how much
Speaker 1: are they concerned about the lack the utter lack we
Speaker 1: should say, of gender equality across the private equity industry.
Speaker 1: Serena Wilmore, she's been food the story for quite some time,
Speaker 1: one of our top pe reporters. This story a great analysis.
Speaker 1: Help us understand what you found? Well. I looked at
Speaker 1: the top ten buyout firms by assets and tried to
Speaker 1: look at the number of women on these buyout teams
Speaker 1: that are actually making investments. And what I found is
Speaker 1: that there are very few women and most of these
Speaker 1: firms only have one or two women on these teams
Speaker 1: that are made up of dozens of investment professionals. And
Speaker 1: Apollo has one helmet in Freedman and uh and also
Speaker 1: Carlile only has fifteen. So and what kind of positions
Speaker 1: are they are? They typically in the most senior. Yeah,
Speaker 1: I looked at the top two senior positions at each
Speaker 1: firm and yeah, so it's basically only positions where they're
Speaker 1: investing money and buyouts. To be fair, Sabrina and I
Speaker 1: feel like we need to like talk about the Wall
Speaker 1: Street or financial community overall. Are they kind of the
Speaker 1: same as what we see on Wall Street and at
Speaker 1: investment banks or the big banks or is it worse? Well,
Speaker 1: according to Prequin which did a study earlier this year,
Speaker 1: it was mostly of asset managers. I don't think they
Speaker 1: included thanks in the study, but they compared private EQUITYO
Speaker 1: hedge funds, in venture capital. It looks like they have
Speaker 1: worse representation than even those industries which are known for
Speaker 1: not having women. And most of the women are in
Speaker 1: investor relations and marketing positions and financial roles. And so
Speaker 1: when you talk to them, because you talk to these
Speaker 1: firms all the time, like what do they say? Well,
Speaker 1: they say that they obviously need to improve their numbers
Speaker 1: and they're doing the best they can to promote more women,
Speaker 1: and they say some of them say it's a pipeline
Speaker 1: issue and they're trying to push the boundaries a little
Speaker 1: bit more because they pull from you know, the typical
Speaker 1: banks and private equity the pipe Yeah, exactly in the
Speaker 1: same schools. So I actually interviewed a recruiter from Wressell Reynolds,
Speaker 1: Heather Hammond, who said that she's pushing her clients to
Speaker 1: look outside at these firms and look at corporations, corporate
Speaker 1: development roles, um at companies where you can apply those
Speaker 1: skills to private equity investing. That's Sabrina Wilmer and looking
Speaker 1: at a really important issue, right, equality when it comes
Speaker 1: to private equity firm. So what's fascinating Jason, as women
Speaker 1: are especially lacking in running or co managing the buyout businesses,
Speaker 1: which is historically right, the harder private equitator. And that's
Speaker 1: where you make the money totally, and that's where you
Speaker 1: make the money. That's where you get the experiences, absolutely,
Speaker 1: and that gives you the impetus to go start your
Speaker 1: own thing. And so they talk about the pipeline. Investors
Speaker 1: you know have said, oh, this is a real problem,
Speaker 1: but they're really not doing anything about it. The numbers
Speaker 1: don't lie exactly well, speaking of private equity, I did
Speaker 1: get a chance this week Carroll to catch up with
Speaker 1: Mike Arrogetti. He's a co founder and CEO of Aries
Speaker 1: Capital Management. This is a firm that's a little bit
Speaker 1: outside the traditional private equity definition. They really focus more
Speaker 1: on private credit, but they have been a big beneficiary
Speaker 1: of a space where big banks are no longer playing.
Speaker 1: We talked about lots of different things, including the global
Speaker 1: macro environment. Markets crave certainty and we don't have a
Speaker 1: lot of it right now. And you could look at
Speaker 1: what's happening in the economy. Fundamentals in the U. S.
Speaker 1: Economy very strong, but a bifurcation between the manufacturing sector
Speaker 1: and the service sector. Questions about the health of the
Speaker 1: consumer relative to the lack of health in the in
Speaker 1: the manufacturing community. So generally, the folks that we talked
Speaker 1: to are optimistic, cautiously. Balance sheets are strong and healthy,
Speaker 1: revenues are up, profits are up. But I think we're
Speaker 1: all starting to talk ourselves into a slowdown and we're
Speaker 1: starting to see a little bit of a shift in sentiment.
Speaker 1: And when you think about sort of the more traditional
Speaker 1: buy out space, where do you see valuations and how
Speaker 1: does how does that play out through the balance of
Speaker 1: the year and into so still a lot of capital
Speaker 1: in the in the private equity market. Right so if
Speaker 1: you look at it, there's eight hundred billion dollars of
Speaker 1: dry powder to be deployed. Um. Deal flow is still adequate,
Speaker 1: but obviously just price multiples are elevated and have been
Speaker 1: for a very long time. I'd expect that to continue.
Speaker 1: I think the bigger challenge that we're gonna have as
Speaker 1: private equity since its inception, has made its most money
Speaker 1: by making companies that invest in better. For the last
Speaker 1: ten years, through the use of leverage, cheap cost of debt,
Speaker 1: and just value. You know, multiple accretion folks have been
Speaker 1: able to generate very very attractive returns. I think those
Speaker 1: procyclical strategies are not going to work going forward. So
Speaker 1: right now, valuation is still very very stable, Liquidity is
Speaker 1: still very good. But as we get later in the cycle,
Speaker 1: the ability to improve companies operationally and drive cash flow
Speaker 1: growth is going to be paramount to actually outperforming. When
Speaker 1: you think about valuations, you've got to think about sort
Speaker 1: of private market versus public market, and we have seen
Speaker 1: that writ large. It feels like here in twenty nineteen,
Speaker 1: as companies have gone public, maybe with some discipplinting results
Speaker 1: at least when it comes to valuations. I look back
Speaker 1: at Peloton just last week. How do you sort of
Speaker 1: square that bit? Given your work both in the private
Speaker 1: and the public markets, how does that work itself out?
Speaker 1: I think there are two questions in there. One is
Speaker 1: just how are the private markets developing relative to the
Speaker 1: public markets, not just in terms of evaluation, but in
Speaker 1: terms of capital flow and so part of this, this
Speaker 1: ongoing conversation that I think we'll be having for decades
Speaker 1: is are the private markets, because of their structure, how
Speaker 1: they're funded, and what we as capital providers can do
Speaker 1: for private companies, is that affecting ultimately the structure of
Speaker 1: our public markets. I think the answer is yes, Uh,
Speaker 1: companies are staying private longer. The private markets, private equity
Speaker 1: and private credit are being becoming more flexible than what
Speaker 1: they can do for a private company. That's obviously impacting
Speaker 1: what's going on in the public market. And so when
Speaker 1: you look at what's happening in the public markets, fewer
Speaker 1: public companies and we've ever had higher concentration of market
Speaker 1: cap in the hands of very few companies in concentrated sectors,
Speaker 1: and passive investing now out passing active investing. So when
Speaker 1: you factor all of that in this disconnect, it's very
Speaker 1: interesting because the companies that need to go public are
Speaker 1: really the very largest or those that have evaluation disconnect.
Speaker 1: So from a private equity standpoint, when you look at
Speaker 1: companies like a Peloton or we Work, we're trained to
Speaker 1: look at cash flow, underwritable, sustainable EBITDA and ultimately how
Speaker 1: that converts to value. The public markets, at least historically
Speaker 1: have shown a willingness to price in the value of
Speaker 1: innovation and disruption, sometimes detached from the actual cash flow
Speaker 1: performance of the business. And I think what we're seeing
Speaker 1: now is a public market pushback on funding that innovation
Speaker 1: uh and expressing as value. That's Michael eric Getty. He's
Speaker 1: the CEO co founder of Aries Capital Management, a big
Speaker 1: player in private credit, which really gives him some insights
Speaker 1: into where the world is going. We're in globally uncertain times,
Speaker 1: to say the least. If you're tired of not being
Speaker 1: included on the World's list of millionaires or billionaires a last,
Speaker 1: don't despair. I am tired of that well included. Business
Speaker 1: Week now has a list that includes you and me,
Speaker 1: all right, the haves and the have nots. The haves
Speaker 1: and the have not. Well, he's got all the answers.
