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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market moven News.
Speaker 2: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever
Speaker 2: you listen to podcasts, and at Bloomberg dot Com slash
Speaker 2: podcast catch funds. You know them, you love them? How
Speaker 2: is performance in twenty twenty three? What to look for
Speaker 2: in twenty twenty four? Elana Weinstein Joints and she's the
Speaker 2: founder and CEO of the IDW Group and Bloomberg. Shanali Basset,
Speaker 2: who covers all of Wall Street, joins, is how cool
Speaker 2: is that Shanale that talks in hedge funds.
Speaker 3: I've been waiting to have this conversation all week because
Speaker 3: what a weird year, Paul in hedge funds, and Alana
Speaker 3: is so plugged into this universe. Let's talk about performance first, though,
Speaker 3: because what's stunning is you've seen this massive melt up
Speaker 3: in markets, and the hedge funds, by and large across
Speaker 3: the industry really have not kept up. Bloomberg's All Hedge
Speaker 3: Index is only up about four point eight percent through
Speaker 3: the year so far, and the multi strategies are supposed
Speaker 3: to be the kings of the castle here are only
Speaker 3: up less than three percent on the year. Alana, what's
Speaker 3: going on?
Speaker 4: Okay, So let me unpack those numbers. First off, the
Speaker 4: hedge fund index, I think, is a blend of everything,
Speaker 4: So we need to kind of go strategy by strategy
Speaker 4: to really pull out what the themes are. Long short equities,
Speaker 4: which had a really tough twenty one and twenty two. Finally,
Speaker 4: Shanali had performance. I am please to sit here and
Speaker 4: say something positive, which I have not been able to do.
Speaker 4: For the last couple of years, those funds, which are
Speaker 4: a big percentage of the hedge fund universe, the directional
Speaker 4: concentrated Tiger cubs and similar are up as much as
Speaker 4: twenty percent, thirty percent, even forty percent. The issue there,
Speaker 4: which is really important is even though they're up that much,
Speaker 4: they still have for the most part, an enormous high
Speaker 4: watermark to have to get out of. And let's just
Speaker 4: say it's a fund that's up thirty five percent this year. Okay,
Speaker 4: you may think, and they were down about fifty percent
Speaker 4: between twenty one and twenty two. You may think, okay,
Speaker 4: ye'ar one this year, up thirty five they can get
Speaker 4: out of that remaining fifteen or twenty next year and
Speaker 4: then it's smooth sailing. But the reality is their AUM
Speaker 4: maybe was thirteen billion at the beginning of twenty one,
Speaker 4: it's six and a half billion now, So that thirty
Speaker 4: five percent is on a much smaller base of capital,
Speaker 4: and it's actually as a result, so there may very
Speaker 4: much fewer dollars made than it would have been had
Speaker 4: they made that money back up before they had the losses,
Speaker 4: And as a result, there's really another sixty five percent
Speaker 4: to go, So that's a huge headwind for that strategy.
Speaker 3: How much more excitement is there around the industry, especially
Speaker 3: because many of them have not met the market performance still,
Speaker 3: and so even if they're up, they have two issues
Speaker 3: here to your point the high water mark and the
Speaker 3: issue is you could just invest in the S and
Speaker 3: B or the Nasdaq or even the socks up sixty
Speaker 3: five percent this year, how does that set them up
Speaker 3: into appetite investor appetite for new hedge fund allocations next year.
Speaker 4: Let me also touch on the multi managers which you cited.
Speaker 4: It is true that blended it's not a great result,
Speaker 4: but unpacking that, there's a lot of dispersion in that result.
Speaker 4: If you look at the more established multi managers that
Speaker 4: have been around a while and have built a mouse
Speaker 4: trap that is very difficult to compete with. Fun like
Speaker 4: Citadel leading the pack up fifteen percent, which is a
Speaker 4: very different number than what you cited, or Millennium point
Speaker 4: seventy two up double digits, and then the rest are struggling,
Speaker 4: and that has a lot to do. So when we
Speaker 4: to answer your question LP appetite, you know, the reality
Speaker 4: is the reason the other multi managers grew so quickly
Speaker 4: is because the more established players were either closed or
Speaker 4: very deliberate about how they grew. And if you can't
Speaker 4: allocate to the more established guys, or at least not
Speaker 4: at the level you'd like, then you end up pouring
Speaker 4: money into all these other funds that grew in the
Speaker 4: last two years hand over fist. And when I say quickly,
Speaker 4: I mean between three and eight x. Think about that
Speaker 4: over a twenty four to thirty six month period. It
Speaker 4: is very difficult to deploy that kind of capital growth
Speaker 4: and hire a winning team. In order to do that,
Speaker 4: talent is really fugual to hire and attract. No one
Speaker 4: knows that better than myself and my team, and so
Speaker 4: you can't get from one billion to eight billion, hire
Speaker 4: one hundred and fifty pms and expect a great result.
Speaker 4: There's a lot more that goes into this.
Speaker 5: Okay, well, let's talk about talent, because I feel like
Speaker 5: it was, you know, pandemic era where all we were
Speaker 5: talking about was the competition to talent and compensation wars
Speaker 5: who can offer the best starting salaries and the biggest bonuses.
Speaker 5: We know that it has been a more difficult year
Speaker 5: in terms of actually people getting paid, and we're probably
Speaker 5: finding that out here at the tail end of the year.
Speaker 5: So what is your view here on compensation and how
Speaker 5: these firms are making themselves attractive.
Speaker 4: I think compensation kind of falls into one of two buckets.
