WEBVTT - Admiral Stavridis: It's Good Time For The Space Force 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor, find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 Podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.000 at Bloomberg dot com. For the first time since nineteen 0:00:23.440 --> 0:00:26.040 when the Air Force was created out of what was 0:00:26.079 --> 0:00:28.680 then the Army Air Corps, which my father was in 0:00:28.760 --> 0:00:31.920 at the time, the US has created a new military branch, 0:00:32.040 --> 0:00:34.760 the Space Force. At first I thought it was a 0:00:34.840 --> 0:00:38.640 really odd idea, but after reading a particular column from 0:00:38.760 --> 0:00:43.239 UH Admiral James Stravitis, who was a columnist for Bloomberg Opinion, 0:00:43.680 --> 0:00:45.840 I kind of changed my tune here a little bit. So, Admiral, 0:00:45.840 --> 0:00:48.760 thanks so much for UH joining us. Really to appreciate it. 0:00:48.800 --> 0:00:51.560 You're a Bloomberg Opinion UH commissary, also a US Navy 0:00:51.600 --> 0:00:54.680 admiral and former military commander of NATO. Talk to US 0:00:54.720 --> 0:00:57.320 Admiral if you will about this Space Force, because I 0:00:57.360 --> 0:01:00.400 think a lot of people don't really understand Dan what 0:01:00.440 --> 0:01:03.080 it is and what it's supposed to do. I Ken, Paul, 0:01:03.200 --> 0:01:06.479 and happy holidays. Let's start with, Uh, what most people 0:01:06.520 --> 0:01:10.080 have in their mind are the voyages of the starship Enterprise. 0:01:10.360 --> 0:01:13.000 And how soon are we can be in manned space 0:01:13.040 --> 0:01:16.839 flight and have massive warships going into space? Listen, that's 0:01:16.840 --> 0:01:19.399 a hundred and fifty to two hundred years away, I 0:01:19.440 --> 0:01:22.959 would estimate. But what do we do now? We operate 0:01:23.080 --> 0:01:28.720 a complex, highly complex and very large constellation of satellites 0:01:29.240 --> 0:01:34.160 as well as a rising number of very small, manned 0:01:34.160 --> 0:01:38.880 operations of space station. All of those have military aspects 0:01:38.920 --> 0:01:41.399 to it. So the idea here, much as you just 0:01:41.480 --> 0:01:44.520 alluded to, Paul about the foundation of the US Air 0:01:44.600 --> 0:01:48.640 Force back in the forties, we wanted a group of 0:01:48.680 --> 0:01:53.080 people who would focus specifically on aviation and the operations 0:01:53.120 --> 0:01:57.080 of military activities in the air. Now we realize we 0:01:57.120 --> 0:02:00.680 need that same thing in space. So that's the idea here. 0:02:00.760 --> 0:02:03.600 I think it makes sense. Going to be small. It'll 0:02:03.640 --> 0:02:07.160 start with a few thousand people. I don't think it 0:02:07.200 --> 0:02:10.680 will ever get bigger than fifteen to twenty thousand folks, 0:02:10.680 --> 0:02:12.720 which is of course a drop in the bucket in 0:02:12.800 --> 0:02:15.200 the big one point two million people that are in 0:02:15.200 --> 0:02:17.880 the Department of Defense. It's a good idea whose time 0:02:17.919 --> 0:02:19.840 has come. Add well, as someone who grew up a 0:02:19.880 --> 0:02:21.480 kind of a space kid, my dad worked on a 0:02:21.480 --> 0:02:23.760 lot of the early space programs. I think when I 0:02:23.800 --> 0:02:26.600 first heard about, you know, a sixth branch of the 0:02:26.680 --> 0:02:28.800 Armed Forces, I'm thinking, like what to like, you know, 0:02:29.440 --> 0:02:32.280 have folks on the moon or appen space. But but 0:02:32.320 --> 0:02:34.760 when you think about what our world has become in 0:02:34.880 --> 0:02:39.000 terms of data and information moving around the world, if 0:02:39.000 --> 0:02:42.600 you knocked out a nation's satellite system, you could really 0:02:42.960 --> 0:02:45.120 cripple them in a big way. And that's really what 0:02:45.120 --> 0:02:48.480 it's about, whether it's on a military angle or you know, 0:02:48.600 --> 0:02:51.040 pick your angle right, because there's so much floating out 0:02:51.080 --> 0:02:55.520 there in space that is exactly right. And so what 0:02:55.680 --> 0:02:59.160 the Space Force, these few thousand people that start off 0:02:59.280 --> 0:03:02.720 are going to be doing is operating ground stations that 0:03:02.800 --> 0:03:06.000 control those satellites. Are going to move the satellites around. 