Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk
Speaker 1: about stuff related to money. I'm Matt levian Ton I
Speaker 1: write the Money Stuff column for.
Speaker 2: Bloomberg Opinion, and I'm Katie Greifeld, a reporter for Bloomberg
Speaker 2: News and an anchor for Bloomberg Television. Welcome back, Katie,
Speaker 2: Welcome back, Matt. You didn't go anywhere, but in my mind,
Speaker 2: I took a vacation from me. Yeah, it's been a minute.
Speaker 1: For the listener's service has continued uninterrupted, but for us,
Speaker 1: it's been two weeks.
Speaker 2: I know, I know. I had to remember how to
Speaker 2: anchor television this morning. I'm currently trying to remember how
Speaker 2: to record a podcast. Yeah.
Speaker 1: No, I also forgot in the in our week off,
Speaker 1: it was yeah. Yeah.
Speaker 2: The way this usually goes, though, is we have three topics.
Speaker 1: Sure, yeah, what are those three topics today? Katy?
Speaker 2: So we're gonna talk about endeavor. You're on a three
Speaker 2: day streak of writing about the steal an endeavor. We're
Speaker 2: going to talk about the Baby Berkshire boom because that
Speaker 2: is underway, and then we're going to talk about public
Speaker 2: private prices, Endeavor. I think when we first spoke about
Speaker 2: this steal, we ended with something close to watch this
Speaker 2: space because it was going to close on March twenty fourth,
Speaker 2: and it did.
Speaker 1: Right. It's funny like I sometimes will write an m
Speaker 1: and a deal will have a lot of drama, and
Speaker 1: so I'll write about it successively for days or weeks.
Speaker 1: Nothing's really happened in this deal, like Monday, Like, nothing's
Speaker 1: happened since like, this company doesn't need this right. So
Speaker 1: Endeavor is a company. It went private. There was like
Speaker 1: a long lead up to it going private, Like they
Speaker 1: signed their deal about a year ago, silver like the
Speaker 1: biggest shareholder agreed to take it private at twenty seven
Speaker 1: dollars and fifty cents per share, and they announced a
Speaker 1: few weeks ago that it was going to close this
Speaker 1: month day, March twenty fourth, and then this Monday, March
Speaker 1: twenty fourth, it closed at twenty seven to fifty per share,
Speaker 1: exactly on schedule. So not really a lot of news there.
Speaker 1: But what was weird is that the previous week it
Speaker 1: traded well above twenty seven fifty per share, and in fact,
Speaker 1: the last day before the closing on Friday, it closed
Speaker 1: at twenty nine dollars and twenty five cents a share,
Speaker 1: so like a buck seventy five over the merger price,
Speaker 1: and like a lot of shares traded, and you know,
Speaker 1: if you know you're going to get cash that at
Speaker 1: twenty seven to fifty on Monday, it's a little weird
Speaker 1: to buy this stock at twenty nine to twenty five
Speaker 1: on Friday. And you know the reason for that seems
Speaker 1: to be that everyone expects there to be a class
Speaker 1: action lawsuit saying that the deal was underpriced and they're
Speaker 1: looking forward to getting in on that class action.
Speaker 2: Yeah, you had three possibilities.
Speaker 1: Yeah, So when we talked about it this last time,
Speaker 1: there's a lot of noise about appraisal, which is one
Speaker 1: way you can basically sue for a better price. But
Speaker 1: to do that you have to like demand appraisal, and
Speaker 1: there are reasons that can be advantageous to you, but
Speaker 1: like one problem with it is you need to have
Speaker 1: owned the stock continuously since like early February. The other
Speaker 1: way to sue to get a better price is just
Speaker 1: a class action lawsuit saying that the board that approved
Speaker 1: the deal was like failing in its footy share I
Speaker 1: duties to shareholders, and here that's like a pretty tempting
Speaker 1: lawsuit because you know, as you talked about last time,
Speaker 1: the deal price turned out to look really low. You know,
Speaker 1: Endeavour's main asset is shares of another publicly traded company, right,
Speaker 1: that company traded up a lot, So by now the
Speaker 1: deal price for Endeavor looks really low, and you know
Speaker 1: it's being bought by its controlling shareholder, so there's always
Speaker 1: a conflict of interest there. There wasn't a vote of
Speaker 1: the independent shareholders, like no, like independent person really ratified
Speaker 1: the price, right, like the board did, but like the
Speaker 1: shareholders didn't. So you know, there's a lot of a
Speaker 1: lot of stuff for a lawsuit, and people seem to
Speaker 1: be valuing that lawsuit at about a buck seventy five
Speaker 1: a share.
Speaker 2: We'll clear this up for me because I was a
Speaker 2: little bit confused. So there's a possibility of a class
Speaker 2: action lawsuit, but that is different than the appraisal.
