WEBVTT - Land Rich: EDR, KKR, SPAX.PVT 0:00:02.720 --> 0:00:09.959 Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 0:00:10.000 --> 0:00:13.240 The Money Stuff Podcast, your weekly podcast where we talk 0:00:13.280 --> 0:00:17.439 about stuff related to money. I'm Matt levian Ton I 0:00:17.480 --> 0:00:18.639 write the Money Stuff column for. 0:00:18.640 --> 0:00:21.919 Bloomberg Opinion, and I'm Katie Greifeld, a reporter for Bloomberg 0:00:21.960 --> 0:00:26.120 News and an anchor for Bloomberg Television. Welcome back, Katie, 0:00:26.360 --> 0:00:30.000 Welcome back, Matt. You didn't go anywhere, but in my mind, 0:00:30.080 --> 0:00:34.120 I took a vacation from me. Yeah, it's been a minute. 0:00:34.240 --> 0:00:37.599 For the listener's service has continued uninterrupted, but for us, 0:00:37.600 --> 0:00:38.320 it's been two weeks. 0:00:38.520 --> 0:00:41.120 I know, I know. I had to remember how to 0:00:41.440 --> 0:00:45.200 anchor television this morning. I'm currently trying to remember how 0:00:45.240 --> 0:00:47.240 to record a podcast. Yeah. 0:00:47.360 --> 0:00:49.680 No, I also forgot in the in our week off, 0:00:50.240 --> 0:00:52.920 it was yeah. Yeah. 0:00:52.920 --> 0:00:55.160 The way this usually goes, though, is we have three topics. 0:00:55.240 --> 0:00:57.840 Sure, yeah, what are those three topics today? Katy? 0:00:58.000 --> 0:01:01.000 So we're gonna talk about endeavor. You're on a three 0:01:01.120 --> 0:01:04.520 day streak of writing about the steal an endeavor. We're 0:01:04.560 --> 0:01:07.760 going to talk about the Baby Berkshire boom because that 0:01:07.880 --> 0:01:10.240 is underway, and then we're going to talk about public 0:01:10.319 --> 0:01:18.120 private prices, Endeavor. I think when we first spoke about 0:01:18.120 --> 0:01:21.000 this steal, we ended with something close to watch this 0:01:21.120 --> 0:01:23.360 space because it was going to close on March twenty fourth, 0:01:23.600 --> 0:01:24.200 and it did. 0:01:24.680 --> 0:01:28.160 Right. It's funny like I sometimes will write an m 0:01:28.160 --> 0:01:29.560 and a deal will have a lot of drama, and 0:01:29.560 --> 0:01:32.400 so I'll write about it successively for days or weeks. 0:01:33.920 --> 0:01:38.479 Nothing's really happened in this deal, like Monday, Like, nothing's 0:01:38.520 --> 0:01:41.319 happened since like, this company doesn't need this right. So 0:01:41.480 --> 0:01:46.039 Endeavor is a company. It went private. There was like 0:01:46.080 --> 0:01:48.920 a long lead up to it going private, Like they 0:01:49.040 --> 0:01:51.720 signed their deal about a year ago, silver like the 0:01:51.720 --> 0:01:54.280 biggest shareholder agreed to take it private at twenty seven 0:01:54.320 --> 0:01:57.320 dollars and fifty cents per share, and they announced a 0:01:57.320 --> 0:01:59.560 few weeks ago that it was going to close this 0:01:59.760 --> 0:02:02.880 month day, March twenty fourth, and then this Monday, March 0:02:02.920 --> 0:02:05.520 twenty fourth, it closed at twenty seven to fifty per share, 0:02:05.720 --> 0:02:08.280 exactly on schedule. So not really a lot of news there. 0:02:08.880 --> 0:02:12.200 But what was weird is that the previous week it 0:02:12.280 --> 0:02:15.280 traded well above twenty seven fifty per share, and in fact, 0:02:15.360 --> 0:02:18.400 the last day before the closing on Friday, it closed 0:02:18.400 --> 0:02:20.200 at twenty nine dollars and twenty five cents a share, 0:02:20.240 --> 0:02:22.240 so like a buck seventy five over the merger price, 0:02:22.480 --> 0:02:25.200 and like a lot of shares traded, and you know, 0:02:25.919 --> 0:02:27.360 if you know you're going to get cash that at 0:02:27.360 --> 0:02:29.679 twenty seven to fifty on Monday, it's a little weird 0:02:29.680 --> 0:02:31.280 to buy this stock at twenty nine to twenty five 0:02:31.440 --> 0:02:37.320 on Friday. And you know the reason for that seems 0:02:37.360 --> 0:02:39.919 to be that everyone expects there to be a class 0:02:39.960 --> 0:02:43.120 action lawsuit saying that the deal was underpriced and they're 0:02:43.120 --> 0:02:44.880 looking forward to getting in on that class action. 