0:03:06.200 --> 0:03:09.160 They're going to make sure our satellites are not attacked 0:03:09.160 --> 0:03:13.320 by anti satellite weapons from Russia and China, both of whom, 0:03:13.360 --> 0:03:17.080 by the way, already have space forces. They will build 0:03:17.360 --> 0:03:21.040 and launch new satellites. So think of it as a 0:03:21.080 --> 0:03:25.640 way to operationalize what is already happening in space, but 0:03:26.080 --> 0:03:29.519 assign a very specific group of young men and women 0:03:29.560 --> 0:03:31.520 to it. And I'll tell you the response within the 0:03:31.560 --> 0:03:34.320 military has been fantastic. People really want to join the 0:03:34.400 --> 0:03:37.840 space force and be part of it. And ultimately, to 0:03:37.920 --> 0:03:40.840 pick up your point, there will also be a heavy 0:03:41.000 --> 0:03:44.640 cyber and cyber security component in this, so I could 0:03:44.640 --> 0:03:49.080 see this evolving into a space and cyber force over time. Admiral, 0:03:49.120 --> 0:03:51.720 can you give us just kind of a sense of 0:03:51.840 --> 0:03:55.640 the competitive landscape of space? Where is the US relative 0:03:55.760 --> 0:04:00.400 to other countries? I guess we're talking about China and Russia, 0:04:00.400 --> 0:04:02.000 but this gives a sense of how you think the 0:04:02.920 --> 0:04:06.520 theater of space is playing out. UM at the moment 0:04:06.800 --> 0:04:09.920 of the United States still enjoys I would say, a 0:04:10.160 --> 0:04:15.480 lead overall in our ability to construct, launch, and operate 0:04:16.040 --> 0:04:19.880 UM massive satellites in space that are capable of high 0:04:20.040 --> 0:04:25.159 end communication. The drive the Global Positioning System GPS, and 0:04:25.240 --> 0:04:32.040 also monitors and provides intelligence functions, collecting everything from communications 0:04:32.080 --> 0:04:35.800 to taking photographs of the Earth to looking at infrared signatures. 0:04:35.839 --> 0:04:40.000 For example, if North Korea launches this Christmas surprise and 0:04:40.040 --> 0:04:43.719 decides to launch a long range ballistic missile. The first 0:04:43.760 --> 0:04:47.919 indication will be our constellation of satellites seeing a heat 0:04:48.000 --> 0:04:53.080 signature when that launch goes off on the North Korean peninsula. 0:04:53.360 --> 0:04:56.200 So we are the leader. I'd say number two is 0:04:56.240 --> 0:05:00.160 probably Russia, although number three is China, and they are 0:05:00.240 --> 0:05:03.240 gaining fast as you would think. Um. All of this 0:05:03.400 --> 0:05:07.080 sort of parallels the standings, if you will, in cyber 0:05:07.120 --> 0:05:10.520 and cyber security, where the US has a lead. Uh, 0:05:10.760 --> 0:05:14.800 Russia's quite good. China coming up behind. Next tier down 0:05:15.200 --> 0:05:21.200 are the European nations. France operates capable satellites, Japan does, UM, 0:05:21.240 --> 0:05:24.240 the Australians have a small capability, but it's really the 0:05:24.279 --> 0:05:26.920 big three in space at the moment um. You know, 0:05:26.960 --> 0:05:29.440 It's interesting and I'm curious when I think about, I 0:05:29.440 --> 0:05:31.960 don't know fiscal policy, what would it cost to put 0:05:31.960 --> 0:05:33.640 this into place, because you say it doesn't need to 0:05:33.680 --> 0:05:38.760 be a huge um force, at least not initially. Indeed, UM, 0:05:38.800 --> 0:05:42.320 I think it will be tens of billions of dollars, 0:05:42.400 --> 0:05:45.320 which sounds like a lot, but hold on, the US 0:05:45.440 --> 0:05:50.599 defense budget overall is seven hundred billion dollars, and I 0:05:50.640 --> 0:05:53.840 think that the estimates for this space force will be 0:05:53.880 --> 0:05:59.200 in the initially ten twenty thirty billion, it might at 0:05:59.240 --> 0:06:02.640 some point get up to be eight to ten of 0:06:02.720 --> 0:06:05.719 the overall defense budget. And I want to make a 0:06:05.839 --> 0:06:09.240 very important point here, UM, None of that money and 0:06:09.279 --> 0:06:12.920 none of the people involved here are new additions. This 0:06:12.960 --> 0:06:17.880 is simply repurposing, at least at the moment, repurposing principally 0:06:17.920 --> 0:06:21.040 air force, but also some army, some navy will go 0:06:21.160 --> 0:06:24.400 out of their current service and go into this space force. 