Speaker 1: Yeah, the appraisal is like this price should have been higher, right,
Speaker 1: it doesn't require any like allegations of wrongdoing. The class
Speaker 1: action lawsuit is like the board didn't do its fiduciary
Speaker 1: duty for shareholders, but in this sort of conflicted situation,
Speaker 1: like they almost get to the same place, and it's
Speaker 1: a little bit easier to do the class action because
Speaker 1: you don't have to have held the shares continuously.
Speaker 2: So your third explanation was people might have thought.
Speaker 1: That Silverlake would recut the deal to give people a
Speaker 1: better price. But I don't know why they would have
Speaker 1: thought that, because silver like did say they wouldn't do it,
Speaker 1: and then they didn't do it.
Speaker 2: So it looks like the possibility that your readers seem
Speaker 2: to agree with was that maybe you bought the stock
Speaker 2: getting on this lawsuit happening.
Speaker 1: You bought the stock thinking a lawsuit would happen, that
Speaker 1: you wanted to be in that lawsuit because you thought
Speaker 1: that lawsuit was worth more than a buck seventy five
Speaker 1: a share.
Speaker 2: Maybe that's what carl Icon did.
Speaker 1: I would be surprised if there was any other reason
Speaker 1: for it. But yeah, Carlaikon bought about eight percent of Endeavor.
Speaker 1: It's not exactly clear when because the disclosure doesn't have
Speaker 1: like the trading records, but it kind of seems like
Speaker 1: he bought it all on Friday.
Speaker 2: As of Friday, he had eight point four percent.
Speaker 1: Yeah. Yeah, and there's a lot of shares traded on Friday,
Speaker 1: Like he might have bought all of his shares on Friday,
Speaker 1: might have been why the stock spiked, but any caayse Yeah,
Speaker 1: he seems to have bought the stock fairly recently. And
Speaker 1: he's carl iik On like he doesn't mind a lawsuit. No,
Speaker 1: he doesn't mind getting his hands a little dirty. And
Speaker 1: you know I wrote on Thursday, like, if you're a
Speaker 1: shareholder who was hoping to get it in on a lawsuit,
Speaker 1: like you gotta feel good about this, right, He's gonna
Speaker 1: have some fun with that lawsuit. Yeah, carlaike On on
Speaker 1: your side complaining about the deal price. I don't know.
Speaker 1: It sounds like an encouraging fact.
Speaker 2: Makes for good TV, makes for podcasting. So perhaps carl
Speaker 2: Icon wanted in on this lawsuit specifically, But there's also
Speaker 2: the possibility that maybe short sellers wanted out question Mark.
Speaker 1: I really don't know. There's a weird, fascinating history of this,
Speaker 1: so like this is not the first deal that's kind
Speaker 1: of gone like this, where there's been a going private transaction.
Speaker 1: It looks kind of conflicted. Shareholders are disgruntled. The stock
Speaker 1: trades above the deal price right until the last minute,
Speaker 1: and then the deal closes, and the shareholders sue, and
Speaker 1: like years later down the line, they win their lawsuit
Speaker 1: and they get some money. In that case, if you
Speaker 1: see a stock trading at twenty nine dollars a share
Speaker 1: and you know that it's going to be cashed out
Speaker 1: at twenty seven to fifty on Monday, you might be
Speaker 1: tempted to sell that stock short. Because you sell it
Speaker 1: for twenty nine dollars, you pay back the twenty seven
Speaker 1: to fifty on Monday, you make an easy buck fifty.
Speaker 1: So in a lot of these deals, they end up
Speaker 1: the deal closes and there's some number of shorts, and
Speaker 1: the shorts make a quick profit because the deal closes
Speaker 1: it below the last trade price, and so like if
Speaker 1: they short aed it above the deal price, they make
Speaker 1: it quick profit and then they go about their business.
Speaker 1: And years later the class action lawsuit gets decided in
Speaker 1: favor of the shareolders, and someone like they're broker comes
Speaker 1: to them and says, remember that deal that closed the
Speaker 1: twenty seven to fifty, and you paid twenty seven to
Speaker 1: fifty because you were short. Actually the real deal price
Speaker 1: is thirty two dollars, so you owe us another four
Speaker 1: p fifty there's a lot of like lower on this,
Speaker 1: and it's not clear like what the actual rules are.
Speaker 1: My understanding is there are people who have done this
Speaker 1: trade and like years later the brokers have come to
Speaker 1: them and said you owe us more money and they said, no,
Speaker 1: we don't. We close that are short. What are you
Speaker 1: even talking about? This is not a corporate action that
Speaker 1: we owe money on. And there are some like finra
Speaker 1: arbitrations where the customers and the brokers have gone to arbitration,
Speaker 1: and it's kind of I think, gone both ways. There
Speaker 1: are some where the customers have lost, but some I
Speaker 1: think where they've won. So there's like an interesting trade
Speaker 1: here where you can like make a free, risk free
Speaker 1: profit on your short and years later try to steff
Speaker 1: your brokers so you can keep the profit. But it's
Speaker 1: you know, a little dicey.