0:02:45.200 --> 0:02:46.960 Yeah, you had three possibilities. 0:02:47.400 --> 0:02:49.120 Yeah, So when we talked about it this last time, 0:02:49.160 --> 0:02:52.280 there's a lot of noise about appraisal, which is one 0:02:52.280 --> 0:02:54.760 way you can basically sue for a better price. But 0:02:54.840 --> 0:02:58.200 to do that you have to like demand appraisal, and 0:02:58.360 --> 0:03:01.480 there are reasons that can be advantageous to you, but 0:03:01.560 --> 0:03:03.120 like one problem with it is you need to have 0:03:03.200 --> 0:03:07.720 owned the stock continuously since like early February. The other 0:03:07.760 --> 0:03:10.360 way to sue to get a better price is just 0:03:10.400 --> 0:03:15.400 a class action lawsuit saying that the board that approved 0:03:15.520 --> 0:03:17.639 the deal was like failing in its footy share I 0:03:17.680 --> 0:03:20.560 duties to shareholders, and here that's like a pretty tempting 0:03:20.600 --> 0:03:23.960 lawsuit because you know, as you talked about last time, 0:03:24.120 --> 0:03:27.760 the deal price turned out to look really low. You know, 0:03:27.880 --> 0:03:31.720 Endeavour's main asset is shares of another publicly traded company, right, 0:03:31.800 --> 0:03:35.080 that company traded up a lot, So by now the 0:03:35.120 --> 0:03:38.240 deal price for Endeavor looks really low, and you know 0:03:38.280 --> 0:03:42.040 it's being bought by its controlling shareholder, so there's always 0:03:42.040 --> 0:03:45.640 a conflict of interest there. There wasn't a vote of 0:03:45.680 --> 0:03:48.840 the independent shareholders, like no, like independent person really ratified 0:03:48.840 --> 0:03:51.160 the price, right, like the board did, but like the 0:03:51.160 --> 0:03:54.640 shareholders didn't. So you know, there's a lot of a 0:03:54.760 --> 0:03:56.960 lot of stuff for a lawsuit, and people seem to 0:03:57.000 --> 0:03:59.320 be valuing that lawsuit at about a buck seventy five 0:03:59.360 --> 0:03:59.680 a share. 0:03:59.800 --> 0:04:01.640 We'll clear this up for me because I was a 0:04:01.640 --> 0:04:04.280 little bit confused. So there's a possibility of a class 0:04:04.320 --> 0:04:07.320 action lawsuit, but that is different than the appraisal. 0:04:07.400 --> 0:04:11.160 Yeah, the appraisal is like this price should have been higher, right, 0:04:11.160 --> 0:04:14.680 it doesn't require any like allegations of wrongdoing. The class 0:04:14.680 --> 0:04:17.560 action lawsuit is like the board didn't do its fiduciary 0:04:17.600 --> 0:04:20.960 duty for shareholders, but in this sort of conflicted situation, 0:04:21.200 --> 0:04:23.960 like they almost get to the same place, and it's 0:04:24.000 --> 0:04:25.920 a little bit easier to do the class action because 0:04:25.920 --> 0:04:27.760 you don't have to have held the shares continuously. 0:04:29.000 --> 0:04:33.280 So your third explanation was people might have thought. 0:04:33.080 --> 0:04:35.680 That Silverlake would recut the deal to give people a 0:04:35.720 --> 0:04:38.720 better price. But I don't know why they would have 0:04:38.760 --> 0:04:40.880 thought that, because silver like did say they wouldn't do it, 0:04:40.880 --> 0:04:41.800 and then they didn't do it. 0:04:41.800 --> 0:04:45.840 So it looks like the possibility that your readers seem 0:04:45.880 --> 0:04:49.520 to agree with was that maybe you bought the stock 0:04:49.680 --> 0:04:51.520 getting on this lawsuit happening. 0:04:51.800 --> 0:04:53.720 You bought the stock thinking a lawsuit would happen, that 0:04:53.720 --> 0:04:56.159 you wanted to be in that lawsuit because you thought 0:04:56.160 --> 0:04:58.680 that lawsuit was worth more than a buck seventy five 0:04:58.680 --> 0:04:59.000 a share. 