Speaker 1: Peter Cole here with this in New York City, So
Speaker 1: how did you come up with this? What? What's the
Speaker 1: deal here? I was looking to all these articles about
Speaker 1: taxing the wealthy and Elizabeth Warren started talking about ultra
Speaker 1: millionaires and what's really an ultra millionaire? And I realized
Speaker 1: that the gradations when we talk about wealth they're not
Speaker 1: fine enough. So people say a millionaire, but what's a million?
Speaker 1: There could be anybody from Joe blow with million dollars
Speaker 1: and net worth on after somebody worth nine million. That's
Speaker 1: a big gap. It's a very big gap. And the
Speaker 1: same thing with billionaires on the big difference between your
Speaker 1: Joe Schmo local one billionaire and somebody like Jeff Bezos
Speaker 1: or Bill Gates who have like over one hundred billion
Speaker 1: of net worth. So the idea is scientific notation, which you,
Speaker 1: of course you call from fifth grade. Do you actually
Speaker 1: think so? Like a million is one times tend to
Speaker 1: the sixth So if you're just a simple millionaire, you're
Speaker 1: a six. A thousand tend to the third power, so
Speaker 1: that makes you a three. Most people probably are worth
Speaker 1: more than a thousand dollars, we hope. But so that
Speaker 1: that gives it all the way down to minus two,
Speaker 1: which would mean tend to the negatives two, which is
Speaker 1: one penny. So everybody from a negative two on up
Speaker 1: to an eleven is on this wealth scale. So eleven
Speaker 1: is a Bezos not not Buffett. Not Buffett anymore. There's
Speaker 1: only two two elevens in the world who right now
Speaker 1: are eleven? Is? Uh? There wasn't on a one or
Speaker 1: no the French billionaire but alas he's below the town. Yeah.
Speaker 1: Well see that's what I kind of love about it,
Speaker 1: right you can, like, you know, you're growing up and
Speaker 1: you're thinking, man, I want to be a seven or
Speaker 1: an eight or yeah eleven? Yea, well, thank you. But
Speaker 1: I mean it does create this kind of metric for me.
Speaker 1: I mean, it's nice, tended to engender jealousy. That's not
Speaker 1: the point. It's really just a scientific metric abused for
Speaker 1: good or ill. And so why do you think this
Speaker 1: is Did I say it's important? Alright? But this was
Speaker 1: a task all right? No? So seriously, I just feel
Speaker 1: as though, like any scientific measure, it gives you more specificity.
Speaker 1: It's just one order magnitude rather than three, which is
Speaker 1: when you talk about a millionaire or a billionaire. Well,
Speaker 1: and I think it is important going back to Elizabeth Warren,
Speaker 1: because we are having a much more serious conversation about
Speaker 1: the haves and the have not. And it's not binary.
Speaker 1: It's not a haven have not the world necessarily sometimes
Speaker 1: it feels that way in this age of income inequality.
Speaker 1: But ultimately, when policy comes from all the politics, there
Speaker 1: are going to have to be decisions made about tax
Speaker 1: rates and when you reach certain thresholds. Right, And I
Speaker 1: like what you said about have and have not because
Speaker 1: if you think about that, that's very much a binary world,
Speaker 1: one or the other. And yet there are gradations. There's
Speaker 1: some people, I mean, to somebody who's living on the
Speaker 1: street in a cardboard box, a person with a thousand
Speaker 1: dollars in a bank seems incredibly wealthy, and so on.
Speaker 1: You know, there are millionaires who feel poor because they
Speaker 1: look at their neighbors who have more than they do.
Speaker 1: This just kind of gives it a way to quantifile, right. Well,
Speaker 1: And what's interesting as part of your reporting, you guys
Speaker 1: do include, you know, a chart that kind of looks
Speaker 1: at all the different levels and you give us an
Speaker 1: idea of how many people are in it, and when
Speaker 1: we talk about half and half nots. I do think
Speaker 1: it's important to kind of start whittling it down so
Speaker 1: we really understand, you know, where the wealth is, the
Speaker 1: true wealth, and where it is not. Right. So I
Speaker 1: worked with Bloomberg folks who do the billionaires rankings for
Speaker 1: the top scales, and that's how we have two hundred
Speaker 1: billionaires and we Bloomberg guestmates about a hundred and fifty.
Speaker 1: That's a lot have ten two hundred billion, and then
Speaker 1: roughly another are a billion to ten. It's all a
Speaker 1: lot of people in the world. You put all the
Speaker 1: billionaires into one room, it's a very crowded room. And
Speaker 1: then credit Swiss Global Wealth Report we relied on for
Speaker 1: the rest of the numbers. And of course these are
Speaker 1: a ballpark, you know, but like there's for example, one
Speaker 1: and a half billion people who are worth less than
Speaker 1: a thousands. But this is global, right, So if you
Speaker 1: think about a lot of developing economies, right that you
Speaker 1: understand how that number well. You also wonder if now
Speaker 1: that you have this way of looking at it, if
Speaker 1: you start to think about different geographies to your point
Speaker 1: about emerging markets, and and what being a three or
Speaker 1: a four or five means in the United States versus
Speaker 1: other countries, are even in different parts of the United
Speaker 1: So that's the concept of purchasing power parity. So this
Speaker 1: is all done in dollar numbers, but a dollar or
Speaker 1: or its equivalent in local currency buys a lot more,
Speaker 1: say in the developing world, so you can you can
Speaker 1: have a net worth of a thousand or a hundred
Speaker 1: bucks and actually be doing okay, I mean surviving anyway,
Speaker 1: feeding your family and so on in a poor emerging market.
Speaker 1: And that's Peter Coy. I gotta tell you that guy
Speaker 1: is so clever and fun. And you know, I always
Speaker 1: thought you were at ten, but I think you're not.
Speaker 1: I'm not not when it comes to this new scale,
Speaker 1: new index in terms of wealth. Your wealth number, is
Speaker 1: it a one, is it a five? Is it a ten?
Speaker 1: That story is great. I think everybody wants to be
Speaker 1: in eleven. So one of the feature stories this week
Speaker 1: is about a tech startup back by a tech billionaire
Speaker 1: who also backs President Trump. And this startup it is
Speaker 1: making its mark on the defense industry and a lot
Speaker 1: more well. And there's so much to dig into in
Speaker 1: this story. It's one of these companies where the more
Speaker 1: you get into it, you think, wow, people really should
Speaker 1: know about this because it's complicated and important. Josh Resting
Speaker 1: is back with us in New York. You dug into
Speaker 1: this company, tell us what it is and what it's
Speaker 1: all about. Yeah. So the company is called and Roll,
Speaker 1: and it is describes itself as aspiring to be the
Speaker 1: UM Operating System of the Defense Department, which would basically
Speaker 1: be the software that kind of connects all the systems,
Speaker 1: whether those are surveillance cameras and you know, dash cams
Speaker 1: on jeeps or aircraft carriers UM. And so that's a big,
Speaker 1: big goal. But they've started kind of small, obviously, as
Speaker 1: you do. Their first deployment was actually with Customs and
Speaker 1: Border UM protection on the Mexican border UM, which is
Speaker 1: in and of itself a pretty controversial place to start,
Speaker 1: and UM things have kind of taken off from there.
Speaker 1: Well and okay, and just by saying that, we know
Speaker 1: there's controversy here, so talk to us about because I
Speaker 1: think it's put it. The story talks about one of
Speaker 1: the you know, Silicon Valley's most controversial startups. Tell us
Speaker 1: about all the controversy surrounding this company. Yeah, I think
Speaker 1: there's really every every ingredient of controversy is here. The
Speaker 1: founder of Andrew is a guy named Palmer Lucky. He
Speaker 1: founded before this the Oculus rift headset. Um. If you
Speaker 1: might remember, there was this little piece of technology industry
Speaker 1: lore that was bought on The company was bought by
Speaker 1: Facebook for two billion dollars, and then right before the election,
Speaker 1: came out that Palmer Lucky was secretly funding a group
Speaker 1: that was posting insulting billboards of Hillary Clinton. Suddenly he
Speaker 1: disappeared from Facebook and was eventually he says he was fired. Um.