0:06:24.760 --> 0:06:28.440 And the funding is already locked in place, UM. And 0:06:28.520 --> 0:06:30.680 it is in the range as I mentioned, of tens 0:06:30.720 --> 0:06:33.080 of billions of dollars to think of it as a 0:06:33.160 --> 0:06:38.000 six percent of the defense budget. Now perhaps trekking upward, 0:06:38.120 --> 0:06:40.440 which would make sense. And we'll just want to switch 0:06:40.480 --> 0:06:43.880 gears real quickly. In the last question here China Navy. 0:06:44.040 --> 0:06:46.880 We understand the China recently launched its first I guess 0:06:47.000 --> 0:06:49.760 home built aircraft carrier. To tell us what you know 0:06:49.800 --> 0:06:53.680 about that carrying what you believe the future of naval 0:06:53.960 --> 0:06:58.520 UH forces for China will be indeed very significant. UM. 0:06:58.720 --> 0:07:05.000 China has previously purchased UM older used platforms from Russia 0:07:05.160 --> 0:07:08.960 and re engineered them into their carriers. This is the 0:07:09.040 --> 0:07:13.000 first their third aircraft carrier coming off the ways. It's 0:07:13.040 --> 0:07:16.560 about two thirds of the size of our US hundred 0:07:16.560 --> 0:07:20.920 thousand ton Forward class carrier, so it'll be immediately one 0:07:20.920 --> 0:07:23.800 of the largest in the world. Um, and they already 0:07:23.840 --> 0:07:27.840 have here's the important point, three more carriers under construction, 0:07:28.240 --> 0:07:31.080 the sixth of which is going to be nuclear powered. 0:07:31.360 --> 0:07:34.880 The previous ones are conventional powered. So clearly China is 0:07:34.920 --> 0:07:40.160 stepping up its maritime operations. They want to interact globally 0:07:40.320 --> 0:07:43.400 and not just operate locally in the South China Sea. Well, 0:07:43.440 --> 0:07:45.240 I have to say this is a fascinating column and 0:07:45.360 --> 0:07:49.000 so great to check in with you. Admiral James Stavida 0:07:49.040 --> 0:07:52.960 is he is calumnist at Bloomberg Opinion of course, um, 0:07:53.320 --> 0:07:57.080 former military commander of Nada, retired U S. Navy Admiral, 0:07:57.160 --> 0:07:58.400 And I do want to point out he's got a 0:07:58.400 --> 0:08:01.000 new book that came out this year, Sailing True North 0:08:01.120 --> 0:08:05.000 ten Admirals and the Voyage of Characters. So something Christmas 0:08:05.080 --> 0:08:08.440 right for the holiday shopping list, right for those gifts 0:08:08.440 --> 0:08:19.880 you still need. Definitely check it out. You want to 0:08:19.880 --> 0:08:21.800 get into one of the most red stories on the 0:08:21.840 --> 0:08:24.960 Bloomberg today. It's about China's bite Um Bye Dance. I 0:08:24.960 --> 0:08:27.360 believe it is weighing a sale of its addictive video 0:08:27.360 --> 0:08:30.680 app TikTok. We've got that story. We're watching. We're also 0:08:30.720 --> 0:08:33.840 watching Uber's co founder Travis Kalanak to parting from the 0:08:33.840 --> 0:08:35.280 company's board at the end of the year. There's a 0:08:35.280 --> 0:08:37.440 lot going on when it comes to the world of text. 0:08:37.480 --> 0:08:39.240 So let's get around up with Shara of a day. 0:08:39.280 --> 0:08:42.320 She's Bloomberg Opinion technology columnists. She joins Paul and Me 0:08:42.320 --> 0:08:45.000 and our Bloomberg Interactive Broker studio. So much for a 0:08:45.080 --> 0:08:48.679 quiet day, huh, never a bloing dance technology. So talk 0:08:48.720 --> 0:08:50.520 to us about Bye Dance. First of all, I feel 0:08:50.520 --> 0:08:52.400 like there is folks out there who might not be 0:08:52.480 --> 0:08:55.199 familiar with what Bye dances. But it's pretty big in China. 