Speaker 2: Yeah, but I don't know, for a good two to
Speaker 2: three years you did make a profit on that, and
Speaker 2: that has to feel somewhat good.
Speaker 1: Yeah. I get a lot of emails from people to
Speaker 1: be like what if I did this? What if I
Speaker 1: moved out of state? You know, there's a lot of
Speaker 1: you know, it's easy to imagine how you enjoyed your
Speaker 1: broker's phone call in three years, right, Yeah, I think
Speaker 1: people are very interested in that trade.
Speaker 2: Okay, So where does this go for here? Like you said,
Speaker 2: usually I keep.
Speaker 1: Looking for the lawsuit.
Speaker 2: I haven't seen, like the lost class action loss.
Speaker 1: Yeah, usually like you know, lawyers or nut pressure.
Speaker 2: So why is that more likely, just judging from the
Speaker 2: tone of this conversation than appraisal.
Speaker 1: Oh, just because like so many shares have traded hands
Speaker 1: after the appraisal deadline. So like, if you're buying shares
Speaker 1: at twenty nine dollars last week, yeah, you couldn't be
Speaker 1: doing it for appraisal because you wouldn't get appraisal. You
Speaker 1: could have to be buying into the loss of the
Speaker 1: class action.
Speaker 2: Could there be both?
Speaker 1: Yeah, there could be. Okay, the big case that I
Speaker 1: read about was Dole, and there were both appraisal. They're
Speaker 1: not the same thing. You could imagine an appraisal court
Speaker 1: saying oh, the actual value of the company was this,
Speaker 1: and the class action court saying, oh, like the fiduciary
Speaker 1: duties you know were violated and that's where this you know,
Speaker 1: like they're not the same thing at all, but like
Speaker 1: you know, they're kind of roughly the same idea, which is,
Speaker 1: you underpaid for this company, give us more money.
Speaker 2: So it seems like this continues to be a watch
Speaker 2: this Space situation. There's the promise of drama. It just
Speaker 2: hasn't necessarily happened.
Speaker 1: Weird if nothing happened, because people for drama, right.
Speaker 2: May be kind of beautiful though, if truly nothing, If
Speaker 2: everyone was like.
Speaker 1: I think this is a dollar seventy five a shared lawsuit,
Speaker 1: looking forward to that lawsuit, I actually remember STI follow
Speaker 1: the lawsuit and it just goes away.
Speaker 2: I kind of was just like, I don't know, I
Speaker 2: feel possessed to buy eight point four percent of the
Speaker 2: shares on Friday.
Speaker 1: I was hoping someone else will bring a lawsuit.
Speaker 2: I'm feeling shy now.
Speaker 1: I told you that I went to the Blue experience.
Speaker 2: That we've almost certainly talked about this. Did I remember that?
Speaker 1: No?
Speaker 2: But tell me about it.
Speaker 1: They like build Blue's house in a building near Union Square.
Speaker 2: That sounds kind of fun.
Speaker 1: I really like that.
Speaker 2: Yeah. Yeah, I can have my own children to watch Blue.
Speaker 1: I say, it's very much like a show for parents. Yeah,
Speaker 1: it's it's very mature. You know what else is uh
Speaker 1: very mature? The business model?
Speaker 2: Yeah?
Speaker 1: Oh, yeah, oh, here we go.
Speaker 2: What do you got?
Speaker 1: What do I got? KKRL?
Speaker 2: Yeah, not just regular holdings, but strategic holdings, holdings that
Speaker 2: they will hold for a while, is the plan. Yeah,
Speaker 2: I've got about eighteen of them.
Speaker 1: Eighteen right. So KKR is like historically a leverage biot
Speaker 1: firm where they manage funds, They raise funds from limited partners,
Speaker 1: They take those funds and they equity checks to do
Speaker 1: leverage biots. They borrow money to buy companies. They take
Speaker 1: over the companies, they lever them up, they improve their operations,
Speaker 1: they strip off the stuff they don't want, They incentivize managers,
Speaker 1: they get everything all nice, and three to five years
Speaker 1: later they take them public again or sell them and
Speaker 1: get a big check that they return to their limited
Speaker 1: partners and you know, take twenty percent for themselves. Like
Speaker 1: that's the traditional LBO business model. And you know all
Speaker 1: these like LBO pioneers of the eighties and nineties like
Speaker 1: are now giant public companies like KKAR, and they run
Speaker 1: funds for investors. Like now the term is alternative asset
Speaker 1: managers because they do a lot besides classic leverage biotes.
