Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We talked last week
Speaker 1: about we're so excited. I don't get out of the
Speaker 1: house much.
Speaker 2: Oh my god. The weather in Vegas, though, it's going
Speaker 2: to be like high eighties.
Speaker 1: I don't know what the weather in New Orleans is.
Speaker 1: It's gonna be great, it's gonna be great whatever.
Speaker 2: Yeah, it will be good, humid. Drink a hurricane.
Speaker 1: I feel like I'm gonna drink a hurricane.
Speaker 2: It's not good. We'll make you feel good.
Speaker 1: No, I think the last time I was in New Orleans,
Speaker 1: I was. I was in high school, okay, And in
Speaker 1: high school I was on the quiz Bowl team, all right,
Speaker 1: which is like surely no surprise to anywhere. And we
Speaker 1: call for some sort of national championship tournament in New Orleans,
Speaker 1: of course, and I was, you know, seventeen. We definitely
Speaker 1: drank hurricanes.
Speaker 2: That's pretty cool.
Speaker 1: Actually, like teacher chaperones are like took us to Bourbon
Speaker 1: Street and we're like, we're going to walk this way.
Speaker 2: Wow. Did anyone have a fake idea or was it
Speaker 2: just like.
Speaker 1: As I recall, no.
Speaker 2: Or was it like one kid and he was like.
Speaker 1: This is a similar time in New Orleans.
Speaker 2: God. Yeah, he just.
Speaker 1: Wiped up bar and you were sixteen seventeen years old
Speaker 1: and you said I'd like a hurricane, and they're like,
Speaker 1: nobody who's not underage wants a hurricane. So here you.
Speaker 2: Go, man, Well you can recreate that.
Speaker 1: I'm going to recreate that experience. That's it, like, honestly,
Speaker 1: like the m and A conference and the quiz Bowl
Speaker 1: National Championship, very similar. Probably probably people.
Speaker 2: Yes, that's cute.
Speaker 1: Hello, and welcome to the Money Stuff Podcast. You're a
Speaker 1: weekly podcast where we talk about stuff related to money.
Speaker 1: I'm Matt Levian and I Wade the Money Stuff column
Speaker 1: for Bloomberg.
Speaker 2: Opinion, and I'm Katie Greifeld, a reporter for Bloomberg News
Speaker 2: and an anchor for Bloomberg Television.
Speaker 1: Friend of the Pud Bill Ackman is doing.
Speaker 2: The show Lackman returning not as a bird but as
Speaker 2: the manager.
Speaker 1: So I forgot that was a sensitive subject. A friend
Speaker 1: of the show, Bill Ackman Man, not bird is the
Speaker 1: thing that he likes to do. Yeah, launch large clothes
Speaker 1: funds or try or try He's going to get at
Speaker 1: one of these days. He filed for the IPO of Well,
Speaker 1: the IPOs of Pershing Square USA, which is the closed
Speaker 1: end fund that he tried to launch in twenty twenty
Speaker 1: four and then pulled because he didn't there was very
Speaker 1: much money. But also the Pershing Square, Inc. Which is
Speaker 1: the new form of the Pershing Square Hedgehund management company.
Speaker 1: So his actual hedgehund firm is going to go public
Speaker 1: simultaneously with his clothes end fund for the simple reason
Speaker 1: that if you buy shares of the clothes then fund,
Speaker 1: you're gonna get shares of the management company as a
Speaker 1: sweetener to induce you to buy shares of.
Speaker 2: The clothes twenty shares the management company.
Speaker 1: Right, everyone reported this, and I'm like, you can't be
Speaker 1: like twenty shares. If you buy one hundred shares of
Speaker 1: the Pershing Square USA, you get twenty shares of the
Speaker 1: management company, So you get one fifth as many shares
Speaker 1: of the manager company. But like shares are a meaningless concept,
Speaker 1: you can divide a company into as many shares as
Speaker 1: you want. This is true, and so I haven't looked
Speaker 1: at it, and going to be four dred million shares
Speaker 1: of Pershing Square ink the management company. So basically, if
Speaker 1: you buy a fifty dollars share of Pershing square USA
Speaker 1: the clothes un fund. You get fifty dollars worth give
Speaker 1: or take of the clothes unfund plus zero point two
Speaker 1: shares of the manager company, which is one two billionth
Speaker 1: of the management company, which you know, what's the management
Speaker 1: company worth? Two years ago or a year and a
Speaker 1: half ago, they did offering, they raise money at about
Speaker 1: a ten billion dollar valuation, and they would argue that
Speaker 1: it's more now. So you know, if the managing company
Speaker 1: is worth ten or twenty billion dollars, then your bonus
Speaker 1: as a investor in the clothes unfund is worth five
Speaker 1: or ten dollars or so that is I think they
Speaker 1: hope enough of a bonus to overcome the tradition that
Speaker 1: closed un funds trade a discount. And in fact, but.