0:08:55.600 --> 0:08:58.559 It is very big in China. It owns two at 0:08:58.600 --> 0:09:01.440 least two popular apps in China. There's kind of a 0:09:01.520 --> 0:09:05.800 news feed kind of app called Totio and then what 0:09:06.040 --> 0:09:08.839 is called in the rest of the world, uh TikTok 0:09:09.080 --> 0:09:11.400 goes by a different name in China, but TikTok is 0:09:11.440 --> 0:09:14.880 basically a short video app that lets people set sort 0:09:14.880 --> 0:09:19.079 of skits or dance routines to music, and it has 0:09:19.080 --> 0:09:22.480 gotten very popular quite quickly in the US and in 0:09:22.480 --> 0:09:25.760 India and some other places outside of China. So the 0:09:25.880 --> 0:09:30.720 issue is the US federal government has some concerns about TikTok, 0:09:30.760 --> 0:09:35.440 and that's that's making Bye Dance maybe rethink. Maybe it's ownership. Yes, 0:09:35.520 --> 0:09:38.240 so there have been some concerns I would say on 0:09:38.320 --> 0:09:42.960 both sides of the political aisle in Congress about TikTok, 0:09:43.360 --> 0:09:46.679 and the concerns are basically they stem from the ownership 0:09:46.679 --> 0:09:49.920 of TikTok by a Chinese internet company. So the worries 0:09:49.960 --> 0:09:54.880 are twofold. One is that TikTok, again because it's owned 0:09:54.880 --> 0:09:59.120 by a Chinese company, is collecting data about users in 0:09:59.160 --> 0:10:02.920 the United States that can be used or misused by 0:10:03.000 --> 0:10:07.080 the Chinese government. The second worry is that, again because 0:10:07.120 --> 0:10:11.240 of TikTok's ownership by a Chinese internet company, that it 0:10:11.480 --> 0:10:16.720 engages in censorship of content outside of China. That um 0:10:16.920 --> 0:10:20.080 would be that is relatively common inside of China, right, 0:10:20.120 --> 0:10:24.479 that Chinese internet companies are expected to scrub their services 0:10:24.600 --> 0:10:28.120 for content that is generally not prohibited by the Chinese government, 0:10:28.160 --> 0:10:31.160 whether it's talking about Hong Kong protests, in a certain 0:10:31.160 --> 0:10:34.600 way or other things. Um TikTok and Bite Dance, for 0:10:34.600 --> 0:10:38.880 for their parts, say that they segregate data about Chinese 0:10:38.920 --> 0:10:41.800 about non Chinese internet users from what's happening in China, 0:10:41.960 --> 0:10:44.920 and that they do not engage with censorship, engage in 0:10:45.000 --> 0:10:48.240 censorship outside of China in the same way they engage 0:10:48.360 --> 0:10:53.240 inside of China. It seems kind of extreme, now, is it, like, 0:10:53.400 --> 0:10:56.440 is this a kin to like Google selling I don't know, 0:10:56.679 --> 0:10:59.160 YouTube or you know what I mean, one of its properties, 0:10:59.200 --> 0:11:01.240 Like it just seems like stream And yeah, I agree, 0:11:01.280 --> 0:11:03.319 we should say that. Our callings in Bloomberg News said 0:11:03.400 --> 0:11:06.400 that this is one option under consideration by Byte Dance 0:11:06.480 --> 0:11:10.199 to calm some of the anxiety in in u s 0:11:10.240 --> 0:11:14.040 political circles about the Bite Dance ownership of TikTok. That 0:11:14.120 --> 0:11:18.240 maybe they'll sell a majority steak or some portion of 0:11:18.280 --> 0:11:22.800 TikTok to presumably to a US financial player. It does 0:11:22.840 --> 0:11:26.000 seem extreme. We'll see if that happens, and we'll see, honestly, 0:11:26.160 --> 0:11:30.200 even if they sell all or a majority steak of TikTok, 0:11:30.240 --> 0:11:33.560 whether that actually changes how some of the hardliners feel 0:11:33.600 --> 0:11:36.920 about Bite Dance ownership of this popular dagus Internet service, 0:11:36.920 --> 0:11:38.400 did they pretend who do they sell it to? And 0:11:38.400 --> 0:11:40.720 do they potentially sell it like forgive me? And I'm 0:11:40.720 --> 0:11:44.400 always suspicious when it comes to some of this stuff, 0:11:44.400 --> 0:11:45.800 