Speaker 1: But they still basically do that kind of model where
Speaker 1: they run funds and take twenty percent, and KKR is shifting,
Speaker 1: let's say, or like introducing more of a model where
Speaker 1: what they do is they just on their own balance
Speaker 1: as a company, buy stakes and companies or infrastructure projects
Speaker 1: or whatever, and just own them forever and they're just
Speaker 1: part of the company. They're like a big industrial conglomerate.
Speaker 1: That's an interesting shift.
Speaker 2: Yeah, the logic here, I mean, looking at Alison mcneely's story,
Speaker 2: KKR has this plan to quadruple its earnings for sure
Speaker 2: over the next decade. Strategic holdings would be a strategic
Speaker 2: part of that. They also want to build a portfolio
Speaker 2: that kicks off more than a billion dollars a year
Speaker 2: in dividends. So it's different from the fee model, of course.
Speaker 1: It's you know, one thing I write is that the
Speaker 1: ultimate success for a hedge fund is to get rid
Speaker 1: of all of your outside investors and convert to a
Speaker 1: family office because you've just made so much money for
Speaker 1: yourself that you'd rather earn one hundred percent of the
Speaker 1: returns on your investments than.
Speaker 2: They get it.
Speaker 1: It's like a little bit like that, right. The fee
Speaker 1: model is good enough that ky Care has made a
Speaker 1: lot of money and where they do that money. Well, well,
Speaker 1: one thing you do is you transition from being a
Speaker 1: service writer who collects twenty percent to being just an
Speaker 1: asset owner and a capitalist, right and you just own
Speaker 1: the companies instead of owning the twenty percent promote on them.
Speaker 1: It's like, one way to analyze what they're doing here
Speaker 1: is like it has been a good enough business for
Speaker 1: long enough that now instead of KKR being like, we're
Speaker 1: going to manage funds to buy companies, they'll be like,
Speaker 1: we'll just buy the companies. But it's different for being
Speaker 1: a family office because like most hedge funds are, like
Speaker 1: the hedge fund management company is privately owned, and transitioning
Speaker 1: to a family office means like the guy who owned
Speaker 1: the hedge fund now owns all the investments here. KKR
Speaker 1: is not like a guy or even the three you know, Colbert, Cravis,
Speaker 1: and Roberts. It's a public company. So the public company
Speaker 1: is sort of becoming its own family office. And like
Speaker 1: the public company is going to own all these investments
Speaker 1: directly rather than taking fees to run a fund.
Speaker 2: In a way, it's beautiful, just the natural evolution of things.
Speaker 2: Don't we all aspire to something similar.
Speaker 1: In some ways, it's like the whole private equity business
Speaker 1: has done this right. Like private equity was like a small,
Speaker 1: scrappy business taking over like poorly managed companies and like
Speaker 1: making them more efficient, and that was like so wildly
Speaker 1: lucrative for so long. And now it's like, we have
Speaker 1: all this money, we could just own the companies ourselves.
Speaker 1: We don't need to run funds anymore. Like that's not
Speaker 1: you know, it's an exaggeration because most of them, including KKR,
Speaker 1: mostly run funds. But like there's this shift to like
Speaker 1: we can own stuff on our balance sheet.
Speaker 2: Yeah, in a way, I feel really drawn to this.
Speaker 2: I think I've talked before on this podcast how I
Speaker 2: really like and admire the old school strategy of just
Speaker 2: stock picking. This is a little bit different, but you're right,
Speaker 2: it's sort of the same basis.
Speaker 1: Like old school private equity is like people and I
Speaker 1: would disagree with this, but it's a financial engineering story, right,
Speaker 1: and so like we can put more leverage on this
Speaker 1: company than the public markets can, right, But this is like, yeah,
Speaker 1: we like that business, let's own it forever.
Speaker 2: Yeah, think about it. It's gonna compound over time and
Speaker 2: become better and you just got to be patient and
Speaker 2: we're gonna hold this for a few decades.
Speaker 1: Now. I'm with you. I also admire the business to
Speaker 1: my mind, like what better job could you possibly have
Speaker 1: than like waking up and being like, here are twelve
Speaker 1: stocks I want to own, I will buy them, and
Speaker 1: my job is over the rest of my life.
Speaker 2: The answer is right in front of you being a podcaster, obviously,
Speaker 2: but I take your point. I find it really compelling.
Speaker 2: And of course this comes as KKRS freeze this. The
Speaker 2: co CEO said at Bloomberg invest earlier in March that
Speaker 2: basically it's in some ways to become a mini Berkshire Hathaway. Sure,
Speaker 2: everyone wants to bearned about it, including friend of the
Speaker 2: show Bill Ackman. I think it is interesting that you
Speaker 2: do have at least a size of two folks saying
Speaker 2: that we are basically wanting to model ourselves after Berkshire Hathaway.
Speaker 1: You're so young. I feel like, well, you know, people
Speaker 1: wanting to be more in Buffett. It's like a lung
Speaker 1: steady but in the past, like Joe Bay and like
Speaker 1: Bill grew up in a world where like the pinnacle
Speaker 1: of investing was Warren Buffett right, I do wonder.