Speaker 1: Mark Zuckerberg says he was not fired for political reasons. Um.
Speaker 1: This actually came up in a congressional hearing. It's been
Speaker 1: sort of a snaffoo for Facebook. Um. But so palmer
Speaker 1: Lucky has this reputation, as you know, kind of the
Speaker 1: trump eyest person in Silicon Valley. Then he goes and
Speaker 1: starts a company whose first project is surveilling the Mexican border,
Speaker 1: right at the time that the Trump border policies are
Speaker 1: really building up. And then that immediately fed into a
Speaker 1: debate about should tech be refusing to build things like this?
Speaker 1: And so then you had the Trump administration, which was
Speaker 1: already causing trouble in Silicon Valley and border surveillance, and
Speaker 1: they just, you know, really jumped into that um and
Speaker 1: I think in part they embraced the controversy as a
Speaker 1: way to make a name for themselves. And I wanted
Speaker 1: to talk about that because this is not a guy
Speaker 1: who shies away from confident. Anybody who's buying billboards and
Speaker 1: probably is is into that sort of thing. But as
Speaker 1: you say, he's really to turn a phrase like he's
Speaker 1: leaned into this. I mean he he has really built
Speaker 1: not just his name but his company's reputation in some
Speaker 1: ways on doing these controversial things. Yeah, And I think
Speaker 1: there's two things going on here. One is, if you're
Speaker 1: a company that no one's heard of, one way to
Speaker 1: get a lot of people to hear about you is
Speaker 1: to cause controversy. And the other thing is there has
Speaker 1: been this movement amongst many technologists to say big companies
Speaker 1: shouldn't be building drone targeting technology or border surveillance, and
Speaker 1: people have quit Google over some of these projects. And
Speaker 1: so now you have a company that's saying, hey, look,
Speaker 1: if you want to work on these projects come to
Speaker 1: us like, we're the ones who you can do this part,
Speaker 1: because the bet is that there is a portion of
Speaker 1: the Silicon Valley labor pool that wants to do this
Speaker 1: stuff well. And what I find interesting too is that
Speaker 1: the military area or the defense companies and contractors right
Speaker 1: through these old established companies that have been doing it
Speaker 1: for years. How does this company, essentially a tech startup
Speaker 1: kind of make inroads into defense. Yeah, it's true. Defense
Speaker 1: is dominated by a very small handfulling companies. The whole
Speaker 1: process of working with the government is very formulaic. Um.
Speaker 1: It pays to have people who have been you know,
Speaker 1: working on these contracting things for decades. And the short
Speaker 1: answer question is they're starting small. They're trying to get
Speaker 1: in build some projects on spec and just give them
Speaker 1: to the government and say, you know, if this works, like,
Speaker 1: we'd love to sell you more of this. Um. And
Speaker 1: they're also betting that those companies that you mentioned, your boeings,
Speaker 1: your lockeys, they have trouble attracting like top flight UH
Speaker 1: software engineering talent, AI talent, and if you're a startup
Speaker 1: that is a VC back startup there, Um, you know,
Speaker 1: they went from nothing to now they're already worth about
Speaker 1: a billion dollars. That's kind of the model for getting
Speaker 1: rich in Silicon Valley now, and they think that a
Speaker 1: lot of software engineers who wouldn't work for defense contractors
Speaker 1: will come to them. Well, one of the models of
Speaker 1: Silicon Valley of late has certainly been somehow being connected
Speaker 1: to Founders Fund and the folks associated in that orbit.
Speaker 1: How does that play into this story? Yeah, so Founders
Speaker 1: Fund is the is the investment fund founded by Peter Thiel,
Speaker 1: who backed the president election. He originally started PayPal, but
Speaker 1: he's kind of the other most uh, the other technologists
Speaker 1: most associated with Donald Trump and Hendrill has an uneasy
Speaker 1: relationship with their connection to Peter Teel. I talked to
Speaker 1: them a lot for this story. I spent some time
Speaker 1: in the office. They really wanted to say that Peter
Speaker 1: Teel had nothing to do with this company. They say, Look,
Speaker 1: Founders Fund is just an investment fund. He happens to
Speaker 1: be involved, we happen to have they happen to be
Speaker 1: one of our investors. So they really want to play
Speaker 1: it down. At the same time, like this fits into
Speaker 1: some of Peter Tiel's other business interests. Palanteers, another software
Speaker 1: company that does very similar work. Talk to us though,
Speaker 1: a little bit about the work that they're doing, because
Speaker 1: the story opens up with one of the engineers and
Speaker 1: he's playing around or showing how their drones can work.
Speaker 1: Tell us a little bit about that. Yeah, So the
Speaker 1: actual project that my story mostly focuses on is a
Speaker 1: project they call the Interceptor, and it's basically a drone
Speaker 1: that autonomously fly into other drones and knock them out
Speaker 1: of the air. The idea is that cheap, hobbyist drones
Speaker 1: are being used in an increasing number of military ways,
Speaker 1: and as we just on Saudi Arabia, so just on
Speaker 1: Saudi Arabia. Um, although those were larger drones, but we
Speaker 1: have some smaller drones used, um, you know, in an
Speaker 1: assassination attempt, in various attacks, and they're very hard to
Speaker 1: deal with. So the idea is we could just build
Speaker 1: a bunch of small drones and put self flying software
Speaker 1: on them and tell them anything that breaches this airspace,
Speaker 1: just ram into until it falls down. And um, they
Speaker 1: think this is a cheap and relatively easy solution to
Speaker 1: patrol you know, borders, military bases and maybe other places.
Speaker 1: They've they've had discussions with selling these two commercial clients
Speaker 1: who have to defend like oil and gas facilities. Well,
Speaker 1: and that takes us into this whole other realm of
Speaker 1: Silicon Valley sort of pushing the envelope, drones being sort
Speaker 1: of the tip of the spear in some ways. I
Speaker 1: feel like we've talked to you about it before, sort
Speaker 1: of how is this going to fit into even the
Speaker 1: cultural and social fabric? How are we even thinking about
Speaker 1: technology in this way, especially at a time when I
Speaker 1: feel like we're thinking of technology a little bit more
Speaker 1: skeptically or or holistically. Sure, UM, I think that you're right.
Speaker 1: They have now stepped put their foot slightly into another
Speaker 1: big hot button debate in Silicon Valley, UM, which is
Speaker 1: whether we should build autonomous weaponry and if so, what
Speaker 1: should be in place to UM, what regulations and so
Speaker 1: on should be in place? You know, Andrew's answer is
Speaker 1: clearly yes, we should build autonomous weaponry. They refer to
Speaker 1: this thing as as an autonomous or semi autonomous weapon
Speaker 1: at the moment they have they do have some safeguards
Speaker 1: in place. Uh, you have to. It will identify the
Speaker 1: target and then ask someone show them a picture and
Speaker 1: ask someone whether they want to attack, so they're not
Speaker 1: out there just like shooting around. Um. And they are
Speaker 1: also designed to go after only these consumer drones right now,
Speaker 1: but they're already working on a prototype that they say
Speaker 1: could go after larger targets, maybe helicopters, And then you
Speaker 1: have a semi autonomous weapon that could maybe kill somebody.
Speaker 1: Well that's the concern, right, the ethical concerns about right now,
Speaker 1: it's not targeting humans. But you know, these things develop
Speaker 1: and become you know, used in many many different ways,
Speaker 1: and so that's one of the concerns here, right And
Speaker 1: I think that that's one of the things that's really
Speaker 1: interesting about this particular company is that, you know, even
Speaker 1: people who are worried about autonomous weapons described this near
Speaker 1: term use case knocking down a hobbyist drone that's reaching
Speaker 1: a military base as like, you know, probably okay, Like
Speaker 1: I mean that seems sure that we need we need
Speaker 1: to deal with that, but like, how are we not
Speaker 1: going to end up somewhere we don't want to be.