Speaker 4: It's either formulaic and for example, if you're at a
Speaker 4: multi manager with a pass through, you know exactly what
Speaker 4: you're getting paid. There's no mystery there. Or you're at
Speaker 4: a fund which is like a single manager, where if
Speaker 4: you're a senior person, you have points in the fund
Speaker 4: and then there's maybe a jump ball with respect to
Speaker 4: being able to reward you on top of that, but
Speaker 4: to the extent it's a fund that has a high
Speaker 4: high water mark. No, there hasn't been a performance fee,
Speaker 4: for example, the long short equity managers in twenty one
Speaker 4: for the most part, there wasn't one in twenty two,
Speaker 4: and even though they put up this incredible performance in
Speaker 4: twenty three, they don't have a performance fee with which
Speaker 4: to pay those people. And so to answer your question,
Speaker 4: I think there's going to be a lot more frustration
Speaker 4: this year than there even has been the last couple
Speaker 4: of years. Those people are going to get paid more
Speaker 4: because the manager is going the founder is going to
Speaker 4: feel he or she needs to reach more deeply into
Speaker 4: the management fee to pay them. But when you're someone
Speaker 4: who's put up hundreds of millions of dollars, even billions
Speaker 4: of dollars, the dispersion between what you're actually going to
Speaker 4: get paid this year and what you've produced is going
Speaker 4: to be very frustrating versus in previous Here is where
Speaker 4: there wasn't performance for the fund. I didn't put up
Speaker 4: performance as an individual, So whatever I get paid, I'm
Speaker 4: kind of okay with because that's the ethos of this industry.
Speaker 4: It's paid for performance. Now I've put up tremendous performance,
Speaker 4: and my founder isn't really paying me something that feels
Speaker 4: in any way proportionate to what I should get paid.
Speaker 4: And I want to also highlight as much as some
Speaker 4: of these funds lost a significant amount of AUM, we're
Speaker 4: still talking about falls from Grace of thirty billion to
Speaker 4: twenty billion, or in the case of Tiger Global, one
Speaker 4: hundred billion to fifty five billion. But think about the
Speaker 4: management fee. On fifty five billion, that's still a billion
Speaker 4: of fees, or on twenty billion, that's four hundred million
Speaker 4: of fees. So and these teams are relatively lean, particularly
Speaker 4: at senior levels, and everyone knows that. So it's it's early,
Speaker 4: still a visa vcamp. But what we're hearing, even though
Speaker 4: the number is better, is an increased level of frustration,
Speaker 4: and I think there's going to be more vulnerability at
Speaker 4: these funds as a result.
Speaker 2: When I left the street in the mid two thousands,
Speaker 2: I studied long and hard about whether to transition to
Speaker 2: the hedge fund business. And what I concluded then was
Speaker 2: that long short equity, no alpha left done game had
Speaker 2: been played out, so I can go Bloomberg.
Speaker 4: So my question is how lucky we are?
Speaker 2: And I was absolutely correct that the numbers bear that out.
Speaker 2: My question is if I'm a really good trader, I
Speaker 2: don't know, bonds, currency, something at Morgan, Stanle There, Goldman, Sachs.
Speaker 2: Back in the day, I could just leave and go
Speaker 2: raise a couple of billion dollars and then boom. That
Speaker 2: was my path. Does that still exist or does a
Speaker 2: lot of the new money coming into hedge funds go
Speaker 2: to the point seventy two's and the citadels.
Speaker 6: Well.
Speaker 4: As I said earlier, some of those established managers are
Speaker 4: closed or very carefully accepting new capital. I believe me,
Speaker 4: there's a line around the block to allocate to those.
Speaker 4: But two things. One the days of leaving the cell
Speaker 4: side to go start a hedge fund, I think you'd
Speaker 4: have to be completely nuts to try to attempt to
Speaker 4: do that. Good luck getting a job at a hedge
Speaker 4: fund period, because you've spent all this time on the
Speaker 4: cell side and back in the day. Sorry not to
Speaker 4: age you, but we got there. You could take risks,
Speaker 4: sure right, you could take risk. You can't do that
Speaker 4: post the financial crisis. So if you're still sitting on
Speaker 4: the cell side, the reality is you're in more of
Speaker 4: a managerial role than you are a risk taking role.
Speaker 4: At a senior level, I think it's candidly become more
Speaker 4: difficult to even launch coming from most hedge funds. Now,
Speaker 4: coming from a top flight hedge fund which has a
Speaker 4: great established track record and is doing well today, that's
Speaker 4: exciting to LPs, but that group of funds has become
Speaker 4: fewer and fewer. And yes, coming out of a fund
Speaker 4: like a Citadel or a point seventy two sets you
Speaker 4: up in good stead to be able to launch successfully,
Speaker 4: But think about coming out of some of the tiger
Speaker 4: cubs are related now that are still well below their
Speaker 4: high water mark. That's not exactly an exciting value proposition
Speaker 4: to Lpece to say, oh, I'm going to be different,
Speaker 4: you know, and don't worry about the last twenty one
Speaker 4: and twenty two. You know, we're doing better now and
Speaker 4: my approach to risk management and managing volatility is better
Speaker 4: than what you've experienced.
Speaker 3: Also em bettered in Paul's question here is there's a
Speaker 3: long short equation has been doing better, but macro has
Speaker 3: been such an exciting prospect. Currencies, fixed income, the interest
Speaker 3: rate environment so drastically changing. When you're looking at the
Speaker 3: types of managers. How much is the macro story part
Speaker 3: of twenty twenty four and what does that mean for
Speaker 3: the talent story.