0:04:59.200 --> 0:05:00.640 Maybe that's what carl Icon did. 0:05:00.920 --> 0:05:02.839 I would be surprised if there was any other reason 0:05:02.920 --> 0:05:06.440 for it. But yeah, Carlaikon bought about eight percent of Endeavor. 0:05:07.160 --> 0:05:09.880 It's not exactly clear when because the disclosure doesn't have 0:05:09.920 --> 0:05:11.560 like the trading records, but it kind of seems like 0:05:11.600 --> 0:05:13.159 he bought it all on Friday. 0:05:13.320 --> 0:05:16.520 As of Friday, he had eight point four percent. 0:05:16.640 --> 0:05:18.680 Yeah. Yeah, and there's a lot of shares traded on Friday, 0:05:18.720 --> 0:05:20.719 Like he might have bought all of his shares on Friday, 0:05:21.000 --> 0:05:23.320 might have been why the stock spiked, but any caayse Yeah, 0:05:23.320 --> 0:05:26.719 he seems to have bought the stock fairly recently. And 0:05:27.920 --> 0:05:32.400 he's carl iik On like he doesn't mind a lawsuit. No, 0:05:32.600 --> 0:05:34.719 he doesn't mind getting his hands a little dirty. And 0:05:34.800 --> 0:05:37.279 you know I wrote on Thursday, like, if you're a 0:05:37.320 --> 0:05:39.920 shareholder who was hoping to get it in on a lawsuit, 0:05:39.960 --> 0:05:42.840 like you gotta feel good about this, right, He's gonna 0:05:43.120 --> 0:05:45.840 have some fun with that lawsuit. Yeah, carlaike On on 0:05:45.880 --> 0:05:48.839 your side complaining about the deal price. I don't know. 0:05:48.960 --> 0:05:50.800 It sounds like an encouraging fact. 0:05:50.640 --> 0:05:54.880 Makes for good TV, makes for podcasting. So perhaps carl 0:05:55.040 --> 0:05:57.839 Icon wanted in on this lawsuit specifically, But there's also 0:05:57.920 --> 0:06:01.600 the possibility that maybe short sellers wanted out question Mark. 0:06:01.880 --> 0:06:06.120 I really don't know. There's a weird, fascinating history of this, 0:06:06.200 --> 0:06:08.280 so like this is not the first deal that's kind 0:06:08.320 --> 0:06:11.680 of gone like this, where there's been a going private transaction. 0:06:12.120 --> 0:06:15.480 It looks kind of conflicted. Shareholders are disgruntled. The stock 0:06:15.560 --> 0:06:18.039 trades above the deal price right until the last minute, 0:06:18.600 --> 0:06:20.600 and then the deal closes, and the shareholders sue, and 0:06:20.640 --> 0:06:22.719 like years later down the line, they win their lawsuit 0:06:22.720 --> 0:06:27.320 and they get some money. In that case, if you 0:06:27.480 --> 0:06:30.760 see a stock trading at twenty nine dollars a share 0:06:30.960 --> 0:06:32.640 and you know that it's going to be cashed out 0:06:32.680 --> 0:06:35.440 at twenty seven to fifty on Monday, you might be 0:06:35.520 --> 0:06:38.719 tempted to sell that stock short. Because you sell it 0:06:38.720 --> 0:06:41.599 for twenty nine dollars, you pay back the twenty seven 0:06:41.600 --> 0:06:44.200 to fifty on Monday, you make an easy buck fifty. 0:06:44.800 --> 0:06:48.560 So in a lot of these deals, they end up 0:06:49.480 --> 0:06:52.040 the deal closes and there's some number of shorts, and 0:06:52.080 --> 0:06:55.160 the shorts make a quick profit because the deal closes 0:06:55.160 --> 0:06:57.720 it below the last trade price, and so like if 0:06:57.760 --> 0:06:59.680 they short aed it above the deal price, they make 0:06:59.680 --> 0:07:02.560 it quick profit and then they go about their business. 