but I mean, I do wonder do they sell it 0:11:45.840 --> 0:11:49.520 to an entity that is still somehow Chinese owned? Yeah, 0:11:49.559 --> 0:11:51.880 fair enough. I think that the question will always be, 0:11:52.000 --> 0:11:55.360 even if TikTok is sold or a majority of TikTok 0:11:55.480 --> 0:11:59.040 is sold to a US company, if that really means 0:11:59.080 --> 0:12:02.000 that a Bye Dance will be completely hands off. I 0:12:02.040 --> 0:12:04.040 think if I'm just gonna put my investment banker hat 0:12:04.120 --> 0:12:07.160 on here, my advice to them would be, if you 0:12:07.280 --> 0:12:10.760 think there is some kind of risk coming from the U. S. Government, 0:12:10.960 --> 0:12:13.199 you better sell now before that becomes apparent because that 0:12:13.200 --> 0:12:16.360 can impact valuation. Is that maybe some other thinking? Certainly, 0:12:16.480 --> 0:12:19.560 I think that's a legitimate concern that Look, Byte Dance 0:12:19.800 --> 0:12:23.520 is now, by by most accounts, the most highly valued 0:12:23.800 --> 0:12:27.839 UM private technology company in the world. The valuation that's 0:12:27.880 --> 0:12:31.440 something like seventy billion dollars, and the company wants, at 0:12:31.480 --> 0:12:34.360 least by news reports, wants to go public relatively soon. 0:12:34.840 --> 0:12:38.240 And I think there's an open question about whether UM 0:12:38.440 --> 0:12:41.480 Bye Dance can go public if it has all of 0:12:41.520 --> 0:12:46.120 these questions hanging over its head about being whether TikTok 0:12:46.160 --> 0:12:49.400 is allowed in the United States and also whether the 0:12:49.480 --> 0:12:54.040 US government it will become kind of a standard center 0:12:54.080 --> 0:12:57.520 for governments elsewhere in the world. Also questioning the Chinese 0:12:57.520 --> 0:13:00.360 ownership of TikTok. Is that this this go to that, 0:13:01.000 --> 0:13:05.040 you know, the Cold War for technology, that people are 0:13:05.040 --> 0:13:07.079 concerned that they'll be technology for the West and that 0:13:07.440 --> 0:13:09.960 technology for China. This would be another I guess brick 0:13:09.960 --> 0:13:12.040 in that wall. Yeah, and look, I think this is 0:13:12.120 --> 0:13:14.720 somewhat new ground for the United States. This is really 0:13:14.760 --> 0:13:17.880 the first time that the US government and US citizens 0:13:17.880 --> 0:13:21.319 honestly have had to reckon with the idea that there 0:13:21.400 --> 0:13:23.840 is now a very popular internet service that is not 0:13:23.920 --> 0:13:27.280 run by an American company. And what does that mean? Yeah? 0:13:27.320 --> 0:13:28.920 And I do think back going back to if they 0:13:28.920 --> 0:13:31.000 want to go public and right, they've got some interesting 0:13:31.080 --> 0:13:33.719 investors in terms of Bye Dance, I think is soft Bank, 0:13:33.760 --> 0:13:37.319 Sequoia Capital, Right, Is that correct? Those are some companies 0:13:37.320 --> 0:13:40.400 that I think maybe potential buyers or buyers of it. 0:13:40.840 --> 0:13:43.240 But I do wonder if they do want to go public, right, 0:13:43.400 --> 0:13:45.679 what they need to do in order to make that 0:13:45.760 --> 0:13:47.960 happen and to kind of clean it up, clean up 0:13:47.960 --> 0:13:51.600 the business. Well, look, there are internet companies in China 0:13:51.720 --> 0:13:54.280 that have gone public and they have done very well. 0:13:54.480 --> 0:13:57.080 Met you On, which is a sort of mostly a 0:13:57.120 --> 0:14:01.679 food delivery and travel services company, and Nina there's companies 0:14:01.720 --> 0:14:04.719 like Ali Baba and Tencent that again their operations are 0:14:04.880 --> 0:14:08.400 largely in China that are public companies and have done 0:14:08.520 --> 0:14:11.360 very very well. So there's a precedent for being a 0:14:11.440 --> 0:14:14.720 China focused internet company. Byte dances a little bit of 0:14:14.720 --> 0:14:17.600 a different animal again because it's one of the very 0:14:17.800 --> 0:14:22.800 very few Chinese internet companies that has successfully proven popular 0:14:22.960 --> 0:14:25.560 outside of its home country. Carol, you were absolutely correct. 