Speaker 4: That's a good question, Shanali, because every year I feel
Speaker 4: like it's a different story in macro. Twenty two is great,
Speaker 4: twenty three has not been so great, So we'll see
Speaker 4: what twenty four holds. It's a strategy which embodies as
Speaker 4: we've seen a lot of volatility, so I think it's
Speaker 4: TBD in terms of how they will perform. And you know,
Speaker 4: talent follows where there is an ecosystem which can navigate
Speaker 4: that volatility best.
Speaker 2: We're now in an environment, an entry environment that haven't
Speaker 2: been in a long time where rates went up so
Speaker 2: much now they're going to be coming down. Is there
Speaker 2: a feeling within the hedge fund community that certain strategies
Speaker 2: are going to work better in twenty four than maybe
Speaker 2: the past couple of years.
Speaker 4: Well, I think the reality is the uh, you know,
Speaker 4: the bar has gone up in terms of not just
Speaker 4: just the market environment, but also what LPs expect for
Speaker 4: what they're paying. And it's really the focus is of
Speaker 4: course on alpha and running in a way which neutralizes
Speaker 4: a lot of the market risk inherent right, that has
Speaker 4: whip sawed a lot of the return for funds. Factor
Speaker 4: rotations really has obscured great fundamental stock picking and so
Speaker 4: being somewhere which can isolate what is value, growth, momentum,
Speaker 4: macro cross currents and hedge those things out so that
Speaker 4: great idiosyncratic alpha driven stock picking can shine through. That
Speaker 4: that's the most important thing, because then it doesn't matter
Speaker 4: what the market's doing.
Speaker 2: You know.
Speaker 3: Interestingly, I want to comment on something you had talked
Speaker 3: about a little earlier. We were talking about the success of
Speaker 3: sit it out in multi strat but it's also worth
Speaker 3: talking about the undertone of the other side of that story.
Speaker 3: You had mentioned that some firms grew so fast, so quickly,
Speaker 3: and the poster child of that this year was really
Speaker 3: Sean Feld. This idea that a lot of money was pulled,
Speaker 3: billions of dollars was pulled from the firm. You know,
Speaker 3: they really had to look to raise capital to really
Speaker 3: fill that whole. They even considered merging with another large
Speaker 3: multi strategy firm. Is Seanfeld alone? Is there other struggles
Speaker 3: that we're seeing in firms like Schonfeld and how does
Speaker 3: that play out into next year?
Speaker 7: Totally?
Speaker 4: You know, all these funds that grew so quickly, whether
Speaker 4: I mean, I'm just not to just to talk about
Speaker 4: who's grown hand over fist. These funds are multiples aum
Speaker 4: wise where they were even two years ago. Lmr Hudson
Speaker 4: Bay sinctive Schoenfeld, as you mentioned, fruition, and you can't
Speaker 4: do that. You have to be far more deliberate with
Speaker 4: respect to thinking about what is the end state, how
Speaker 4: many pms do I want so that I can maximize
Speaker 4: idea generation and minimize crowding risk and then execute against
Speaker 4: that and only grow as you've been able to attract talent,
Speaker 4: and I don't mean bodies, I mean talent, and talent
Speaker 4: always has options, right if you're that good. The reality is,
Speaker 4: as one of those multimanagers that grew very quickly, you're
Speaker 4: up against the Citadels, the point seventy two's, the Ballyasns
Speaker 4: of this world, the millenniums competing for those people. So
Speaker 4: what are you offering that's really a differentiated value proposition?
Speaker 4: And when I hear of a fund and this is
Speaker 4: an actual fund that grew eight x in that period
Speaker 4: and hired and is now has one hundred and fifty
Speaker 4: pms with no real team underneath any of those pms
Speaker 4: and the pms they attracted or really science experiments. Most
Speaker 4: of them have not been pms before, don't know how
Speaker 4: to run risk in a market neutral model, and there's
Speaker 4: no real resources at the firm to make them better.
Speaker 4: That's a recipe for disaster. And what we've learned is
Speaker 4: being a successful multi manager is not as simple as capital,
Speaker 4: a pass through and PMS. It is far more nuanced
Speaker 4: than that.
Speaker 5: All right, really great to have you join us today,
Speaker 5: Alana and Shanali Basik as well. Thank you so much.
Speaker 5: We really appreciated. Alana Einstein there from IWDIDW group. It's
Speaker 5: the holiday week, guys, We're almost through it. We're like
Speaker 5: almost at the end of the year. Thank you very much.
Speaker 8: You're listening to the Team Can't Live program Bloomberg Markets
Speaker 8: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 8: iHeartRadio app, and the Bloomberg Business app non demand wherever
Speaker 8: you get your podcasts.
Speaker 2: I want to pivot to Cam Harvey. He's professor finance
Speaker 2: at the Fuqua School of Business at Duke University, my
Speaker 2: alma mater. I took a couple classes from Professor Harvey.
Speaker 2: I survived. I'm proud to say I can't claim any
Speaker 2: more success than survival, but some good stuff there. Hey, Cam,
Speaker 2: I look at the ten year treasury. I mean, I'm
Speaker 2: not a bond guy, but I mean, just a couple
Speaker 2: of coffee ago, the ten year treasury was at five percent.
Speaker 2: Now we're at three point eighty two percent. What's going
Speaker 2: on out there?
Speaker 9: Yeah, So it overall is very good news that that
Speaker 9: rate has gone down, and I think that that investors
Speaker 9: and consumers have revised their expectations of inflation and this
Speaker 9: is good news. So it means that the Fed has
Speaker 9: stopped and is now talking about decreasing rates, and that
Speaker 9: pressure on the long term rates seems to abate it.