0:07:02.960 --> 0:07:07.960 And years later the class action lawsuit gets decided in 0:07:08.000 --> 0:07:11.600 favor of the shareolders, and someone like they're broker comes 0:07:11.600 --> 0:07:15.120 to them and says, remember that deal that closed the 0:07:15.160 --> 0:07:16.800 twenty seven to fifty, and you paid twenty seven to 0:07:16.800 --> 0:07:20.240 fifty because you were short. Actually the real deal price 0:07:20.760 --> 0:07:24.160 is thirty two dollars, so you owe us another four 0:07:24.160 --> 0:07:27.920 p fifty there's a lot of like lower on this, 0:07:28.000 --> 0:07:30.480 and it's not clear like what the actual rules are. 0:07:30.840 --> 0:07:32.480 My understanding is there are people who have done this 0:07:32.560 --> 0:07:34.760 trade and like years later the brokers have come to 0:07:34.840 --> 0:07:38.080 them and said you owe us more money and they said, no, 0:07:38.160 --> 0:07:40.520 we don't. We close that are short. What are you 0:07:40.560 --> 0:07:42.680 even talking about? This is not a corporate action that 0:07:42.680 --> 0:07:45.560 we owe money on. And there are some like finra 0:07:45.680 --> 0:07:48.320 arbitrations where the customers and the brokers have gone to arbitration, 0:07:48.360 --> 0:07:49.840 and it's kind of I think, gone both ways. There 0:07:49.840 --> 0:07:51.640 are some where the customers have lost, but some I 0:07:51.640 --> 0:07:54.480 think where they've won. So there's like an interesting trade 0:07:54.520 --> 0:07:57.880 here where you can like make a free, risk free 0:07:57.920 --> 0:08:02.440 profit on your short and years later try to steff 0:08:02.480 --> 0:08:04.640 your brokers so you can keep the profit. But it's 0:08:04.680 --> 0:08:05.600 you know, a little dicey. 0:08:05.800 --> 0:08:07.800 Yeah, but I don't know, for a good two to 0:08:07.840 --> 0:08:09.840 three years you did make a profit on that, and 0:08:09.880 --> 0:08:11.280 that has to feel somewhat good. 0:08:12.120 --> 0:08:13.760 Yeah. I get a lot of emails from people to 0:08:13.880 --> 0:08:15.800 be like what if I did this? What if I 0:08:16.080 --> 0:08:18.360 moved out of state? You know, there's a lot of 0:08:18.840 --> 0:08:20.960 you know, it's easy to imagine how you enjoyed your 0:08:20.960 --> 0:08:23.400 broker's phone call in three years, right, Yeah, I think 0:08:23.400 --> 0:08:25.040 people are very interested in that trade. 0:08:25.240 --> 0:08:27.480 Okay, So where does this go for here? Like you said, 0:08:27.520 --> 0:08:29.280 usually I keep. 0:08:29.080 --> 0:08:30.120 Looking for the lawsuit. 0:08:30.160 --> 0:08:33.040 I haven't seen, like the lost class action loss. 0:08:33.120 --> 0:08:37.040 Yeah, usually like you know, lawyers or nut pressure. 0:08:37.080 --> 0:08:39.720 So why is that more likely, just judging from the 0:08:39.720 --> 0:08:41.880 tone of this conversation than appraisal. 0:08:42.080 --> 0:08:44.640 Oh, just because like so many shares have traded hands 0:08:44.720 --> 0:08:46.839 after the appraisal deadline. So like, if you're buying shares 0:08:46.840 --> 0:08:49.080 at twenty nine dollars last week, yeah, you couldn't be 0:08:49.080 --> 0:08:51.240 doing it for appraisal because you wouldn't get appraisal. You 0:08:51.280 --> 0:08:52.679 could have to be buying into the loss of the 0:08:52.720 --> 0:08:53.240 class action. 0:08:53.520 --> 0:08:54.600 Could there be both? 0:08:54.720 --> 0:08:56.720 Yeah, there could be. Okay, the big case that I 0:08:56.720 --> 0:08:59.680 read about was Dole, and there were both appraisal. They're 0:08:59.679 --> 0:09:02.160 not the same thing. You could imagine an appraisal court 0:09:02.200 --> 0:09:03.960 saying oh, the actual value of the company was this, 0:09:04.360 --> 0:09:07.319 and the class action court saying, oh, like the fiduciary 0:09:07.360 --> 0:09:09.800 duties you know were violated and that's where this you know, 0:09:09.960 --> 0:09:11.440 like they're not the same thing at all, but like 0:09:11.520 --> 0:09:14.960 you know, they're kind of roughly the same idea, which is, 0:09:15.000 --> 0:09:16.960 you underpaid for this company, give us more money. 0:09:17.760 --> 0:09:20.160 So it seems like this continues to be a watch 0:09:20.200 --> 0:09:23.200 this Space situation. There's the promise of drama. It just 0:09:23.200 --> 0:09:24.679 hasn't necessarily happened. 0:09:25.040 --> 0:09:28.560 Weird if nothing happened, because people for drama, right. 