Speaker 2: I mean, I kind of grew.
Speaker 1: I want to be Warren Buffett, but I don't know.
Speaker 2: There was that time during the pandemic where Buffett was
Speaker 2: getting dunked on a lot by like the Dave portnoise
Speaker 2: of the world. But I feel like he's back in vogue.
Speaker 1: But he's certainlygue among friend of.
Speaker 2: The shop Bill Lackman, like that crowd.
Speaker 1: Yeah, why wouldn't you want to be Berkshire Hathway.
Speaker 2: I want to talk about their current lineup of investments. So,
Speaker 2: as I mentioned, eighteen includes lens retailer one eight hundred Contacts,
Speaker 2: which actually texted me today to tell me that it's
Speaker 2: time to order eight hundred dollars worth of contacts again,
Speaker 2: cybersecurity company Barracuda Networks, also Australian stack food manufacturer, our
Speaker 2: Nose Group, our Knots Group. But anyway, again it's just
Speaker 2: I mean one eight hundred Contacts. That's a household name.
Speaker 2: But it's cool because it's not like flashy like AI
Speaker 2: sort of stuff, at least from what I can tell
Speaker 2: from Alison mcneely's article. Yeah, I could keep going.
Speaker 1: Those are sort of like you know, those are like
Speaker 1: classic private acuity kind of investments, right, Like, yeah, I'm glamorous,
Speaker 1: like nice cash flow kount of companies. But you know
Speaker 1: now they just done them directly.
Speaker 2: Yeah for me an absolute consumer stable just check about
Speaker 2: hundred contacts, you.
Speaker 1: Are a reliable source of cash flow for kake cars.
Speaker 2: Strategic holdings just a little more color there. They own
Speaker 2: an average twenty percent stake in these eighteen firms. That
Speaker 2: is about three point seven billion dollars of revenue nine
Speaker 2: hundred million dollars of adjusted earnings, which is a small
Speaker 2: share overall of their operating earnings right now. But they're
Speaker 2: predicting those strategic holdings will generate one point one billion
Speaker 2: by twenty thirty.
Speaker 1: The main way I think about this bet is like
Speaker 1: when you generated enough money during a like high fee,
Speaker 1: high return financial services business, like you can just use
Speaker 1: that money to own things yourself. But there's also like
Speaker 1: you do wonder if there's like pressure on those fees
Speaker 1: or those returns, right, Like private equity in the eighties,
Speaker 1: there's a lot of low fruit. Later vintages of funds
Speaker 1: have not always returned as well, And like you know,
Speaker 1: people talk about how there's pressure on private equity exits
Speaker 1: now and you don't hear a ton about fee pressure
Speaker 1: and private equity, but you hear that something every now
Speaker 1: and then, Like you might be one of these alternative
Speaker 1: asset matters looking around and saying, like, you know, the
Speaker 1: long term trend of like financial services fees are like
Speaker 1: you know, Kitty Greyfeld keeps telling me that you can
Speaker 1: get an ETF for one basis point. It's common if
Speaker 1: you think, like, you know, in twenty years, what will
Speaker 1: our earnings makes look like you might say, like we
Speaker 1: might earn lesson fees, but we'll own all these companies
Speaker 1: that like sell contacts to Katy Greifeld, so we can
Speaker 1: we can we can get our money that way, right,
Speaker 1: Like if you think that fees over time will come down,
Speaker 1: like owning businesses is the way to avoid that so that.
Speaker 2: They're future proofing in all. Yeah, Man, if I could
Speaker 2: go back to the eighties, anything.
Speaker 1: Like private equity like feels really institutional that. But if
Speaker 1: you run like I always think, like if you run
Speaker 1: like a crypto exchange, like you got to like take
Speaker 1: all that money and put it into like laundromats or like.
Speaker 2: Like real businesses machines.
Speaker 1: Yeah, because you can't rely on like that like lottery
Speaker 1: winnings to keep continuing, but that you can put the
Speaker 1: money into a real business like Land. I don't know.
Speaker 2: Oh my god, yeah, everyone should buy Land. I would
Speaker 2: love to be land rich. Okay, So we have been
Speaker 2: talking for months, really the entire existence of this podcast
Speaker 2: about how private markets are becoming public. Private markets are
Speaker 2: the new public market, and now we have some prices
Speaker 2: to put to that.