Speaker 2: So I mean the market's pricing in multiple rate cuts
Speaker 2: for twenty twenty forty. I think the market's maybe a
Speaker 2: little over at skis here or is that something that
Speaker 2: the Fed should be considering?
Speaker 6: Well?
Speaker 9: Last time, Ozon I was making the case that the
Speaker 9: cuts should have begun in twenty twenty three. So the
Speaker 9: Fed overshot by pushing the short rates up so high.
Speaker 9: And the sooner that they take down some of these cuts,
Speaker 9: the better, because it does cause a lot of stress
Speaker 9: in our economy, and that stress is unnecessary given that inflation,
Speaker 9: according to my calculations, is running well below two percent.
Speaker 10: And professor, let's dig into those calculations because they're fascinating.
Speaker 10: I love reading your work, whether it's across LinkedIn or
Speaker 10: more broadly, and for you, it's housing, right, This is
Speaker 10: where the misinterpretation is coming in.
Speaker 6: Exactly.
Speaker 9: So housing is operating with the lag, so it's not
Speaker 9: like current rents or current housing prices. We change the
Speaker 9: way that inflation is calculated back in nineteen eighty two,
Speaker 9: so before eighty two, it was real time inflation and housing,
Speaker 9: but now it operates with the LAG. So the housing
Speaker 9: inflation that's reported in the CPI is inflation that happened
Speaker 9: a year ago, and that component of inflation is thirty
Speaker 9: five percent of the overall inflation. And the reason inflation
Speaker 9: has been high is that the shelter component has been
Speaker 9: running at seven percent. That's what goes into the CPI,
Speaker 9: but we know that's not the case. If you look
Speaker 9: in real time rental inflation or house price inflation is
Speaker 9: near zero or one percent, And if you recalculate the
Speaker 9: CPI with real time shelter costs, then what you see
Speaker 9: is a real time inflation rate below two percent. And
Speaker 9: this has been very frustrating because this shelter component caused
Speaker 9: the FED to make a mistake early on in declaring
Speaker 9: that housing was no big deal and inflation was transitory,
Speaker 9: and it caused them not to move to keep rates
Speaker 9: so low for so long, and then the same mistake
Speaker 9: was made in twenty twenty three. It was obvious that
Speaker 9: the only reason inflation was high was because of the
Speaker 9: shelter inflation that had happened in the past. Policy needs
Speaker 9: to be executed based upon real time data, not on
Speaker 9: data that happened like a year ago.
Speaker 10: In the world I cover more which is AI we
Speaker 10: say a lot garbage in, garbage out. So how are
Speaker 10: you having conversations as a professor of course over there?
Speaker 10: Do you trying to get this message across to use
Speaker 10: hearing that it's falling on death is or more is
Speaker 10: that are willing to listen to some of the data
Speaker 10: that should be taken into account when it comes to
Speaker 10: in flrastory pressures.
Speaker 9: So this has been a more than a year long
Speaker 9: campaign for me, and again I'm very pleased that the
Speaker 9: FED has changed the conversation. And the sooner they move
Speaker 9: the better. There is still a lot of risk out there.
Speaker 9: So like I know, people are patting the FED on
Speaker 9: the back, congratulations, mission accomplished. No, it's way way too early.
Speaker 9: My inverted Yell curved indicator which is eight out of
Speaker 9: eight in predicting recessions, that's the nineteen sixties. We are
Speaker 9: at the average lead time to a recession. So if
Speaker 9: you look at the last four recessions, the Yell curve
Speaker 9: inverted on average thirteen months before a recession, and we
Speaker 9: are at month thirteen breakdown. We're at the average, So
Speaker 9: again it's too early. There are significant headwinds. The FED
Speaker 9: can help things by reducing the FED funds rate as
Speaker 9: soon as possible.
Speaker 2: Hey, Kim, I know you also do a lot of
Speaker 2: work on blockchain, crypto fintech. You teach a course down
Speaker 2: there at DO Innovation and Crypto Ventures. What's the theme
Speaker 2: that you think we should be on the lookout for
Speaker 2: for twenty twenty four in this space.
Speaker 9: So it's interesting that we've got the two simultaneous disruptions happening.
Speaker 9: So one is then decentralized finance to change our payment
Speaker 9: system and to allow for functionality that we've never had before,
Speaker 9: and we've got AI going on at the same time.
Speaker 9: So I look at this in kind of the big picture,
Speaker 9: and the big picture the thing that worries me a
Speaker 9: lot is just the size of the US debt. So
Speaker 9: the service on that debt is about seven hundred billion
Speaker 9: dollars a year, and that service will increase in twenty
Speaker 9: twenty four to be the second largest spending category for
Speaker 9: the government. So the way to get out of this
Speaker 9: problem is, well, there's three different ways. One way is
Speaker 9: to increase taxes, and that just kills growth and nobody
Speaker 9: wants increased taxes. The second way is to print money
Speaker 9: and to inflate our way out. So you print the
Speaker 9: money to pay off the debt, and that is just
Speaker 9: like a tax also, so nobody really wants that. Nobody
Speaker 9: wants to go back to that inflation. The third way
Speaker 9: is with growth. So if we increase our growth rate,
Speaker 9: then it naturally increases the tax revenue and allows us
Speaker 9: to pay down some of that debt. So we are
Speaker 9: at a cusp of a pivot point, in my opinion,
Speaker 9: in the economy with these two disruptions going on, and
Speaker 9: they potentially allow us to get on a different growth path.