0:09:28.480 --> 0:09:31.199 May be kind of beautiful though, if truly nothing, If 0:09:31.240 --> 0:09:31.839 everyone was like. 0:09:32.400 --> 0:09:35.120 I think this is a dollar seventy five a shared lawsuit, 0:09:35.640 --> 0:09:38.320 looking forward to that lawsuit, I actually remember STI follow 0:09:38.360 --> 0:09:39.679 the lawsuit and it just goes away. 0:09:39.800 --> 0:09:41.040 I kind of was just like, I don't know, I 0:09:41.080 --> 0:09:43.400 feel possessed to buy eight point four percent of the 0:09:43.480 --> 0:09:44.240 shares on Friday. 0:09:44.760 --> 0:09:46.160 I was hoping someone else will bring a lawsuit. 0:09:48.200 --> 0:09:54.160 I'm feeling shy now. 0:10:02.000 --> 0:10:05.400 I told you that I went to the Blue experience. 0:10:04.840 --> 0:10:09.320 That we've almost certainly talked about this. Did I remember that? 0:10:09.559 --> 0:10:09.599 No? 0:10:09.920 --> 0:10:10.840 But tell me about it. 0:10:11.000 --> 0:10:13.959 They like build Blue's house in a building near Union Square. 0:10:14.200 --> 0:10:15.160 That sounds kind of fun. 0:10:15.520 --> 0:10:16.199 I really like that. 0:10:16.480 --> 0:10:21.360 Yeah. Yeah, I can have my own children to watch Blue. 0:10:21.679 --> 0:10:24.920 I say, it's very much like a show for parents. Yeah, 0:10:25.720 --> 0:10:28.920 it's it's very mature. You know what else is uh 0:10:29.200 --> 0:10:31.200 very mature? The business model? 0:10:31.360 --> 0:10:31.600 Yeah? 0:10:31.679 --> 0:10:33.280 Oh, yeah, oh, here we go. 0:10:34.040 --> 0:10:34.640 What do you got? 0:10:34.920 --> 0:10:37.960 What do I got? KKRL? 0:10:38.640 --> 0:10:42.640 Yeah, not just regular holdings, but strategic holdings, holdings that 0:10:42.679 --> 0:10:46.400 they will hold for a while, is the plan. Yeah, 0:10:46.440 --> 0:10:47.800 I've got about eighteen of them. 0:10:48.200 --> 0:10:52.520 Eighteen right. So KKR is like historically a leverage biot 0:10:52.559 --> 0:10:57.319 firm where they manage funds, They raise funds from limited partners, 0:10:57.760 --> 0:11:01.120 They take those funds and they equity checks to do 0:11:01.200 --> 0:11:04.880 leverage biots. They borrow money to buy companies. They take 0:11:04.880 --> 0:11:08.600 over the companies, they lever them up, they improve their operations, 0:11:08.679 --> 0:11:13.160 they strip off the stuff they don't want, They incentivize managers, 0:11:13.640 --> 0:11:17.200 they get everything all nice, and three to five years 0:11:17.280 --> 0:11:20.679 later they take them public again or sell them and 0:11:21.800 --> 0:11:24.520 get a big check that they return to their limited 0:11:24.559 --> 0:11:27.520 partners and you know, take twenty percent for themselves. Like 0:11:27.559 --> 0:11:31.040 that's the traditional LBO business model. And you know all 0:11:31.080 --> 0:11:33.840 these like LBO pioneers of the eighties and nineties like 0:11:34.040 --> 0:11:38.360 are now giant public companies like KKAR, and they run 0:11:38.640 --> 0:11:41.600 funds for investors. Like now the term is alternative asset 0:11:41.640 --> 0:11:45.400 managers because they do a lot besides classic leverage biotes. 0:11:46.200 --> 0:11:48.400 But they still basically do that kind of model where 0:11:48.400 --> 0:11:53.720 they run funds and take twenty percent, and KKR is shifting, 0:11:53.800 --> 0:11:56.520 let's say, or like introducing more of a model where 0:11:56.640 --> 0:11:59.960 what they do is they just on their own balance 0:12:00.440 --> 0:12:05.400 as a company, buy stakes and companies or infrastructure projects 0:12:05.440 --> 0:12:08.240 or whatever, and just own them forever and they're just 0:12:08.320 --> 0:12:11.319 part of the company. They're like a big industrial conglomerate. 0:12:11.840 --> 0:12:12.920 That's an interesting shift. 