Speaker 1: And if the way that we're developing these weapons is
Speaker 1: by saying, hey, a D twenty persons start up who
Speaker 1: you know, was founded two years ago and builds things
Speaker 1: on their own have at it. Let's let's see what
Speaker 1: you come up with. I think that's a question that
Speaker 1: people are uncomfortable with well. And as we discuss, we
Speaker 1: are getting to this point where move fast and break
Speaker 1: stuff isn't necessarily the way we feel like we should
Speaker 1: be proceeding. And as we deal with the the sort
Speaker 1: of the complicated now recent history of social media, if
Speaker 1: you look at a leading edge technology like this, you
Speaker 1: wonder if, like, let's just see what happens and then
Speaker 1: we'll walk it back, is really the best way to proceed. Yeah. Absolutely,
Speaker 1: And I think, like you know, this isn't social media, right,
Speaker 1: this is a this is a very high stakes location.
Speaker 1: And you know, Andrew will say, like all tech companies say,
Speaker 1: you know, we aren't just doing things really nearly. We're
Speaker 1: you know, we're concerned, We're focused on problems. You know,
Speaker 1: we're you know, we're good people. Where our business partners
Speaker 1: are the US government and its allies, like there are
Speaker 1: safeguards in place at the same time, like we've seen
Speaker 1: in recent past that like those safeguards tend to break
Speaker 1: down when they are not thought about in advance. Right
Speaker 1: and full disclosure and reason Harrowitz, right, is also an
Speaker 1: investor in Bloomberg LP is an investor in Andreas in Harrowitz.
Speaker 1: So just to kind of put that out there, there
Speaker 1: you go. That's Joshua breus Stein writing one of the
Speaker 1: feature stories this week. It's a controversial startup, right, and
Speaker 1: it's really kind of up ending the traditional staid world
Speaker 1: of defense companies. But it's got some very interesting Republican backers, right,
Speaker 1: So many characters in this story, but also some really
Speaker 1: big issues to tackle when it comes to the role
Speaker 1: of technology, especially when it comes to defense. On Wednesday,
Speaker 1: Delta Airlines announced that costs would rise more than expected
Speaker 1: this year. Non fuel costs to fly each seed a
Speaker 1: mile will climb two percent this year Jason, rather than
Speaker 1: the one percent previously forecasts Well and Carol. While the
Speaker 1: reasons for Delta's higher costs appeared specific to the airlines,
Speaker 1: the news really did spur some concern over signs of
Speaker 1: a weakening economy here in the US and abroad. Delta
Speaker 1: kicks off third quarter airline earnings reports this week, and
Speaker 1: investors may fear problems lurking at other carriers. So before
Speaker 1: this news this announcement this week, we sat down with
Speaker 1: the company's CEO Ed Bastion for another edition of Bloomberg
Speaker 1: Business Week Talks. We talked about the trade war, oil markets,
Speaker 1: and airline consolidation really some of the big macro issues
Speaker 1: facing airlines today. So ad so much going on in
Speaker 1: the world, let's start on the sort of geopolitical geo
Speaker 1: economic front, the trade war. Are you seeing any blowback
Speaker 1: through your business from that? Not in a material way.
Speaker 1: We're seeing some effects, particularly in Asia. They tend to
Speaker 1: be more around our big corporate customers, automotive manufacturing that
Speaker 1: that are not seeing the same type of demand for
Speaker 1: their products, so they're pulling back some of their spend
Speaker 1: and travel patterns. But Asia for US is one of
Speaker 1: the smaller regions within our total revenue pie. And uh,
Speaker 1: we're not We're not seeing a white We're watching it hopefully,
Speaker 1: but we're not seeing a major a major decline. Obviously
Speaker 1: disruption in the oil market. How does that play through,
Speaker 1: if at all, for you in terms of your fuel costs,
Speaker 1: in terms of your hedging strategies, any elements that are
Speaker 1: sort of popping up there. Well, it's a reminder of
Speaker 1: how volatile the business climate, the environment in which we operate.
Speaker 1: That said, you know, we're already seeing fuel prices start
Speaker 1: to moderate. We've built our business to be sustainable at
Speaker 1: much higher fuel prices than sixty five print. So we're
Speaker 1: on the front end of that, uh, anticipating what we
Speaker 1: might face in terms of future future challenges, but from
Speaker 1: a revenue durability standpoint of balance sheet perspective, we think
Speaker 1: we're pretty well situated. So let's talk about your investors.
Speaker 1: You know, you have won a lot of plot. It's
Speaker 1: from your customers and there's some investors who are very
Speaker 1: much on board. And by certain measures the stock is
Speaker 1: done very well, but by other measures that it feels
Speaker 1: a little bit stagnant. Uh. Dare I say it? Uh?
Speaker 1: What's the street missing? Well? I think it's is. It's
Speaker 1: a proven story. Our largest investor, Warren Buffett, he owns
Speaker 1: eleven percent of Delta. I think he has a great
Speaker 1: line is about our industry. We were like the Chicago
Speaker 1: Cubs of the of the business world. You know, we
Speaker 1: didn't have a bad decade. We had a bad century,
Speaker 1: and we're we're on a different, different platform now. We've
Speaker 1: you know, the last ten years, we've really invested in
Speaker 1: the fundamentals of running a great airline with reliability and
Speaker 1: performance and service levels unseen in Delta's history and candidly
Speaker 1: within the industry as a whole in terms of scale.
Speaker 1: That's been been rewarded by our customers, with customer satisfaction
Speaker 1: scores and brand loyalty and preference at levels we've never
Speaker 1: seen before, which we're taking back and continue to reinvest
Speaker 1: in the customers, reinvest in our airports and our technologies,
Speaker 1: while at the same time generating meaningful free cash flow.
Speaker 1: I think that's the other thing the investors historically have
Speaker 1: not seen from the airlines. While the airlines may have
Speaker 1: performed at certain periods of time, they also spent back
Speaker 1: what they what they made on on labor, on technology,
Speaker 1: on on on capital and and fleet. We're doing that,
Speaker 1: but we're also, you know, returning a meaningful amount. So
Speaker 1: this year, Delta we expect to make over five billion
Speaker 1: dollars for the fifth year in a row in terms
Speaker 1: of profits, but we'll also have free cash flow delivery
Speaker 1: this year of over four billion dollars. And so I
Speaker 1: think that that performance and that consistency of performance over
Speaker 1: time is rewarding, and I do think that that investors
Speaker 1: will will stay with us and and hopefully see see
Speaker 1: improvements in the Pe. So there has been a bit
Speaker 1: of a divergence. It feels like across the global airline industry.
Speaker 1: You feel like it feels like you're you're one of
Speaker 1: the have so that there may be some have nods
Speaker 1: out there. Are we going to see some more consolidation
Speaker 1: and will you participate in that? I don't think you'll
Speaker 1: see consolidation in a meaningful way in the US. You
Speaker 1: may see it in it's made other other parts of
Speaker 1: the of the airline market not necessarily participating relative to Delta. Internationally,
Speaker 1: I do think you'll see uh Europe, you're already seeing it.
Speaker 1: You're seeing bankruptcies in Europe in terms of some of
Speaker 1: the European carriers. I think you'll continue to see so
Speaker 1: consolidation trends there. Uh So on the on the global scene,
Speaker 1: that's where we've been investing. We've invested in a number
Speaker 1: of our partners and really not consolidation. It's more to
Speaker 1: have influence within within our our global network of carriers.
Speaker 1: Uh you'll see more of that from Delta potentially, but
Speaker 1: I don't think on the U S side you'll see
Speaker 1: And what do those partnerships tend to look like now
Speaker 1: and what might they look like in the future, either
Speaker 1: geographically or are there new and different things that that
Speaker 1: you can try to sort of create that that family
Speaker 1: as it were. Sure, well, you know, one of the
Speaker 1: things I think that has not been successful in the
Speaker 1: airline world are the alliances. You know, we we am
Speaker 1: self critical SkyTeam Alliance. I don't think we've we've brought
Speaker 1: a lot of great value to customers. I don't think
Speaker 1: we've brought a lot of great value to our member airlines.