Speaker 9: And it's really important that we do not fumble these
Speaker 9: opportunities by overregulating either decentralized finance or AI. We need
Speaker 9: to embrace these disruptions and to look at the benefits,
Speaker 9: not just the costs. And I'm not saying this is
Speaker 9: without risk. There is risk, but the key thing is
Speaker 9: to get on a higher growth path. I don't think
Speaker 9: it's unreasonable, all.
Speaker 2: Right, Kim, that's great stuff. As always, Campbell Harvey, Professor
Speaker 2: of Finance at the Fuqual School of Business at Duke University,
Speaker 2: Great great Place, highly recommend it.
Speaker 8: You're listening to the tape. Can's our live program Bloomberg
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Speaker 8: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 10: We dig into the geopolitical news of the week of
Speaker 10: the month. Of course, the narrative continues to build about
Speaker 10: the Red Sea, and of course Suthi Rebel has been
Speaker 10: seen to me attacking certain vessels and it basically redirecting.
Speaker 10: We understand now half of all containership fleets now currently
Speaker 10: no longer going through the Red Sea. They're avoiding the route.
Speaker 10: This is according to new industry data that overall is
Speaker 10: one that we can probably cooperate with. Our next guest,
Speaker 10: we're please to welcome to the show. Anton Post, who
Speaker 10: CEO Mercury Resources, and you're all about negotiating skills. You're
Speaker 10: about professionals from an industry basis helping you plot out
Speaker 10: your dry cargo issues. When you are looking at such
Speaker 10: a difficult supply chain management conundrum, What do you advise
Speaker 10: at this moment Anton.
Speaker 11: Yeah, thanks Carolyn. So at this point it's a lot
Speaker 11: of wait and see in what's happening with the international coalition.
Speaker 11: We are partners at have Court Gallbery's Melory Alexander. On
Speaker 11: the container side, it's right now a lot of handholding
Speaker 11: with our client base on the commodities sector to guide
Speaker 11: them through what's happening in the markets at this point.
Speaker 11: So we're seeing of course increased freight, increased insurance, a
Speaker 11: lot of uncertainty and mixed signals from ship owners, container
Speaker 11: lines and from governments on what's happening to basically mitigate
Speaker 11: the risk and the threats that are out there from
Speaker 11: these many art groups.
Speaker 10: I mean, yeah, talk to us about some of the
Speaker 10: mitigation of the risks of how the US Navy is
Speaker 10: leading this military partnership. You are out there talking to
Speaker 10: the brocus the ship is the government support authorities. Do
Speaker 10: they take this as some sort of easing of concern
Speaker 10: or are they still wanting to hold back.
Speaker 6: Yeah, we're seeing some easing of concern.
Speaker 11: Chip operators on the container side, like Marrisk CGM are
Speaker 11: starting to signal a return to going into the Red
Speaker 11: Sea and the Suez Canal. Some ship operators on the
Speaker 11: container side like HAPAG Lloyd are still holding back and
Speaker 11: not even announcing any kind of return to that to
Speaker 11: that market on the dry bulk side, which is a
Speaker 11: huge part of a huge part of our.
Speaker 6: Business dry commodities ship owners.
Speaker 11: Right now, it's naturally a time of year where it's
Speaker 11: where things have slowed down. Uh, So we're seeing ship
Speaker 11: owners of the dry bulk side diverting ships that are
Speaker 11: already en route and ship raiding new cargos.
Speaker 6: For January February.
Speaker 11: Timing is more of a let's see what happens after
Speaker 11: New Year's and what's happening on the h on the
Speaker 11: side to U, you know, on the on the news
Speaker 11: to mitigate what's happening there with the with with the
Speaker 11: military response. So of course we've seen the Navy move
Speaker 11: the usswy D Eisenhower into the Gulf of Baden and
Speaker 11: off them Andy Coast.
Speaker 6: Uh.
Speaker 11: This twenty nation coalition that the United States it's announced
Speaker 11: is seemingly coming together, but there's been some hesitancy from
Speaker 11: a couple of you know, some of the US allies
Speaker 11: and some nations have been reluctant to even put their
Speaker 11: name attached to it. Yet so definitely some still some
Speaker 11: concerns and not a lot of comfort.
Speaker 2: Anton. Who ultimately decides whether ship does transit the Red
Speaker 2: Sea and the Suez Is it the insurance company, the
Speaker 2: ship owner, maybe the captain himself or herself. I mean,
Speaker 2: who really at theen today makes that decision?
Speaker 11: Yes, yes, and yes, right, it's a it's a very
Speaker 11: much a combined situation. Ultimately, the master of the ship,
Speaker 11: the capture of the ship has the as the ultimate say, right,
Speaker 11: but they're taking instructions from the ship owner. But in
Speaker 11: this situation, really in all situations regarding commercial and merchant shipping,
Speaker 11: you have many layers on top, right, you have the
Speaker 11: ultimate ship owner, the company that owns the ship. You
Speaker 11: have the master that has ultimate responsibility for the ship.
Speaker 11: And then you have the ship operator, the company that's
Speaker 11: often time chartering the vessel and has some say over it.
Speaker 11: So it's very much a combined decision. So even if
Speaker 11: a ship owner wants to order that ship to transit
Speaker 11: through the through the Suez Canal and the Red Sea,
Speaker 11: if the master is not comfortable, right, the master can
Speaker 11: basically say we're not taking We're not taking her through.
Speaker 2: You know, I just kind of learned today through some
Speaker 2: other discussions that while yes, the having a aircraft strike
Speaker 2: carrier group in the area is certainly intimidating, certainly represents
Speaker 2: a tremendous show of force, at the end of the day,
Speaker 2: what can it really do against a bunch of terrorists?