0:12:13.120 --> 0:12:16.640 Yeah, the logic here, I mean, looking at Alison mcneely's story, 0:12:17.160 --> 0:12:20.720 KKR has this plan to quadruple its earnings for sure 0:12:20.760 --> 0:12:24.560 over the next decade. Strategic holdings would be a strategic 0:12:24.640 --> 0:12:28.160 part of that. They also want to build a portfolio 0:12:28.200 --> 0:12:30.160 that kicks off more than a billion dollars a year 0:12:30.160 --> 0:12:35.160 in dividends. So it's different from the fee model, of course. 0:12:35.760 --> 0:12:38.440 It's you know, one thing I write is that the 0:12:38.520 --> 0:12:41.600 ultimate success for a hedge fund is to get rid 0:12:41.640 --> 0:12:43.360 of all of your outside investors and convert to a 0:12:43.400 --> 0:12:45.200 family office because you've just made so much money for 0:12:45.240 --> 0:12:48.599 yourself that you'd rather earn one hundred percent of the 0:12:48.640 --> 0:12:49.880 returns on your investments than. 0:12:49.880 --> 0:12:50.280 They get it. 0:12:51.480 --> 0:12:54.199 It's like a little bit like that, right. The fee 0:12:54.240 --> 0:12:57.480 model is good enough that ky Care has made a 0:12:57.520 --> 0:13:00.080 lot of money and where they do that money. Well, well, 0:13:00.440 --> 0:13:02.600 one thing you do is you transition from being a 0:13:02.640 --> 0:13:05.760 service writer who collects twenty percent to being just an 0:13:05.800 --> 0:13:08.000 asset owner and a capitalist, right and you just own 0:13:08.080 --> 0:13:11.440 the companies instead of owning the twenty percent promote on them. 0:13:11.800 --> 0:13:13.880 It's like, one way to analyze what they're doing here 0:13:14.000 --> 0:13:16.400 is like it has been a good enough business for 0:13:16.440 --> 0:13:19.280 long enough that now instead of KKR being like, we're 0:13:19.280 --> 0:13:21.240 going to manage funds to buy companies, they'll be like, 0:13:21.240 --> 0:13:22.960 we'll just buy the companies. But it's different for being 0:13:23.000 --> 0:13:25.760 a family office because like most hedge funds are, like 0:13:26.120 --> 0:13:29.239 the hedge fund management company is privately owned, and transitioning 0:13:29.240 --> 0:13:32.000 to a family office means like the guy who owned 0:13:32.040 --> 0:13:35.000 the hedge fund now owns all the investments here. KKR 0:13:35.040 --> 0:13:38.320 is not like a guy or even the three you know, Colbert, Cravis, 0:13:38.360 --> 0:13:41.640 and Roberts. It's a public company. So the public company 0:13:41.679 --> 0:13:43.800 is sort of becoming its own family office. And like 0:13:43.840 --> 0:13:47.120 the public company is going to own all these investments 0:13:47.160 --> 0:13:49.720 directly rather than taking fees to run a fund. 0:13:49.880 --> 0:13:53.319 In a way, it's beautiful, just the natural evolution of things. 0:13:53.320 --> 0:13:55.440 Don't we all aspire to something similar. 0:13:55.760 --> 0:13:59.160 In some ways, it's like the whole private equity business 0:13:59.600 --> 0:14:02.400 has done this right. Like private equity was like a small, 0:14:02.400 --> 0:14:06.320 scrappy business taking over like poorly managed companies and like 0:14:06.760 --> 0:14:10.600 making them more efficient, and that was like so wildly 0:14:10.679 --> 0:14:13.360 lucrative for so long. And now it's like, we have 0:14:13.480 --> 0:14:16.400 all this money, we could just own the companies ourselves. 0:14:16.440 --> 0:14:18.040 We don't need to run funds anymore. Like that's not 0:14:18.200 --> 0:14:21.080 you know, it's an exaggeration because most of them, including KKR, 0:14:21.160 --> 0:14:23.000 mostly run funds. But like there's this shift to like 0:14:23.040 --> 0:14:24.480 we can own stuff on our balance sheet. 0:14:24.520 --> 0:14:26.760 Yeah, in a way, I feel really drawn to this. 0:14:26.800 --> 0:14:29.400 I think I've talked before on this podcast how I 0:14:29.480 --> 0:14:33.560 really like and admire the old school strategy of just 0:14:33.600 --> 0:14:37.080 stock picking. This is a little bit different, but you're right, 0:14:37.160 --> 0:14:38.720 it's sort of the same basis. 