Speaker 1: I really feel like it's a big step in private
Speaker 1: markets becoming more public when finance starts putting up like
Speaker 1: daily or you know, like real time, real time ish
Speaker 1: stock sharts of SpaceX and open a stripe Stripe and
Speaker 1: ninety seven or so other private companies that don't trade
Speaker 1: on the stock exchange but that are tracked by enough
Speaker 1: like private company tracking kind of things that they can
Speaker 1: be like, oh, here's a stock price chart, and yeah,
Speaker 1: you can go look at a stock price chart of
Speaker 1: all these companies. And that feels like, you know, you
Speaker 1: could read news articles that were like secondary trading suggests,
Speaker 1: stripes values, blah blah blah, but like now you can
Speaker 1: just go look at a chart on your finance. Seems
Speaker 1: like a big difference, seems like a real step toward
Speaker 1: making them look public.
Speaker 2: I appreciate the effort. It's like an opening volley. I
Speaker 2: don't think these prices are perfect.
Speaker 1: No, they're fascinating the imperfect, right, So, like, these are
Speaker 1: these prices, Yeah, he gets them from two marketplaces, right,
Speaker 1: two companies that provide a marketplace for you know, like
Speaker 1: sort of employees ex employees of these companies to sell
Speaker 1: their stock.
Speaker 2: To like Forge and Equities in yeah.
Speaker 1: Forge and Equities. Basically, it's like on the selling side
Speaker 1: you have like employees and ex employees of these companies
Speaker 1: who want an exit, and the buying side you have dentists. Right,
Speaker 1: Like that's roughly the model. And I was like, those
Speaker 1: trades have to be like a liquid and small and
Speaker 1: you know, driven by weird dynamics and not really reflective
Speaker 1: evaluation of these companies. But if you look at how
Speaker 1: these prices are, they're not really derived necessarily from those trades.
Speaker 1: Like these prices are sort of like algorithmically determined from
Speaker 1: things like funding rounds and tender offers and also like
Speaker 1: bids and trades on these platforms. But it's unclear like
Speaker 1: how the prices are determined. And you look at some
Speaker 1: of these companies and the prices like don't change very much,
Speaker 1: and it's just very clear that they're sort of essentially
Speaker 1: pulling in like prices from funding rounds and tender offers.
Speaker 1: And it's not a real time stock chart. It's like
Speaker 1: crunch base and chart form, you know, it's like prices
Speaker 1: of funding rounds. It's not like real time secondary market
Speaker 1: trading prices, which.
Speaker 2: Again I appreciate. But then you take a look at
Speaker 2: open AI's chart for example, as you mentioned, it is
Speaker 2: pretty Yeah, it's pretty flat, which is funny and probably
Speaker 2: again not reflective of real time pricing. When you consider
Speaker 2: the news this week that they're close to finalizing a fork, but.
Speaker 1: There isn't real time. Yeah, the open Eyes stock does
Speaker 1: not like really trade among like on these secondary trading platforms.
Speaker 2: Yeah, I know what I'm saying. It's an example of
Speaker 2: how time not real time. This is they're close to
Speaker 2: finalizing they're forty billion dollar funding around at least according
Speaker 2: to Bloomberg reporting, that would value the company at three
Speaker 2: hundred billion dollars. If this was close to real time,
Speaker 2: I would imagine you would see the line wiggle a little,
Speaker 2: but it hasn't.
Speaker 1: Right, It's like psychologically interesting to have like what looks
Speaker 1: like a real time price chart, even if it's not
Speaker 1: a real time price chart, because it just makes you think, ooh,
Speaker 1: that's a company who's stock I can buy. And by
Speaker 1: the way, you can't necessarily right like.
Speaker 2: The other thing, you can try hard.
Speaker 1: These tide fims are like places that will let you
Speaker 1: buy many of these stocks, but it doesn't mean they
Speaker 1: have stock to sell you, right, Like you know, these
Speaker 1: companies often try to restrict their you know, employees and investors'
Speaker 1: ability to resell stock. The news this week is both
Speaker 1: the Yahoo Finance is taking prices from equity Zen and
Speaker 1: Forged to like show these stock shots, but also that
Speaker 1: equity Zen and Forger lowering their investment minimums. So now
Speaker 1: you can, if you're an incredit and investor, you can
Speaker 1: buy stock in these companies with as little as five
Speaker 1: thousand dollars. But again, like that's just that's just like
Speaker 1: their rules. It doesn't mean that someone's going to sell
Speaker 1: you five thousand dollars basic stock. And in fact, I
Speaker 1: think it's kind of hard to source a lot of
Speaker 1: the really hot private companies on these platforms.
Speaker 2: So I'm comparing. I hate to talk about ETFs. I
Speaker 2: just hate them. Att, I'm gon do it right now.
Speaker 2: I know that there's a you know, a subset of
Speaker 2: listeners who absolutely hate when I bring up ETFs. But
Speaker 2: I just came back from an ETF conference and we
Speaker 2: have a lot of fans there. So shout out to
Speaker 2: the friendly to the friendly couple that stopped me in
Speaker 2: Las Vegas, in the casino, in the Virgin Hotel. In
Speaker 2: any case, there is this ETF called the er Shares
Speaker 2: Private Public Crossover ETF. The ticker is x OvR Crossover.