Speaker 2: You know, what's the what's the belief in the industry
Speaker 2: about what it can really achieve?
Speaker 11: Yeah, I mean right now, without having the international will
Speaker 11: to do something, and the geopolitics going on over over
Speaker 11: being seen to align you know, for some of our
Speaker 11: NATO allies in this case, right to see themselves to
Speaker 11: align with the United States on the mission to deal
Speaker 11: with it's been it's been walking a tight tightrope, right,
Speaker 11: So we're not even seeing strong rhetoric from.
Speaker 6: Some nations on the issue, let.
Speaker 11: Alone, let alone deploying actual military assets, enable assets to
Speaker 11: the situation. You know, some of what's been written about this,
Speaker 11: about the about the coalition that's coming together, as some
Speaker 11: NATO allies have instead of deploying a destroyer of frigate
Speaker 11: let alone, you know, any kind of hardcore military assets,
Speaker 11: they're deploying one staff officer to the team, right, So
Speaker 11: what signal is that sending to ye many armed groups here.
Speaker 6: Operas I mean.
Speaker 10: To that end, I mean what's fascinating is just how
Speaker 10: global and interconnected the shipping world is. I think in
Speaker 10: some of your notes you were talking about one vessel
Speaker 10: which is Liberia flagged, Dutch operated, Japanese owned. To that end,
Speaker 10: how does do politics in and of itself affect the
Speaker 10: business of shipping? Are people having to decide whether or
Speaker 10: not they work alongside certain alliances that they've always usually done,
Speaker 10: So how is that playing out in the world in
Speaker 10: which you work?
Speaker 11: Yeah, absolutely, Caroline, And what we're seeing is situations in
Speaker 11: hardcore examples now of ship owners and dry cargo market.
Speaker 11: One example that comes to mind, right, a dry cargo
Speaker 11: ship operator that's working on a voyage of a dry
Speaker 11: cargo a dry commodity is actually asking a large international
Speaker 11: trading firm that's their counterparty on that if there's any
Speaker 11: Israeli involvement in the trade, let alone, put aside the
Speaker 11: ownership of the vessel, the operations of the vessel, where
Speaker 11: the ship is going to, put that all aside, just
Speaker 11: whether or not there's any involvement by Israeli companies in
Speaker 11: the actual trade of the commodity in that particular sense.
Speaker 11: So this is really really reach far reaching, right, something
Speaker 11: else that does always researching and getting ready for today.
Speaker 11: Interestingly enough, we're seeing ships now transiting through the Red
Speaker 11: Sea that are using their AIS system that's usually used
Speaker 11: to transmit data on the ship's position and load port
Speaker 11: and discharge port and ETA. They're using that instead of
Speaker 11: showing a discharge port of let's say Peaeus Grease, they've
Speaker 11: replaced that with information that says armed security aboard or
Speaker 11: no Israeli involvement in the ship in the in the
Speaker 11: slot where you would put the discharge port or the
Speaker 11: destination port, so that it transmits through to the MNY
Speaker 11: armed groups, right, that they could see that information as
Speaker 11: they're tracking the ship. In addition to what's allegedly an
Speaker 11: Iranian spy vessel you know, that's been lingering there too, and.
Speaker 2: Touch about thirty seconds left. I mean, is there any
Speaker 2: realistics solution here other than I guess the cessation of
Speaker 2: hostilities in the region.
Speaker 6: Yeah, I think the others.
Speaker 11: The other solution is potentially in very unsavory, right, a
Speaker 11: military solution to dealing with what's going on on the
Speaker 11: ground in Yemen, and of course, I'm no expert in
Speaker 11: military matters in terms of how to deal with that,
Speaker 11: so I wouldn't even I wouldn't even vent venture that.
Speaker 6: But you could.
Speaker 11: You can imagine if we're dealing with a situation where
Speaker 11: we're United States NATO allies are not even willing to
Speaker 11: send more than a staff officer to a joint naval
Speaker 11: task force, what's gonna you know, where's the will to
Speaker 11: deal with this on the situation on the ground where
Speaker 11: the attacks are originating from.
Speaker 10: Well, you as an officer in the US Naval Reserve,
Speaker 10: so you know a bit more than we do here
Speaker 10: in the radio studio. But we really appreciate your time. Anton,
Speaker 10: absolutely fascinated to get and on the ground feel of
Speaker 10: all the negotiations you're currently having. Anton Posners, of course,
Speaker 10: the CEO of Mercury Resources.
Speaker 8: You're listening to the tape Kent Live program Bloomberg Markets
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Speaker 10: We want to get some expertise in this area where
Speaker 10: the risks are also where the opportunities are to be
Speaker 10: investing in this sort of technology. We'll please to welcome
Speaker 10: Jake Sapo's general partner at Emergence Capital, and Jake, you know,
Speaker 10: the retort coming from the likes of open ai and
Speaker 10: the other foundational models has been fair use, and ultimately
Speaker 10: also the fact that they've been trying to get ahead
Speaker 10: of this in some way by striking deals with the
Speaker 10: actual springer. I think the key publicists over in Germany
Speaker 10: where they've sort of licensed some of their particular use
Speaker 10: of publications and writings. What will the New York Times
Speaker 10: case mean do you think for the training of these
Speaker 10: models when you put the genie back in, can you
Speaker 10: in any way take out New York Times's own articles
Speaker 10: from the training of open AI's model.
Speaker 6: Yeah, it's a great question.