0:14:25.560 --> 0:14:28.680 Early investors into calling Bloo Bloomberg reporting early investors include 0:14:28.680 --> 0:14:32.080 soft Bank, Sequoia Capital in Susquehannan, and National So some big, 0:14:32.080 --> 0:14:35.240 big players. And I just do wonder about right investors 0:14:35.240 --> 0:14:37.120 who are saying, Okay, now we want to see you know, 0:14:37.200 --> 0:14:40.040 make our money, right we investor, and you know at 0:14:40.040 --> 0:14:41.640 some point you want to take this company public. So 0:14:41.680 --> 0:14:44.000 I just do wonder, you know, the kind of pressure 0:14:44.000 --> 0:14:46.040 on them to kind of do something and do something soon. 0:14:46.080 --> 0:14:50.000 And look, there are also pedestrian business questions, big business 0:14:50.080 --> 0:14:53.800 questions about Bye Dance as well, whether it's at particularly TikTok, 0:14:54.120 --> 0:14:57.840 can prove lasting outside of China, and also whether it 0:14:57.880 --> 0:15:01.640 can generate enough money enough and to justify it's very 0:15:01.720 --> 0:15:04.000 large evaluation. We have too because we have you here 0:15:04.080 --> 0:15:07.520 just really quickly, Uber Travis Kalinak like goodbye. Yeah, I 0:15:07.520 --> 0:15:09.520 mean this this has been coming for a long time, 0:15:09.600 --> 0:15:12.200 right that Travis Kalenik was forced out of his company 0:15:12.240 --> 0:15:15.080 two and a half years ago and he's been selling 0:15:15.440 --> 0:15:18.080 apparently he has now sold his entire stake. We've been 0:15:18.400 --> 0:15:20.840 arding for billions of dollars, and so I think it 0:15:20.840 --> 0:15:23.720 was inevitable. This has been a long divorce. It's interesting. 0:15:23.760 --> 0:15:25.800 I mean that's right. So he was forced out and 0:15:25.840 --> 0:15:27.240 you know, just a couple of years ago, and now 0:15:27.280 --> 0:15:28.920 he's selling, you know, over I guess most of his 0:15:28.960 --> 0:15:31.720 stock over two billion dollars now stepping off the board officially. 0:15:31.800 --> 0:15:34.280 So it seems like it's a clear break here from 0:15:34.320 --> 0:15:36.200 the one of the co founders and the company. Sure, 0:15:36.240 --> 0:15:38.360 over Day, thanks so much for joining us us here 0:15:38.440 --> 0:15:41.520 is a technology columns for Bloomberg Opinion. Joining us here 0:15:41.600 --> 0:15:44.680 on Christmas eat in our Bloomberg Interactive Broker Studio. I 0:15:44.760 --> 0:15:47.760 tak there's usually so much buzz in the Bloomberg building, 0:15:47.760 --> 0:15:50.000 particularly on the sixth floor. It is like a beehive. 0:15:50.720 --> 0:15:54.400 Nobody there, nobody here, so but we're here at Bloomberg 0:15:54.480 --> 0:15:57.080 Radio and here is here working hard. Uh. And I 0:15:57.080 --> 0:15:59.280 always say, you know, her coms are great. You should 0:15:59.360 --> 0:16:02.360 check out all the work opinion columns. They're great stuff. 0:16:02.360 --> 0:16:04.160 You can find out on the website Bloomberg dot com, 0:16:04.240 --> 0:16:07.280 slash Opinion or on the terminal O P I n go. 0:16:16.480 --> 0:16:18.600 You know. One of the fastest growing areas that it 0:16:18.680 --> 0:16:21.320 just amazes me in finit financial services is whole eke 0:16:21.640 --> 0:16:23.560 F issue. That seems like there's an e t F 0:16:23.800 --> 0:16:26.240 for just about everything out there. I love to get 0:16:26.360 --> 0:16:28.480 up to dated on what's going on with the et 0:16:28.600 --> 0:16:31.080 F world. Denise Chrisco can help us. She is president 0:16:31.080 --> 0:16:34.160 and co founder of Vident Investment Advisory. She joins us 0:16:34.200 --> 0:16:37.520 on the phone from New Jersey. Denise, thanks so much 0:16:37.600 --> 0:16:39.720 for joining us. One thing I want to start with 0:16:39.880 --> 0:16:43.320 is something I have no idea how it works, is 0:16:43.400 --> 0:16:46.800 what is an active e t F. Good morning, Thanks 0:16:46.840 --> 0:16:50.680 for having me right and