Speaker 2: It actually ten percent of its portfolio is SpaceX. This
Speaker 2: is pretty much meaningless, but you take a look at
Speaker 2: the performance of this ETF. It's down about seven percent
Speaker 2: on a total return basis year to date, and SpaceX,
Speaker 2: at least according to Yahoo Finance, is at least up slightly.
Speaker 2: According to Yahoo Finance, it went from to eleven per
Speaker 2: share to just under two fifteen per share. Again, this
Speaker 2: is very close to a meaningless comparison, but there is
Speaker 2: some way I guess you could back into what SpaceX
Speaker 2: is doing. Not really, but I do think it's a
Speaker 2: little bit interesting. You do have this ETF with real
Speaker 2: time pricing. We know that ten percent of it is SpaceX.
Speaker 1: Yeah, but that doesn't give us real time SpaceX price. Now,
Speaker 1: Like I don't know how like do the ARB, but
Speaker 1: like I assume that, like Jane Street is not like
Speaker 1: delivering a basket of a little SpaceX doc to like
Speaker 1: get shares of X over right, Like in some ways,
Speaker 1: like this stuff where like yeah, who's putting up price
Speaker 1: charts and like you can theoretically get into these private
Speaker 1: markets with as little as five thousand dollars, Like in
Speaker 1: some ways that is like psychological signaling rather than like
Speaker 1: a real thing. And it's not like you can go
Speaker 1: buy five thousand dollars worth of SpaceX and like there's
Speaker 1: a real time chart on Yahoo. But in some ways
Speaker 1: it like is pushing it towards being a little bit
Speaker 1: more real. So like private markets theoretically are open only
Speaker 1: to accredited and investors in the US, whereas like public
Speaker 1: markets are open to everyone. But if you look at
Speaker 1: like the number of people who are accredited, because like
Speaker 1: the accredited standards have not gone up since like the eighties,
Speaker 1: Like to be accredited, you need to have two hundred
Speaker 1: thousand dollars a year of income or three hundred thousands
Speaker 1: of a couple, or like a million dollars in assets,
Speaker 1: and that works out to something like twenty percent of
Speaker 1: the population, which is like roughly the percent of the
Speaker 1: population that like own individual stocks and brokerage accounts. So
Speaker 1: the investor class that like buys public stocks and the
Speaker 1: investor class that can legally buy private stocks is like
Speaker 1: kind of the same class. Kind of, Yeah, you do
Speaker 1: wonder a little like what is the need for a
Speaker 1: company to go public? And then conversely, like what is
Speaker 1: the need for it to stay private? Right, because like
Speaker 1: one thing that CEO sometimes says they don't like the
Speaker 1: distraction of having a public stock price, and like they
Speaker 1: don't like managing to the stock price, and they don't
Speaker 1: like the short termsm of like the stock price reacting
Speaker 1: to news. Yeah, like now you have the stock shot
Speaker 1: on your finance that doesn't move very much, but like
Speaker 1: you know, in the future, if it moves a lot,
Speaker 1: you might be like, ah, I might as well just
Speaker 1: go public because my stock price is public anyway. You know.
Speaker 2: Another counter with that would be though, that they don't
Speaker 2: have to report earnings four times a year.
Speaker 1: It's wild to me that like basically retail investors can
Speaker 1: put five thousand dollars into a stock and there is
Speaker 1: no expectation nobody cares at all that they will ever
Speaker 1: see financial statements for the company. Yeah, and like, of course,
Speaker 1: of course no one stocks at brokers accounts looks at
Speaker 1: financial statements for the companies. The hast not get right,
Speaker 1: So like, of course it makes sense that no one
Speaker 1: cares about saying financial statements. But it's weird that, like
Speaker 1: we have like one hundred years of securities law that's
Speaker 1: based around, like we need full disclosure about a company.
Speaker 1: We need like audited financial statements to allow people to
Speaker 1: make informed the investing decisions, and everyone's like, no, we
Speaker 1: don't care about that stuff. Full buy SpaceX doesn't matter.
Speaker 2: But you couldn't directly say that you know, they need
Speaker 2: them and care about them because they form the basis
Speaker 2: of a lot of great articles written by financial journalists
Speaker 2: who do read the financial statements, et cetera and do
Speaker 2: the work.
Speaker 1: That's definitely the theory of like public markets is that,
Speaker 1: like there is a lot of work done, you know,
Speaker 1: including based on like regulated public financial disclosure. There's a
Speaker 1: lot of work done to make prices efficient. So when
Speaker 1: you buy stocking your broker's account, you are probably getting
Speaker 1: an efficient price, right, Like you're paying sort of roughly
Speaker 1: the you know, market expected fair value of the company
Speaker 1: with private companies, Like you could probably make similar arguments, right, Like, not, really,
Speaker 1: the financials are not public institutions are not necessarily like
Speaker 1: trading in the secondary market in large size, Like you're
Speaker 1: sort of drafting on like venture capitalists valuing the company
Speaker 1: in funding rounds, and like the incentives that are not
Speaker 1: quite like it's not quite the same thing as in
Speaker 1: public markets, where there's like, you know, informed people on
Speaker 1: both sides of the trade.