Speaker 1: And we're going at this thing in a very different approach.
Speaker 1: We're going at it through delta, making bilateral investments in
Speaker 1: the most important partners. We own forty nine percent of
Speaker 1: Virgin Atlantic, we own forty percent of Mexico, the two
Speaker 1: closest carriers to us on either side of the kind tree.
Speaker 1: We're invested in Air France KLM. We've invested in Korean,
Speaker 1: We've invested in shawna Eastern, We've invested in gold Down
Speaker 1: in Brazil. And as a as a consequence, what you
Speaker 1: see as you see this network of influence that we're
Speaker 1: having within those companies, so those companies want to know
Speaker 1: what what Delta has learned about operational efficiency and prowess,
Speaker 1: and that's Ed Bastion, the Delta CEO. It was really
Speaker 1: good to catch up with him. What an interesting guy,
Speaker 1: you know. I joked before we went on the air
Speaker 1: that I really only knew him from those little video
Speaker 1: screens on the backs of seats on his planes. It
Speaker 1: was kind of like meeting a movie star and in
Speaker 1: some ways, but he's got a big job on his hands.
Speaker 1: He's got a very successful we work. It seems so
Speaker 1: innovative and instinct. Initially with our ever increasingly sharing economy,
Speaker 1: many buying into this melding Jason of work in life. Well,
Speaker 1: I feel like when we started this year we thought, wow,
Speaker 1: this is such a twenty nine team company, and at
Speaker 1: this point in the year, it feels like, whoa, that
Speaker 1: is a twenty nineteen company. Ellen Hewitt is here with us.
Speaker 1: She joins us from Sam Francisco, tracking every twist and turn.
Speaker 1: And Ellen, as we were talking before we came on air,
Speaker 1: you mentioned the fact that you know, you've been watching
Speaker 1: this for a while, and obviously the scrutiny increases as
Speaker 1: the company gets closer and closer to going public. But wow,
Speaker 1: there's scrutiny, and then they're scrutiny. Yeah, it's you know,
Speaker 1: I've covered we work, uh for at this point, probably
Speaker 1: more than three years. I've written out a lot of
Speaker 1: different stuff about them. Um, you know, I remember even
Speaker 1: a couple of years ago, I was writing stories about um,
Speaker 1: you know, the people who work running their offices. These
Speaker 1: are people who are the community managers and stuff, and
Speaker 1: and they dealt with some of the stuff that you're
Speaker 1: kind of hearing echoes of now, which was there was
Speaker 1: a lot of partying in the offices. You know, they
Speaker 1: had to come in and deal sometimes with drunk members
Speaker 1: or or sometimes the de try this left over after
Speaker 1: people had used the offices for parties and things like that.
Speaker 1: And and it's just interesting to see how, Yeah, attention
Speaker 1: on this company is really evolved as it has become
Speaker 1: bigger and bigger. So, like you said, at the beginning
Speaker 1: of twenty nineteen, you know, when it got this round
Speaker 1: of funding from Stopping that valued it at forty seven
Speaker 1: billion dollars, all of a sudden, it was this huge company.
Speaker 1: And as it prepared to go public, which we learned
Speaker 1: about in April, then I think that's really when people
Speaker 1: started looking at it and thinking like is this company
Speaker 1: ready and really anticipating the S one which came in August,
Speaker 1: which I know was a very exciting day for me
Speaker 1: and and we and then it sort of it feels
Speaker 1: like at each turn there's more that's revealed, and there
Speaker 1: aren't huge surprises. For someone who's covered the company for
Speaker 1: so long, I think the culture has been pretty consistent,
Speaker 1: but it has been interesting to see how public investors
Speaker 1: or public potential investors have have viewed some of the
Speaker 1: conflicts of interest, the corporate governance structures, the personalities at
Speaker 1: the top of the company, um, and not always reacted
Speaker 1: very favorably. So family was a big element at this company,
Speaker 1: and ultimately it was a big part of its undoing.
Speaker 1: How did all of this kind of seem to go
Speaker 1: under the radar for such a long time, Allen, So
Speaker 1: it's interesting there's kind of two ways to look at
Speaker 1: the role that family plays in we work. So this
Speaker 1: has always been a company that's about communal spirit um.
Speaker 1: You know, remember they had community adjusted EBITDA was one
Speaker 1: of the financial metrics that they used in an earlier
Speaker 1: financial document. They took it out for the S one,
Speaker 1: but it's been part of their ethos. You know, they
Speaker 1: talked about life is better together. They explain, you know,
Speaker 1: sort of make a life, not just a living. They
Speaker 1: really want to bring work and life together, and I
Speaker 1: think that ends up blending personal and professional and then separately.
Speaker 1: The the people at the top, this is Adam Newman, UM,
Speaker 1: Rebecca Newman, and some of the other people who help
Speaker 1: run we work, really are also very comfortable having family
Speaker 1: ties play a big role at the workplace. So obviously,
Speaker 1: you know Adam and Rebecca are married. UM. When you
Speaker 1: look at the origins, sort of the company is actually
Speaker 1: Adam and Miguel the other co founder, and then Rebecca
Speaker 1: sort of emerges four or five years in as someone
Speaker 1: who now has a co founder title. This is something
Speaker 1: that if you look at early stories about were this
Speaker 1: was not something they discussed, but she became more important
Speaker 1: as the company became bigger, and then beyond that there
Speaker 1: as we mentioned in you know our story this week,
Speaker 1: there's a lot of other family ties that we work.
Speaker 1: UM there are you know, Rebecca's cousin was the head
Speaker 1: of real estate for a long time. His parents ran
Speaker 1: the uh summer camp where we work used to have
Speaker 1: their summer retreats. Her brother in law up until this
Speaker 1: past week actually worked at WE Work as a vice chair. Um.
Speaker 1: You know, there were some others that were disclosed in
Speaker 1: the s one a brother in law of Adams as
Speaker 1: someone who runs the like Jim and fitness offering at
Speaker 1: WE Work. There was another family that family member that
Speaker 1: was paid for some of the events, live events that
Speaker 1: they put on. It just kind of goes on and on.
Speaker 1: There are a lot of people who are personal friends
Speaker 1: of Adam who work at we were concluding people who
Speaker 1: knew from his childhood in Israel. So he feels I think, uh,
Speaker 1: you know, a strong sense of loyalty to people. This
Speaker 1: is something his wife has described in interviews and I
Speaker 1: think it comes out and how he chooses to do
Speaker 1: his professional dealings. Um and And they were at least
Speaker 1: at the top, very comfortable with having strong personal ties
Speaker 1: among the executive team and and sort of the the
Speaker 1: VP levels and above well and Ellen to that extent
Speaker 1: and to the extent that it is a very convoluted structure,
Speaker 1: a complicated structure, and one that is certainly atypical. How
Speaker 1: much of it went unnoticed because there was really one
Speaker 1: big major investor setting the tones setting the valuation and
Speaker 1: really providing the most oversight, and that of course was
Speaker 1: soft Bank. That might end up being the biggest takeaway
Speaker 1: about this all, which is what happens when you really
Speaker 1: get the majority of your venture funding from one place. Uh.
Speaker 1: You know, since two thousand seventeen, the only source of
Speaker 1: outside funding for we Work has been soft Bank. They
Speaker 1: invested first about four point four billion dollars in a
Speaker 1: big round and then in constant like consecutive rounds after that.
Speaker 1: There were other um fundings from soft Bank, but all
Speaker 1: only from there. There were never other investors involved in
Speaker 1: In the end, they soft Bank invested more than ten
Speaker 1: billion dollars in this company, and they're by far, you know,
Speaker 1: the biggest investor, and you can you can extrapolate to
Speaker 1: the conclusion that, you know, the only two people who
Speaker 1: needed to decide we Works valuation for the last couple
Speaker 1: of years have been mas Yoshi sone and Adam Newman.