active ETF is essentially an 0:16:50.720 --> 0:16:54.160 active open end investment fund that is in and within 0:16:54.200 --> 0:16:57.160 the e t F rapper. So unlike a passive or 0:16:57.200 --> 0:17:01.320 an index fund where you're very tightly acting a specific 0:17:01.800 --> 0:17:05.639 index which is being calculated every day. UM, active incorporates 0:17:05.720 --> 0:17:10.040 the strategy investment philosophy and quite honestly, UM I p 0:17:10.320 --> 0:17:14.320 of a specific asset manager. So denise why an active 0:17:14.560 --> 0:17:16.760 e t F versus a mutual fund? And I know 0:17:16.800 --> 0:17:19.600 there's differences in terms of when they trade, when they price, 0:17:19.680 --> 0:17:22.520 and I guess tax implications, But tell me why would 0:17:22.560 --> 0:17:26.359 I choose that over a mutual fund? Sure? Well you 0:17:26.359 --> 0:17:28.879 know right now, you you um, you know, hit the 0:17:29.160 --> 0:17:32.400 hit the nail on the head. The biggest differences are 0:17:32.640 --> 0:17:34.720 with the e t f s. Of course, our tax 0:17:34.760 --> 0:17:38.920 advantages and ability to trade UM with active e t 0:17:39.160 --> 0:17:42.560 F UH, the tax advantages have really been very limited 0:17:42.680 --> 0:17:46.119 until more recently. UM. Recently, the SCC past what has 0:17:46.160 --> 0:17:48.840 been referred to as the e t F rule Rules 0:17:48.880 --> 0:17:51.880 six C eleven UM, which really has created a much 0:17:51.920 --> 0:17:55.240 more consistent and even playing field across you know, all 0:17:55.359 --> 0:17:58.159 e t f s and potential ETF sponsors and so 0:17:58.320 --> 0:18:00.480 active et f s will also be able to take 0:18:00.520 --> 0:18:04.080 advantage of some of the tax advantages of the E 0:18:04.200 --> 0:18:07.720 t F structure. UM. That's why we believe here invite 0:18:07.760 --> 0:18:11.080 into that active ETFs are going to very likely become 0:18:11.119 --> 0:18:15.040 more popular as we go into and beyond, because until 0:18:15.080 --> 0:18:18.920 now you've had a number of active mutual fund managers 0:18:19.000 --> 0:18:21.800 or active managers with other product types, for example, that 0:18:22.400 --> 0:18:24.720 would be interested perhaps in an e t F, but 0:18:24.880 --> 0:18:28.760 realizing that UM the tax advantages weren't really equivalent for 0:18:28.800 --> 0:18:32.400 active ETFs, UM weren't so inclined to launch a product. 0:18:32.600 --> 0:18:34.440 As well as the fact that you know, E t 0:18:34.640 --> 0:18:38.600 f s also required daily transparency of holdings, which UM 0:18:38.600 --> 0:18:41.399 was something that many asset managers were not interested in. 0:18:41.560 --> 0:18:44.399 UM that's also changed recently as well. So there's a 0:18:44.440 --> 0:18:47.320 lot on the horizon for so then it gives a 0:18:47.359 --> 0:18:51.000 sense of the cost structure cost advantages of active ETFs 0:18:51.240 --> 0:18:55.240 versus mutual funds right so to the retail investor that 0:18:55.320 --> 0:18:57.920 the cost savings can be significant. UM with the e 0:18:58.040 --> 0:19:01.840 t F the expense ray shows are typically lower than 0:19:01.840 --> 0:19:04.600 with mutual funds UM, although you know you do have 0:19:04.640 --> 0:19:08.720 to weigh that against brokerage cost, commissioned fees and importantly 0:19:08.800 --> 0:19:10.920 the bitest spread of course on any h t F 0:19:11.240 --> 0:19:14.800 UM notably active ETF. So you know, the costs UM 0:19:14.960 --> 0:19:19.480 could be UH advantageous to the retail investor, UM definitely 0:19:19.560 --> 0:19:23.560 to the asset manager. UH costs are are generally lower 0:19:24.160 --> 0:19:26.640 to to run such a vehicle, and so that would 0:19:26.640 --> 0:19:29.480 be another reason why they may be attractive. Denise, I 0:19:29.480 --> 0:19:31.800 do wonder too that if I'm going to do an 0:19:31.840 --> 0:19:35.600 active e t F and I think about funds, about 0:19:35.640 --> 0:19:37.040 some of the fees and so on and so forth. 