Speaker 2: Yeah, funding rounds obviously are the basis of these Yahoo
Speaker 2: Finance price charts, all of them.
Speaker 1: Suppose I don't secondary market trading, but yeah.
Speaker 2: Open Ai, I mean, so much has happened in the
Speaker 2: AI landscape. There's no pricing of what happened with deep
Speaker 2: seek et cetera.
Speaker 1: Right, right, it would be really funny. It would be
Speaker 1: really fun like if when the deep seek news had dropped,
Speaker 1: if you could go to your browser and look at
Speaker 1: a real time stock price for open Ai. Yeah, it
Speaker 1: would be really really funny. If like it's just a
Speaker 1: flat lab You're like, wait, where's the reaction?
Speaker 2: We are actually person in all information that we have
Speaker 2: available to us.
Speaker 1: I will tell you the other big open Ai like
Speaker 1: the stock price thing. The thing that happened a real
Speaker 1: time price was when they fired sam Altan for a
Speaker 1: weeknd I wrote about it. At the time they had
Speaker 1: just done I think they finalized like an employee tender.
Speaker 1: I think at like an eighty four billion dollar valuation,
Speaker 1: I think, and it almost like they were almost done,
Speaker 1: and then like they fired their CEO and then you know,
Speaker 1: two days later the hard back, and then like they
Speaker 1: continued doing the tender and then like they finalized it
Speaker 1: and I think it was still at eighty four billion dollars,
Speaker 1: and I wrote about, like, what a weird fact that
Speaker 1: this news didn't change, like in either direction, didn't change
Speaker 1: the valuation of open.
Speaker 2: It was perfectly priced.
Speaker 1: It's just like all of it was as expected. Everything
Speaker 1: is totally normal. This is not really true. And then
Speaker 1: like you know they have they like very quickly went
Speaker 1: on to raise it much heart raluations. Actually, this is
Speaker 1: my way of saying, if you looked at a real
Speaker 1: time stockhart of open Ai during deep seek and it
Speaker 1: didn't move, you might be like, oh, that's right, that's
Speaker 1: how like your cat. Let's think about opening eye.
Speaker 2: Just a flat line, you know, and it's still flat
Speaker 2: this week even with studio ghibli. You can do that
Speaker 2: on chat ebt right now. Cool, Well, it's all over
Speaker 2: my Twitter feed, my X feed right now. I feel
Speaker 2: like you don't really you're not an excer, I'm an
Speaker 2: X excerpt. Well that's what you can expect if you
Speaker 2: go there right now. But maybe that would have pushed
Speaker 2: the stock price higher if these were real.
Speaker 1: Isn't it nice like you're saying like it's all over
Speaker 1: my X feed? Makes me think, like I understand why
Speaker 1: CEOs don't like to have a real time stock price.
Speaker 1: It's like this distraction has moved around our stock price.
Speaker 1: It's just not that.
Speaker 2: So I talked to a lot of CEOs in my
Speaker 2: other job, which is being a television anchor, and you
Speaker 2: ask them on air, do you know, do you care
Speaker 2: about the stock price or you did you notice this
Speaker 2: in the stock price? And they always say no, I
Speaker 2: don't really look at the stock price, blah blah blah.
Speaker 2: And then you get lunch with them, you get coffee,
Speaker 2: you ask them in the commercial break and I often
Speaker 2: get from them, yeah, I'm constantly watching it, and of
Speaker 2: course you are if I had a real time measure
Speaker 2: of my performance, I would never not be looking at it,
Speaker 2: which I guess is distracting.
Speaker 1: This is like the fastness is theory about private equity,
Speaker 1: which is that, like it is not less volatile than
Speaker 1: public stocks, but it reports less frequently and so it
Speaker 1: feels less volatile and everyone knows that. But his point is,
Speaker 1: like that is actually valuable to a lot of investors,
Speaker 1: and that's why they're willing to pay a premium for
Speaker 1: private equity, because like, not knowing what the stock price
Speaker 1: is is like really good for you.
Speaker 2: I mean probably, But I'm an intercheck. I read every
Speaker 2: YouTube comment, I read every Spotify comment, I look at
Speaker 2: every tweet tweeted at me. I just am desperate for feedback.
Speaker 1: And that was the Money Stuff Podcast.
Speaker 2: I'm Matt Levian and I'm Katie Greifeld.
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Speaker 1: The Money Stuff podcast that is produced by Anna Maserakus
Speaker 1: and Moses ONAM and special thanks this week to Cal Brooks.
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