0:14:39.160 --> 0:14:41.920 Like old school private equity is like people and I 0:14:41.960 --> 0:14:44.760 would disagree with this, but it's a financial engineering story, right, 0:14:44.760 --> 0:14:46.840 and so like we can put more leverage on this 0:14:46.880 --> 0:14:50.040 company than the public markets can, right, But this is like, yeah, 0:14:50.120 --> 0:14:51.760 we like that business, let's own it forever. 0:14:51.880 --> 0:14:54.680 Yeah, think about it. It's gonna compound over time and 0:14:54.720 --> 0:14:57.480 become better and you just got to be patient and 0:14:57.480 --> 0:14:58.880 we're gonna hold this for a few decades. 0:14:59.280 --> 0:15:01.760 Now. I'm with you. I also admire the business to 0:15:01.840 --> 0:15:04.760 my mind, like what better job could you possibly have 0:15:04.920 --> 0:15:07.480 than like waking up and being like, here are twelve 0:15:07.520 --> 0:15:10.480 stocks I want to own, I will buy them, and 0:15:10.560 --> 0:15:12.360 my job is over the rest of my life. 0:15:12.440 --> 0:15:16.840 The answer is right in front of you being a podcaster, obviously, 0:15:18.040 --> 0:15:20.000 but I take your point. I find it really compelling. 0:15:20.440 --> 0:15:24.640 And of course this comes as KKRS freeze this. The 0:15:24.720 --> 0:15:28.320 co CEO said at Bloomberg invest earlier in March that 0:15:28.800 --> 0:15:31.920 basically it's in some ways to become a mini Berkshire Hathaway. Sure, 0:15:33.000 --> 0:15:37.040 everyone wants to bearned about it, including friend of the 0:15:37.040 --> 0:15:41.000 show Bill Ackman. I think it is interesting that you 0:15:41.080 --> 0:15:45.640 do have at least a size of two folks saying 0:15:45.680 --> 0:15:49.200 that we are basically wanting to model ourselves after Berkshire Hathaway. 0:15:49.720 --> 0:15:52.960 You're so young. I feel like, well, you know, people 0:15:52.960 --> 0:15:55.480 wanting to be more in Buffett. It's like a lung 0:15:55.560 --> 0:15:59.360 steady but in the past, like Joe Bay and like 0:15:59.640 --> 0:16:02.600 Bill grew up in a world where like the pinnacle 0:16:02.640 --> 0:16:05.240 of investing was Warren Buffett right, I do wonder. 0:16:05.280 --> 0:16:06.120 I mean, I kind of grew. 0:16:06.320 --> 0:16:07.920 I want to be Warren Buffett, but I don't know. 0:16:07.960 --> 0:16:11.440 There was that time during the pandemic where Buffett was 0:16:11.440 --> 0:16:13.880 getting dunked on a lot by like the Dave portnoise 0:16:13.920 --> 0:16:15.680 of the world. But I feel like he's back in vogue. 0:16:16.400 --> 0:16:18.920 But he's certainlygue among friend of. 0:16:18.840 --> 0:16:21.320 The shop Bill Lackman, like that crowd. 0:16:21.680 --> 0:16:24.240 Yeah, why wouldn't you want to be Berkshire Hathway. 0:16:24.280 --> 0:16:26.600 I want to talk about their current lineup of investments. So, 0:16:26.760 --> 0:16:31.400 as I mentioned, eighteen includes lens retailer one eight hundred Contacts, 0:16:31.400 --> 0:16:34.200 which actually texted me today to tell me that it's 0:16:34.280 --> 0:16:38.640 time to order eight hundred dollars worth of contacts again, 0:16:38.880 --> 0:16:43.600 cybersecurity company Barracuda Networks, also Australian stack food manufacturer, our 0:16:43.720 --> 0:16:46.800 Nose Group, our Knots Group. But anyway, again it's just 0:16:47.200 --> 0:16:50.840 I mean one eight hundred Contacts. That's a household name. 0:16:50.880 --> 0:16:54.080 But it's cool because it's not like flashy like AI 0:16:54.240 --> 0:16:56.040 sort of stuff, at least from what I can tell 0:16:56.080 --> 0:16:59.880 from Alison mcneely's article. Yeah, I could keep going. 0:17:00.000 --> 0:17:01.760 Those are sort of like you know, those are like 0:17:01.800 --> 0:17:05.840 classic private acuity kind of investments, right, Like, yeah, I'm glamorous, 0:17:05.960 --> 0:17:07.959 like nice cash flow kount of companies. But you know 0:17:08.000 --> 0:17:09.080 now they just done them directly. 