0:19:37.240 --> 0:19:39.760 I mean, why would I do anybody but the biggest, 0:19:39.800 --> 0:19:42.280 whether it's Vanguard or State Street, right, because I'm assuming 0:19:42.280 --> 0:19:45.359 they're going to have the lowest feeds, That's right. I 0:19:45.400 --> 0:19:48.399 mean they'll have the lowest explicit fees, the lowest expense ratio. 0:19:48.680 --> 0:19:51.159 And you know the majority of assets are flowing to 0:19:51.200 --> 0:19:55.720 the largest etf issuers UM. These days, we work you 0:19:55.720 --> 0:19:58.800 know with numerous smaller and mid sized firms and some 0:19:58.960 --> 0:20:04.400 larger firms as well, UM who you know, have unique ideas, 0:20:05.040 --> 0:20:08.280 have very you know, different perspectives. UM have really innovated 0:20:08.560 --> 0:20:11.640 UM to create strategies UM that really can't be found 0:20:11.680 --> 0:20:14.600 anywhere else. We we manage almost four and a half 0:20:14.680 --> 0:20:18.159 billion dollars of assets and it's all almost exclusively to 0:20:18.160 --> 0:20:21.600 customized indicies. And so it's these types of products investors 0:20:21.640 --> 0:20:23.760 that are looking for something maybe different than what they 0:20:23.800 --> 0:20:26.280 offer now, and you know, I respect that. I just 0:20:26.359 --> 0:20:27.879 you know, what's what's interesting about the E t F 0:20:28.000 --> 0:20:29.680 L I kind of said to Paul coming in, Oh man, 0:20:29.720 --> 0:20:31.960 the E t F world kind of drives me crazy, 0:20:32.000 --> 0:20:34.640 because I do feel like it's, you know, every month, 0:20:34.680 --> 0:20:37.160 every week we have somebody new, you know, coming on 0:20:37.520 --> 0:20:39.480 with a new E t F idea, and I feel 0:20:39.480 --> 0:20:41.680 like until you have some history, you know, a few 0:20:41.760 --> 0:20:44.080 years in to get an idea of how these performs, 0:20:44.119 --> 0:20:45.879 you know, I think for investors they have to be 0:20:45.960 --> 0:20:49.440 very careful. It is. It is a challenge, especially from 0:20:49.680 --> 0:20:52.320 you know, some of the smaller firms that many investors 0:20:52.320 --> 0:20:54.480 may not be as familiar with. UM. They're looking for 0:20:54.560 --> 0:20:57.320 longer term track records UM. You know. We have had 0:20:57.359 --> 0:21:01.160 a number of funds also that have formed really very well, 0:21:01.520 --> 0:21:04.040 funds that we have subadvised for our clients that have 0:21:04.160 --> 0:21:07.040 really had excellent performance, but unfortunately weren't able to garner 0:21:07.080 --> 0:21:10.080 those assets and you know, ultimately closed, you know, which 0:21:10.080 --> 0:21:12.760 has really been a phenomenon we've seen industry wide. I 0:21:12.800 --> 0:21:14.679 think that will continue as well, you know, as we're 0:21:14.680 --> 0:21:17.600 going too we see additional launches. There's gonna be a 0:21:17.640 --> 0:21:21.600 lot of excitement potentially to launch active ets, especially now 0:21:21.640 --> 0:21:25.760 that there's options available for non transparent and semi transparent 0:21:25.840 --> 0:21:29.959 active ETFs. UM you know that that to me, I 0:21:30.000 --> 0:21:33.639 want transparency. What is semi are non transparent? Forgive me? 0:21:34.440 --> 0:21:37.800 What does that mean? Yeah? So essentially, you know, the 0:21:38.000 --> 0:21:42.680 SEC has approved programs that have been created um to 0:21:43.400 --> 0:21:46.600 uh not necessarily fully disclosed the holdings of the e 0:21:46.720 --> 0:21:50.160 t F subject to as you can imagine, numerous other 0:21:50.200 --> 0:21:55.200 restrictions as well. UM. In the non transparent option, for example, UM, 0:21:55.320 --> 0:21:57.880 they would the holdings are actually traded in and out 0:21:57.920 --> 0:22:01.399 of a blind trust so that those positions aren't known 0:22:01.520 --> 0:22:06.000 publicly and the asset manager can you know, retain um 0:22:06.040 --> 0:22:08.040 you know, the i P I suppose and not be 0:22:08.119 --> 0:22:11.560 divulging you know, their active management strategy and the semi 0:22:11.560 --> 0:22:14.560 transparent it's a bit of a hybrid. Um there is 0:22:14.840 --> 0:22:17.280