Speaker 7: It's great to be here. What I'd say is this
Speaker 7: is going to create a lot of movement towards exploring
Speaker 7: open source models. So open ai is the champion of
Speaker 7: the kind of closed source model ecosystem, which means that
Speaker 7: the data that they're training on and the code that
Speaker 7: they actually generate from it is not publicly available, and
Speaker 7: so there's lots of questions now around transparency, what data
Speaker 7: are they using? What can we use as a business
Speaker 7: if we're going to use their opena models. What is
Speaker 7: happening now is an increased interest by people that consume
Speaker 7: models to explore open source models, where the data that
Speaker 7: is used to train those models is clearer and you,
Speaker 7: as the user of the model, have the ability to
Speaker 7: manipulate the model themselves. So we think that twenty twenty four,
Speaker 7: and certainly the advent of this lawsuit is going to
Speaker 7: push businesses who are using this technology to consider open
Speaker 7: source models more seriously.
Speaker 2: So I think I'm getting comfortable with what AI is,
Speaker 2: and that's a big leap for me because it took
Speaker 2: me in most of the year. Here now my question.
Speaker 7: The last time we talked about it.
Speaker 2: Yeah, I just need some help on what do you
Speaker 2: think in twenty twenty four, Jakes might be some of
Speaker 2: the use cases that maybe will help the general public
Speaker 2: get a better feel for what generative AI is and
Speaker 2: what it can mean.
Speaker 6: Yeah.
Speaker 7: Well, I think the good news is in twenty twenty four,
Speaker 7: we're going to move from kind of prototyping land into production.
Speaker 7: A lot of these applications are going to actually get
Speaker 7: launched and are going to have real impacts for consumers,
Speaker 7: you know. As you know, we focus on B to
Speaker 7: B software investing in emergence, and we think there's going
Speaker 7: to be a bunch of exciting applications of AI in
Speaker 7: twenty twenty four. Give you one example, we work with
Speaker 7: a company called Docimity, which is shorthand is LinkedIn for doctors,
Speaker 7: and they provide a whole suite of tools for doctors
Speaker 7: in addition to just a social networking application, but they
Speaker 7: help doctors serve their patients. One of the things that
Speaker 7: they're using AI to do is to help doctors draft
Speaker 7: letters to insurance companies to get approval for treatments.
Speaker 6: Right.
Speaker 7: That has massive implications for not just the doctors, but
Speaker 7: also obviously consumers and getting you know, much more efficient.
Speaker 7: That type of thing wasn't possible a year ago and
Speaker 7: is increasingly possible today. So you're going to see those
Speaker 7: types of things.
Speaker 6: Come to fruition.
Speaker 7: We have worked with a company called Ironclade that's in
Speaker 7: the legal contracting space and they help they help companies
Speaker 7: draft contracts using AI more effectively, which allows people to
Speaker 7: process contracts more quickly and ensure they're correct. So you're
Speaker 7: going to see them kind of seep into all sorts
Speaker 7: of applications across the business ecosystem.
Speaker 2: A new phrase for me, and there's a lot of
Speaker 2: new phrases I'm learning as it relates to AI co
Speaker 2: pilots that ensure humans stay engaged. Here explain what that
Speaker 2: concept is and of what are some interesting companies that
Speaker 2: maybe have seen with that tech.
Speaker 7: Yeah, so imagine that you are on your computer and
Speaker 7: you're searching for some piece of information. The idea is
Speaker 7: historically you would go, you know, to Google and look externally,
Speaker 7: or you would kind of scour all your documents internally,
Speaker 7: a copilot will actually pop up and give you not
Speaker 7: just a link to something, but actually an answer. We
Speaker 7: work with a company called Guru that does this exact thing.
Speaker 7: So the idea is, instead of searching across all of
Speaker 7: your applications, the information has actually serviced to you directly.
Speaker 7: So the concept of a copilot, to boil it down, is,
Speaker 7: as you're doing your job, you have an assistant that
Speaker 7: is kind of next to you that helps coach you
Speaker 7: on the right direction to go. Now, critically, there's a
Speaker 7: difference between a copilot and an autopilot. Autopilot is dangerous, right,
Speaker 7: because that's when the human shuts off their brain and
Speaker 7: the plane flies itself, and that could be bad, or
Speaker 7: you know, it could be good. As you're building these
Speaker 7: co pilots, As you're building these coaches, you need to
Speaker 7: ensure that the human stays engaged and is actually in
Speaker 7: putting their new their thoughts and creativity and double checking
Speaker 7: into the software. Because, as we all know, AI is
Speaker 7: not perfect. There are errors that are committed all the time.
Speaker 7: That's okay in consumer applications. You know, if you're chatting
Speaker 7: with a dead celebrity using AI, it's okay if it's wrong, right,
Speaker 7: But if I'm drafting a important legal contract or if
Speaker 7: I'm communicating with an insurance company, I need to be
Speaker 7: ensured that it's a bulletproof. And a core way to
Speaker 7: do that today is to ensure that the human is
Speaker 7: engaged with the copilot and not just clicking accept, accept,
Speaker 7: accept on whatever it suggests.
Speaker 10: When you're looking at the valuations of the companies that
Speaker 10: you're ruying in the B to B space, or more broadly,
Speaker 10: when we're talking of the latest one hundred billion dollar
Speaker 10: valuation of open AI. When we're thinking of Vanthropic reaching
Speaker 10: a run rate revenue run rate of eight hundred and
Speaker 10: fifty million and potentially being valued more than eighteen billion.
Speaker 10: Are those valuations realistic if open source is going to
Speaker 10: become more of the valued foundational model direction of choice
Speaker 10: or do you think, really still these valuations are going
Speaker 10: to be the right source of.