Speaker 1: And if you have these two people in agreement, that
Speaker 1: might be how you end up with evaluation like forty
Speaker 1: seven billion dollars that many other people when you asked
Speaker 1: them if they would buy we Work stock at that price,
Speaker 1: they said, I don't think so well, and not only
Speaker 1: the valuation, but also the corporate oversight to a large extent,
Speaker 1: because as you uh and some of our other colleagues
Speaker 1: have reported, you know, the board was obviously and this
Speaker 1: is not that anomalous, you know, obviously very much stacked
Speaker 1: with people who were sympathetic to Adam Newman. It it
Speaker 1: just looked unchecked in a lot of ways. Yeah, not
Speaker 1: only sympathetic to Adam Newman, but really without that much
Speaker 1: power to um overrule it. So since about he's had
Speaker 1: majority voting control of the board. Obviously that changed in
Speaker 1: the last couple of weeks. But you know, this is
Speaker 1: I think another example that people are going to turn
Speaker 1: to when they want to make the argument that modern boards,
Speaker 1: especially for these big, high flying venture backed startups, UM,
Speaker 1: they don't really exert that much power. They're they're agreeing
Speaker 1: to all these things that the CEO wants to do,
Speaker 1: maybe out of a need to feel like their founder friendly,
Speaker 1: or maybe out of not wanting to distance themselves or
Speaker 1: start a schism within the board between them and the executive.
Speaker 1: But you're seeing that that's not really providing the check
Speaker 1: and balance on good and bad ideas that that a
Speaker 1: company might come up with, um, you know, there are
Speaker 1: a lot of things that we work did not just
Speaker 1: in corporate governance, but in some of its business decisions
Speaker 1: that are now being rolled back by the new co CEOs.
Speaker 1: That at least is suggesting that some people within the
Speaker 1: company didn't think they were a good idea. And you know,
Speaker 1: these are some of the acquisitions that the company may
Speaker 1: that felt a little outside of their core business of
Speaker 1: renting real estate. That's Ellen Hwett coming from our San
Speaker 1: Francisco here man. She's been covering this story for a
Speaker 1: long time and really following all the family members that
Speaker 1: have been working at the company, which only really seemed
Speaker 1: to come to light as the company tried to go public,
Speaker 1: right and once investors really got a sense of what
Speaker 1: was going on underneath, that's when the real problem started.
Speaker 1: So Fender Bender's accidents. If you live in the New
Speaker 1: York metro area or feel like any major city man,
Speaker 1: you probably have had one or two or more, right, Yeah,
Speaker 1: but usually it's not so big of a deal. You
Speaker 1: got your car, guy, you drop it off, he fixes in,
Speaker 1: and it's all good. But what if your car costs
Speaker 1: a quarter million dollars or more? It's a whole other thing.
Speaker 1: Hannah Elliott's got all the answers as usual. She's here
Speaker 1: with us in New York City. So Carol is not
Speaker 1: so careful sometimes with her Bugatti. Well, you're probably gonna
Speaker 1: call Bugatti directly and say, hey, guys, you may want
Speaker 1: to send a truck, and then the car will be
Speaker 1: sent back to France. That's where that's what happens. Yeah,
Speaker 1: you're you're not going to see it for a while.
Speaker 1: It's gonna be some months before you get it back.
Speaker 1: We'll tell us why, because this is I love that
Speaker 1: you talk about when in individuals you talk about Chris
Speaker 1: sing is it. Yeah, Chris tell us a little bit
Speaker 1: about him and what happened with him. He is a
Speaker 1: great character, very famous on Instagram. He's got over a
Speaker 1: million followers. And then he's a car collector. He's known
Speaker 1: for collecting Peganis conig seg Slammorghini's that sort of thing.
Speaker 1: And he got hit by an Uber driver in Miami
Speaker 1: and um, the guy basically sheared off one of his
Speaker 1: wheels and he told me his first call was to
Speaker 1: Pegani and um they sent a truck. The car goes
Speaker 1: back to the factory in Italy, he doesn't see it
Speaker 1: for several months. Um, but then several months later is
Speaker 1: reunited with the car in Italy and actually has driven it,
Speaker 1: you know, thousands of miles in rallies. Since so it's
Speaker 1: a law involved process. He didn't just send it to
Speaker 1: you know, the corner dealership because there is none. And
Speaker 1: what is it? I mean, I guess it's not shocking
Speaker 1: that these cars are complicated and somewhat fragile, but I
Speaker 1: have to say this is even more intense than than
Speaker 1: maybe I thought it would. It's pretty intense. I mean,
Speaker 1: if you look at Lamborghini, they've got a program called
Speaker 1: the Flying Doctors where they have some engineers that are
Speaker 1: trained by Boeing that they deploy anywhere there's a major
Speaker 1: crash from one of their valuable owners. Um, and those
Speaker 1: guys will strip the car down to basically nothing, to
Speaker 1: the monocoque tub and gradually grafted new layers, you know,
Speaker 1: build new components on site anything needed. Um. Again, these
Speaker 1: you know, or Lamborghini will ship the car to uh
Speaker 1: the University of Washington in Seattle and in their labs
Speaker 1: there repair it there. So you're dealing with high tech
Speaker 1: components that most dealers and shops don't have. What is
Speaker 1: something like this cost? And I'm always curious about the
Speaker 1: insurance side of it, right, I mean, do you actually
Speaker 1: file claims with your insurance and do they cover this
Speaker 1: kind That's a really good question, and it's a case
Speaker 1: by case basis. It's really interesting. Of course, none of
Speaker 1: the guys I spoke to really want to share with me,
Speaker 1: you know, their insurance numbers and and um that sort
Speaker 1: of thing. Christine told me insurance did cover the repair
Speaker 1: for the Pegani that was hit by the Uber driver.
Speaker 1: Another owner told me if the damages are under two
Speaker 1: dollars or so, he's not going to report the damage
Speaker 1: because it's just not worth it proportionately, if you have
Speaker 1: a car that's a couple of million dollars, it's really
Speaker 1: not worth it for what it might do to his
Speaker 1: insurance premiums UM. I spoke with the guys at Haggarty
Speaker 1: and they they too said, look, this is a really
Speaker 1: touchy subject. It's a case by case thing. Um to
Speaker 1: get a quote on this, you're talking thousands of dollars
Speaker 1: just for months. Well, and it's a reminder that it's
Speaker 1: one thing to be able to afford a car just
Speaker 1: to buy one of these cards. But the ongoing maintenance,
Speaker 1: even outside of fender fender bender or some sort of crash,
Speaker 1: is massive. Just taking care of these things, it's incredible.
Speaker 1: For one example, the McLaren F one. I spoke with McLaren.
Speaker 1: This is a very special car that was built in
Speaker 1: the nineties. They estimate that just maintenance on the McLaren
Speaker 1: F one is thirty thou dollars a year just to
Speaker 1: maintain UM and they recommend each year sending the car.
Speaker 1: Back to the fact that the McClaren factory in England
Speaker 1: for oil changes, you know, break checks, the realignment, anything
Speaker 1: you might need on a regular car UM on the
Speaker 1: F one, it costs so much more they're going to
Speaker 1: do it at headquarters. What was the figure around an
Speaker 1: oil changes tho dollars for an oil change, for a
Speaker 1: wheel repair, tire repair around six thousand dollars. You know
Speaker 1: you can get that done for free at your local
Speaker 1: shop a lot of the time. So what are these
Speaker 1: you know, the supercar makers. I mean, if somebody perhaps
Speaker 1: at a shop or private account, works on a car,
Speaker 1: do they even want to touch it after that? No? No, no,
Speaker 1: And really. You know, Asin Martin has the Vulcan a
Speaker 1: sid Martin Vulcan. This is a very famous car that
Speaker 1: they have just started delivering, you know basically right now, Um,
Speaker 1: they've said you can't like you signed papers. Let's say,
Speaker 1: you've got to let us work on it. We want
Speaker 1: our original people who built the car to work on
Speaker 1: the car. If you go out of shop, that kind
Speaker 1: of negates any agreement you have with the automaker. And
Speaker 1: so is this just the world word living in this
Speaker 1: sort of high touch, you know, high cost? I mean
Speaker 1: you you talk about cars all the time, and we
Speaker 1: talk about automation and all these different elements of the
Speaker 1: car world. Is this just getting more extreme as the
Speaker 1: rest of the world goes the other way? I think so. Um.