0:17:09.320 --> 0:17:12.720 Yeah for me an absolute consumer stable just check about 0:17:13.200 --> 0:17:14.560 hundred contacts, you. 0:17:14.560 --> 0:17:17.840 Are a reliable source of cash flow for kake cars. 0:17:17.880 --> 0:17:20.880 Strategic holdings just a little more color there. They own 0:17:20.960 --> 0:17:24.520 an average twenty percent stake in these eighteen firms. That 0:17:24.640 --> 0:17:27.600 is about three point seven billion dollars of revenue nine 0:17:27.680 --> 0:17:31.400 hundred million dollars of adjusted earnings, which is a small 0:17:31.440 --> 0:17:36.120 share overall of their operating earnings right now. But they're 0:17:36.160 --> 0:17:39.240 predicting those strategic holdings will generate one point one billion 0:17:39.720 --> 0:17:40.600 by twenty thirty. 0:17:41.040 --> 0:17:43.000 The main way I think about this bet is like 0:17:43.040 --> 0:17:47.280 when you generated enough money during a like high fee, 0:17:47.359 --> 0:17:50.800 high return financial services business, like you can just use 0:17:50.800 --> 0:17:53.080 that money to own things yourself. But there's also like 0:17:53.359 --> 0:17:55.400 you do wonder if there's like pressure on those fees 0:17:55.480 --> 0:17:59.160 or those returns, right, Like private equity in the eighties, 0:17:59.200 --> 0:18:02.040 there's a lot of low fruit. Later vintages of funds 0:18:02.040 --> 0:18:04.639 have not always returned as well, And like you know, 0:18:04.760 --> 0:18:07.920 people talk about how there's pressure on private equity exits 0:18:08.000 --> 0:18:11.720 now and you don't hear a ton about fee pressure 0:18:11.720 --> 0:18:14.199 and private equity, but you hear that something every now 0:18:14.240 --> 0:18:16.520 and then, Like you might be one of these alternative 0:18:16.560 --> 0:18:18.679 asset matters looking around and saying, like, you know, the 0:18:18.720 --> 0:18:21.439 long term trend of like financial services fees are like 0:18:22.119 --> 0:18:24.560 you know, Kitty Greyfeld keeps telling me that you can 0:18:24.560 --> 0:18:27.360 get an ETF for one basis point. It's common if 0:18:27.400 --> 0:18:30.080 you think, like, you know, in twenty years, what will 0:18:30.080 --> 0:18:32.280 our earnings makes look like you might say, like we 0:18:32.359 --> 0:18:34.800 might earn lesson fees, but we'll own all these companies 0:18:34.840 --> 0:18:37.480 that like sell contacts to Katy Greifeld, so we can 0:18:37.840 --> 0:18:39.880 we can we can get our money that way, right, 0:18:39.960 --> 0:18:42.560 Like if you think that fees over time will come down, 0:18:42.640 --> 0:18:45.399 like owning businesses is the way to avoid that so that. 0:18:45.680 --> 0:18:49.200 They're future proofing in all. Yeah, Man, if I could 0:18:49.200 --> 0:18:50.880 go back to the eighties, anything. 0:18:50.560 --> 0:18:52.959 Like private equity like feels really institutional that. But if 0:18:52.960 --> 0:18:54.320 you run like I always think, like if you run 0:18:54.320 --> 0:18:56.800 like a crypto exchange, like you got to like take 0:18:56.840 --> 0:19:00.679 all that money and put it into like laundromats or like. 0:19:00.119 --> 0:19:01.880 Like real businesses machines. 0:19:02.000 --> 0:19:07.280 Yeah, because you can't rely on like that like lottery 0:19:07.320 --> 0:19:09.600 winnings to keep continuing, but that you can put the 0:19:09.640 --> 0:19:12.040 money into a real business like Land. I don't know. 0:19:12.359 --> 0:19:18.000 Oh my god, yeah, everyone should buy Land. I would 0:19:18.000 --> 0:19:35.200 love to be land rich. Okay, So we have been 0:19:35.200 --> 0:19:38.960 talking for months, really the entire existence of this podcast 0:19:39.200 --> 0:19:42.560 about how private markets are becoming public. Private markets are 0:19:42.600 --> 0:19:45.680 the new public market, and now we have some prices 0:19:45.720 --> 0:19:46.280 to put to that. 0:19:46.359 --> 0:19:48.680 I really feel like it's a big step in private 0:19:48.720 --> 0:19:53.240