Speaker 7: Amount for them. It's a really great question. There are
Speaker 7: lots of great closed source companies like the ones you named.
Speaker 7: As open source becomes more and more viable in twenty
Speaker 7: four and twenty twenty four and beyond, work with a
Speaker 7: company called together that helps you know companies actually use
Speaker 7: closed source model open source models more effectively. There is
Speaker 7: going to be pressure put on these open source models,
Speaker 7: and so the key thing to check as you're evaluating
Speaker 7: an investment in a close source or really any a
Speaker 7: opportunity is retention.
Speaker 6: You want.
Speaker 7: These things are getting incredible adoption right initial adoption. People
Speaker 7: are playing with this stuff, experimenting with their prototyping, et cetera.
Speaker 7: But the core thing that will matter in twenty twenty
Speaker 7: four and AI is retention. Are people that start using
Speaker 7: the product continuing to use the product, and the key
Speaker 7: questions you alluded to is in these foundational models, it's
Speaker 7: easiest to start with the closed source model because it's
Speaker 7: all packaged for you and you can just kind of
Speaker 7: get it up and running quickly. But if open source
Speaker 7: models become more preferred, either because they're more easily manipulable
Speaker 7: or because of the New York Times, you know, driven
Speaker 7: concerns around where's your data coming from, there is going
Speaker 7: to be some downward pressure on these close source models,
Speaker 7: which could put pressure on retention, which could ultimately pu
Speaker 7: pressure on some of those valuations.
Speaker 10: And Jake, how are you trying to add analyze the
Speaker 10: regulatory outlook for twenty to twenty four as you make
Speaker 10: these investment decisions? How you trying to preempt It feels
Speaker 10: sort of like crypto all over again. Everyone's trying to
Speaker 10: get ahead of where the SEC or indeed, more broadly,
Speaker 10: you know, we've had an executive order here in the US,
Speaker 10: but this is going to come down to global regulation.
Speaker 10: We've seen the EU with its AI Act. How do
Speaker 10: you front run that?
Speaker 7: Yeah, well, I think transparency is really important, Like understanding
Speaker 7: where you get your data from is really important. You
Speaker 7: don't want to be using copyrighted data to train your models, right,
Speaker 7: that's like it's obvious, But I think people are going
Speaker 7: to be paying much more attention to where that data
Speaker 7: comes from. I think similarly, trust is going to become
Speaker 7: much more important, not just in terms of where your
Speaker 7: data comes from, but is that data actually believable? You know,
Speaker 7: bad data going into a good model is going to
Speaker 7: create a bad output. I work with the CEO of Guru,
Speaker 7: Rick Nucci, calls this truth washing, which is where, Okay,
Speaker 7: I'm using data that comes in and the model spits
Speaker 7: out an answer that sounds really confident.
Speaker 6: What's wrong.
Speaker 7: I think going forward there's going to be a much
Speaker 7: greater impetus put on how do you validate the data
Speaker 7: that went into training the model is not only legally
Speaker 7: for you, legal for you to use, but also accurate
Speaker 7: so that the input or the output that comes out
Speaker 7: of the model can be trusted. So as we think
Speaker 7: about evaluating investment opportunities, we're thinking about it from a
Speaker 7: first principle's perspective, which is a belief that regulators are
Speaker 7: going to move in the direction. Thank you Apple for
Speaker 7: the use of the thumbs up there. This technology is
Speaker 7: going to move in a direction where regulators are concerned about. Okay,
Speaker 7: is the data? Are you allowed to use the data
Speaker 7: that you are using? And is the output that's coming
Speaker 7: out of these models trustworthy such that good things can
Speaker 7: come from it?
Speaker 2: Thirty seconds Jake, if I bring a cool AI idea
Speaker 2: to Sandhill Road, can I raise money?
Speaker 6: Well?
Speaker 7: As we talked about last time, Paul, Standhill Road is
Speaker 7: that's the past. The future is San Francisco, the Embarcadero.
Speaker 7: That's where the question nice.
Speaker 2: I like that.
Speaker 7: But to answer your question, can you raise money? Well, first,
Speaker 7: I would look at your background, and I think your
Speaker 7: an incredible interviewer. I don't know how oh technically savvy, you.
Speaker 2: Are, right, but good.
Speaker 7: I mean the reality is there is going to be
Speaker 7: more media and companies twenty four yeah, exactly, covering your
Speaker 7: the media company, I'll writ a check all day long.
Speaker 7: There is going to be more scrutiny of AI investments
Speaker 7: going forward, and I think the key thing people are
Speaker 7: going to be looking for is that retention point. In
Speaker 7: twenty twenty three, so many AI applications, we're getting so
Speaker 7: much tire kicking, and lots of people were using the
Speaker 7: product for a week, two weeks, three weeks and then
Speaker 7: they would get bored or try the next hot thing,
Speaker 7: et cetera. What investors are going to be increasingly looking
Speaker 7: for in twenty twenty four is Okay, yeah, you've got
Speaker 7: a lot of people to start using your thing, but
Speaker 7: are people continuing to use the thing indefinitely and continue
Speaker 7: to get value out of it?
Speaker 6: Right?
Speaker 2: All right, Jake, once again, thanks so much for joining us.
Speaker 2: Really appreciate getting your insight there. Jake Sayper, general partner
Speaker 2: at Emergency Capital, Thanks.
Speaker 1: For listening to the Bloomberg Markets podcast. You can subscribe
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Speaker 1: Matt Miller nineteen seventy three.
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