Speaker 1: I will say one owner I think had a great point,
Speaker 1: Dan King, he's a big collector in southern California. He said, look,
Speaker 1: I just keep a couple of guys on my own
Speaker 1: payroll who work very close with the Konic side factory.
Speaker 1: But he has him in house in California. I think
Speaker 1: that's the smart way to do it. And probably we're
Speaker 1: going to see more and more of that where you
Speaker 1: just retain the services of you know, um certified people
Speaker 1: under your own house. And Jay Leno had a great
Speaker 1: story that tells what happened in Well, this was in
Speaker 1: his garage. He was backing up one of his Lamborghini
Speaker 1: mirrors and backed it into the other. Who has that
Speaker 1: problem in life? Yeah, But luckily the great thing is
Speaker 1: j has a whole shop at his disposal site. Um,
Speaker 1: he at least could repair the cars on site. Do
Speaker 1: they do they ever total a car? That's a good
Speaker 1: question too. It really depends going back to the McLaren
Speaker 1: F one. You know, there's this famous case of Mr
Speaker 1: Bean who twice crashed his F one car um but
Speaker 1: sold it for more. He made like an eight million
Speaker 1: dollar profit when he sold it from what he had
Speaker 1: paid for there right now, that's the thing. McLaren made
Speaker 1: a hundred and six of them. They're not making anymore.
Speaker 1: The idea is you can't really total it just because
Speaker 1: it's valued so highly. Now well, and to your point,
Speaker 1: in so many cases, if it is really damaged, they're
Speaker 1: really just going to rebuild it completely from the ground up, completely.
Speaker 1: You know. Chris Stink told me that. Dan King told
Speaker 1: me that, Look, if you do get to the point
Speaker 1: where you have to send it back. They're basically building
Speaker 1: you a new one. And that's Hannah Elliott. You know
Speaker 1: her job. It's so tough, and you know she did
Speaker 1: have to talk to people who were in a very
Speaker 1: sad state of affairs because their three million dollar car
Speaker 1: was in the shop in England for months at a time. Well, exactly,
Speaker 1: we get a fender bender, right, we call the insurance company,
Speaker 1: we go to the corner mechanic and get it fixed
Speaker 1: in a couple of weeks. It's a very different story
Speaker 1: when you own a supercar. So it's time for pursuits.
Speaker 1: We're here with the editor Chris Rouser, and we start
Speaker 1: with cheese making the perfect cheese plate. This is news
Speaker 1: you can use. I'm just gonna say it. Literally read
Speaker 1: this story and I thought, I'm gonna tear this out
Speaker 1: of my paper magazine. I'm gonna put it on the
Speaker 1: refrigerator because a good cheese plate is important. Yeah, and
Speaker 1: you know, we've been sitting on this story since summer
Speaker 1: because we were like, oh, we thought of it, and
Speaker 1: we were like, you know, summer isn't the best time
Speaker 1: for cheese plates to leave it out in the sun.
Speaker 1: It gets hot kind of melts. But there's there's a
Speaker 1: new cheese plate book, there's a website devoted to cheese plates,
Speaker 1: there's Instagram accounts devoted to this. We thought now is
Speaker 1: the time to really go over the basic rules. So
Speaker 1: Kate Crater talked to a bunch of cheese plate experts
Speaker 1: and we got some tips, and some of them actually
Speaker 1: were a surprised to me. Um. One of the tips
Speaker 1: that she recommends is actually including vegan cheese, which is
Speaker 1: something that I am sort of spiritually against, but it's
Speaker 1: actually a great idea, you know, if you have vegan guests.
Speaker 1: I didn't try it, but some of the vegan haters
Speaker 1: on our team did try it, Um, And you know,
Speaker 1: it's not cheese, right, So it's it's using like almond
Speaker 1: milk and cashion milk and it yeah, it's pretty good. Actually,
Speaker 1: it's a nice option, right, And it's really being nice
Speaker 1: to your gett. Yeah. And then another thing she said
Speaker 1: to think about his timing. Actually, so uh, you know,
Speaker 1: I just shove whatever cheese is in the fridge out
Speaker 1: on a plate right before guests get there. But actually
Speaker 1: you should have your cheese come to room temperature before
Speaker 1: because then it becomes softer, it's the right way to
Speaker 1: cut it. So you know, maybe like forty five minutes
Speaker 1: before you're ready take the cheese out of the refrigerator.
Speaker 1: You also point out that different cheeses require different types
Speaker 1: of presentation, slicing versus chipping chippin, which I didn't really
Speaker 1: know was the thing, but that help us, help us understand. Yeah,
Speaker 1: so if you have like a small soft cheese, you
Speaker 1: can cert like a log or in a wheel, you
Speaker 1: can serve that whole. But if you're getting something bigger,
Speaker 1: even like a blue cheese or like sort of an
Speaker 1: aged guda, something that's gonna be hard, actually get in
Speaker 1: there with a with a knife and chip pieces off,
Speaker 1: you know, the way you might see parmesan cheese served
Speaker 1: like a restaurant or something, so that people can just
Speaker 1: grab a chunk. I love too that there's kind of
Speaker 1: like fill in things, right, like nuts and so on
Speaker 1: and so forth. Yeah, so you know, you oftentimes you'll
Speaker 1: see this like a quince or a fig jam on
Speaker 1: a cheese plate. But you know, there's all sorts of
Speaker 1: directions you can go. So what Kate and the chefs
Speaker 1: recommend is sort of creating veins of like cured meat
Speaker 1: that sort of waved through the plate, and then fill
Speaker 1: in any empty spaces with nuts or dried fruit or
Speaker 1: fresh fruit or stuffed hot peppers. Um, or there's sort
Speaker 1: of something hot and spicy like a lostarto. Uh is
Speaker 1: a good idea, So just get some variety on there.
Speaker 1: The other takeaway I had from this is essentially more
Speaker 1: is more like loaded up. And you know, nobody likes
Speaker 1: the skimpy looking cheese plate. And in fact, even sort
Speaker 1: of like a well organized cheese plate is not as
Speaker 1: important as sort of a bounty should look like it's erupting.
Speaker 1: It should look like a cornucopia stuff. It's not that
Speaker 1: sort of fine dining thing where you get a little
Speaker 1: a d bad tiny thing on a plate. You want
Speaker 1: as much cheese as possible, all right, a lot of cheese. Um,
Speaker 1: all right, that's good to know. She's so glad we
Speaker 1: all went to journalism because it brings us to this
Speaker 1: next story. Him up bars. Yeah, so you know, sandals
Speaker 1: in Montego Bay, sandals that great, you know, all inclusive. Yes, well,
Speaker 1: they're really pushing the Montego Bay place right now. And
Speaker 1: so they approached us and they were like, you know,
Speaker 1: it's the thirty fifth anniversary of our robot bar. Sorry
Speaker 1: I knew that. I knew that, but I didn't know
Speaker 1: if everyone else. And um, they were like, you know,
Speaker 1: we've redone it and it actually was the first swim
Speaker 1: up bar in the Caribbean, and so they were like,
Speaker 1: do you want to look at a history of the
Speaker 1: swimp bar? And I was like, yes, yes, idea publicists
Speaker 1: is going to get a raise. Um, and we really
Speaker 1: looked into it and there's a totally funny, interesting history
Speaker 1: of the swimap arts sort of started actually in Las
Speaker 1: Vegas when people would be hanging out by the pool,
Speaker 1: and casino owners were like, we're losing money when people
Speaker 1: are relaxing. How do we get how do we get
Speaker 1: them to spend while they're chilling out. So they actually
Speaker 1: moved casino tables out to the pool and then they
Speaker 1: put bars out by the pool. And then in the Caribbean,
Speaker 1: the Sandals they were like, why can't we serve people
Speaker 1: drinks while they're in the pool. Let's just put a
Speaker 1: bar in the It's really decadent, Like there's something about
Speaker 1: swimming up and it's like, yeah, but it's great. I
Speaker 1: mean some of the cheesiest things are the best. But
Speaker 1: I'm just surprised that it's only three five years old.
Speaker 1: I for some reason, I thought it was a lot older. Yeah. Well,
Speaker 1: actually Sandals claims that even serving cocktails on the beach
Speaker 1: is actually a relatively recent invention. Like they say, they
Speaker 1: sort of started doing it like fourty years ago, and
Speaker 1: it wasn't a thing before that. My theory is that
Speaker 1: when the Greeks were on Mount Olympus, yeah they were
Speaker 1: serving drinks on the beach. But but apparently this whole
Speaker 1: thing is actually pretty recent well, and it's become even
Speaker 1: more of a phenomenon, and the aesthetics editor that much
Speaker 1: more important in the edge of Instagram, you know, because
Speaker 1: you have so many people who really want to first
Speaker 1: of all, take a picture of themselves on vacation to
Speaker 1: make everyone jealous that they're on vacation and having a
Speaker 1: drink and at this one out bar, and so that
Speaker 1: leads to people really investing in the look, not just
Speaker 1: the booze. Yeah. So one of the fancier places that
Speaker 1: we talked to, the Four Seasons in Maui. They say
Speaker 1: they're most Instagram spot is there Swim Up Bar. So
Speaker 1: they've got a lot of beautiful places, and they're like,
Speaker 1: that's where everyone wants to go to make content. But
Speaker 1: who knew that there was actually swim at bar right
Speaker 1: here in Manhattan. I had no idea. I have been
Speaker 1: in that'll tell us. There is a swim up bar
Speaker 1: at a hotel in Times Square, the Roommate Hotel. Two
Speaker 1: words roommate and um, you know actually it was a
Speaker 1: different hotel, probably ten years ago, and they've always had
Speaker 1: this pool bar, and if you are brave enough, you
Speaker 1: can get in the pool and swim around in Times Square. Fun.
Speaker 1: It is fun, you know, It's yeah, it is fun.
Speaker 1: It's funny. It's it's not a huge pool. It's like
Speaker 1: kind of a small pool. It's sort of a novelty.
Speaker 1: But the time that I was there, someone is someone's birthday.
Speaker 1: Someone through the cake in the pool and then you
Speaker 1: have to get out of the pool, so like it's
Speaker 1: you know, it's not it's Ayre. It was not me.
Speaker 1: It was not me. No, no, no no, But yeah,
Speaker 1: if you want to you can, all right, So I
Speaker 1: don't know where to go. One thing I would like
Speaker 1: to do is like check out the Brooklyn Academy of
Speaker 1: Music because there is a lot of interesting things going on.
Speaker 1: Isn't like Madonna going to be there. Even so, Madonna
Speaker 1: is at the Brooklyn Economy Music right now. She sent
Speaker 1: for the past couple of weeks. Yes, she wanted to
Speaker 1: start her Madam X tour in a sort of more
Speaker 1: intimate environment. I mean, it's a two thousand person theaters.
Speaker 1: It's not tiny, but it's a lot smaller than the
Speaker 1: arenas she normally plays. UM and bam Is, this cultural
Speaker 1: institution in the heart of Brooklyn has three theaters and
Speaker 1: a bunch of spaces. They're building some more arts space.
Speaker 1: It's been around a lot longer than Swim up Bars. Yeah,
Speaker 1: it's been around for a hundred and fifty years. I
Speaker 1: had to figure out some kind of and it is
Speaker 1: one one of the city's largest arts institutions actually, and
Speaker 1: it's it can be very overlooked. People in Brooklyn loving UM,
Speaker 1: but if they get incredible international artists, they get celebrities
Speaker 1: to do to do plays UM and it. You know,
Speaker 1: they're really trying to bring it to the next level.
Speaker 1: And they're also trying to adapt to a changing Brooklyn.
Speaker 1: You know, thirty years ago for Green where bam Is
Speaker 1: was a very low income neighborhood and now it's it's
Speaker 1: very yupified, and they want to continue to bring in,
Speaker 1: you know, audiences that represent all of Brooklyn, and so
Speaker 1: they're trying all sorts of different new kinds of productions
Speaker 1: from all over the world to try to draw and
Speaker 1: these people well. And that is what was so interesting
Speaker 1: to me about it, is this notion of you know,
Speaker 1: Brooklyn in this moment of I wouldn't say existential crisis,
Speaker 1: but certainly a little bit of angst about is it
Speaker 1: going to hold on to what it was, especially in
Speaker 1: the context of the city of New York, or is
Speaker 1: it just going to be gentrified like everything Manhattan Jr. Yeah,
Speaker 1: I mean, for right on the back of four Kreen
Speaker 1: is downtown Brooklyn and every single block is a skyscraper
Speaker 1: is being built, like a residential condo tower or rental tower,
Speaker 1: and it's so it's a very changing neighborhood and four
Speaker 1: Kreen really represents that area. And to that point, they
Speaker 1: have a new artistic director actually has been there for
Speaker 1: a little bit of a little while, and he comes
Speaker 1: from an interesting background, like a Broadway background, so he
Speaker 1: brings some different traits to that job. So we wanted
Speaker 1: to do this story because David Binder is a new
Speaker 1: artistic director and he replaced a guy who'd been there
Speaker 1: for thirty five. So this is a new, a really
Speaker 1: new moment for BAM and so. And David Binder produced
Speaker 1: a Highline Festival which was curated by David Bowie, very cool.
Speaker 1: And he also produced head Big and the Angry Inch,
Speaker 1: which wanted Tony and was a very cool, sort of
Speaker 1: trans transgressive Broadway production. So he's got sort of a
Speaker 1: big league's experience that he's going to bring to mam. Alright,
Speaker 1: So with all of this, after all the cheese drinking
Speaker 1: at the swim up bar, maybe going to a production
Speaker 1: at Maybe I just want to go for a runch. Yes,
Speaker 1: my tunes, I want to listen to you know, Carol's
Speaker 1: in my podcast so I can critique us. How am
Speaker 1: I going to do this? So Beats by Dre has
Speaker 1: a new set of headphones, the of Power Beats Pro.
Speaker 1: There two or fifty dollars and their over ear. They're
Speaker 1: independent of each other, um and they have an incredible
Speaker 1: sound quality. I tested them out. A few people on
Speaker 1: our team tested them out, um and they they're great
Speaker 1: noise canceling. They have great bass. It's just a really
Speaker 1: good sound system, and they come fee. They're very comfortable,
Speaker 1: they write, they rest on your ears. They don't jam
Speaker 1: into your right into your ears the way that some do,
Speaker 1: so you can wear them for a long time. We
Speaker 1: really like them, and we tested a bunch so well.
Speaker 1: And what's interesting is just to remind people, as you know,
Speaker 1: Apple and beats are together, and so you kind of
Speaker 1: get the best of both worlds here. And I do
Speaker 1: think a lot of our listeners and viewers don't go
Speaker 1: in for like the big over ear. They can cans
Speaker 1: and you know, want something a little more subtle. And
Speaker 1: these are waterproof or is it? Yeah, they're sweatproof. Yeah
Speaker 1: you can't go swimming with them, but yeah, they you
Speaker 1: can get them pretty wet. They cost they cost you
Speaker 1: or fifty All right, that's Chris Rouser. And who would
Speaker 1: have thought that it would be so interesting and so
Speaker 1: complicated to create the perfect cheese plate. I had no idea,
Speaker 1: but I ripped that page out of the magazine and
Speaker 1: let me tell you, I'm up in my cheese game.
Speaker 1: And that wraps up Bloomberg Business Week's Weekend podcast. Thanks
Speaker 1: so much for joining us. I'm Jason Kelly and I'm
Speaker 1: Carol mass Or. Be sure to tune into Bloomberg Business
Speaker 1: Week Radio Live Monday through front Day, starting at two
Speaker 1: pm Wall Street Time. And if you can't catch us live,
Speaker 1: get our daily podcast for the Ride Home at iTunes, SoundCloud,
Speaker 1: or a Bloomberg dot com, and you can get this
Speaker 1: week's edition of the magazine that's on newsstands now. We'll
Speaker 1: be back right here next week at the same time.
Speaker 1: This is Bloomberg