Speaker 2: There's a rich history of closed un funds trading at
Speaker 2: a discount.
Speaker 1: The rich history includes right Bill Ackman's closed up fund
Speaker 1: in europ, which is their discount is very complicated because
Speaker 1: like there's this thing coming. But you know, if you
Speaker 1: started from that as a starting point, you'd be like, well,
Speaker 1: twenty five percent discount means if I put fifty dollars
Speaker 1: into persons through a USA, I'm going to get back
Speaker 1: thirty seven fifty worth of stock, and then you need
Speaker 1: enough of the management company stock to make it worth it,
Speaker 1: which maybe this does.
Speaker 2: Yeah, So we were talking a little bit about this
Speaker 2: earlier and then we quickly stopped ourselves because we should
Speaker 2: save it for the POD. But it's interesting when it
Speaker 2: comes to IPOs of companies, there's this stigma around trading
Speaker 2: below your IPO price. Does the same stigma exist if
Speaker 2: you IPO closed and fund and immediately traded a discount.
Speaker 1: Well, two things. One, it's not a stigma, it's a
Speaker 1: total impediment. Like Bill Ackman last time he tried to
Speaker 1: take Pushing Square USI public, he just didn't. And the
Speaker 1: reason he didn't is because a lot of investors were like, look,
Speaker 1: this sounds great, but we think it'll trade at a discount,
Speaker 1: and we'd rather buy it at a discount on day
Speaker 1: two than buy it from you at par in the IPO.
Speaker 1: And if everyone says that, then you don't sell any
Speaker 1: shares in the IPI and you just don't go public.
Speaker 1: Right with a company, stuff is different. Right, Like a
Speaker 1: company like you set the IPO price at the price
Speaker 1: the market is willing to bear with. They closed, then
Speaker 1: fund if you don't raise money at NAV like you
Speaker 1: kind of can't raise money, so they pulled the IPO.
Speaker 1: It's anothery're coming back with this thing, which you know
Speaker 1: you ask, is there are a stigma if that trades down? Well,
Speaker 1: maybe I'm wrong, but it's going to trade down the way.
Speaker 1: The way you know that is because they're giving this bonus. Right,
Speaker 1: the management company shares and the closed un fund shares
Speaker 1: are going to trade separately day one, right, And there's
Speaker 1: just they're two separate companies. And if you buy shares
Speaker 1: of the closed then fund and the IPO, you get
Speaker 1: clothes unfund shares and separate management company shares. Yeah, and
Speaker 1: then day one they trade separately, and you hope the
Speaker 1: package will trade at above fifty dollars so that you've
Speaker 1: made money on the IPO. But if the package trades
Speaker 1: about fifty dollars, like the closed infund is going to
Speaker 1: trade down, it's just gonna trade down, and it's you know,
Speaker 1: it's not gonna be that much think aout because everyone
Speaker 1: like anticipating it.
Speaker 2: I'm glad you said it's going to trade down.
Speaker 1: Because maybe I'm wrong.
Speaker 2: I mean, maybe i'm wrong too, but that was my
Speaker 2: knee jerk reaction.
Speaker 1: Like, oh, every clothes Why that's why there's a bonus,
Speaker 1: because it's going to trade down, and so you get
Speaker 1: these extra shares and you have the package trades up,
Speaker 1: but the package trades up, it's a win, and so
Speaker 1: it's a good IPO. Yeah, maybe over time, like Bill
Speaker 1: Ackman has always made the case that like if he
Speaker 1: compounds the clothes End Fund at an above market rate,
Speaker 1: then you should be willing to pay more than Navy
Speaker 1: to buy into the clothes down Fund, and maybe over
Speaker 1: time that argument wins and that they want.
Speaker 2: Yeah, it's kind of interesting that Robinhood also just set
Speaker 2: sale on a close funds, a venture fund that holds
Speaker 2: private companies that iPod last week. I believe it also
Speaker 2: it opened at a discount or something like that, and
Speaker 2: I guess that sort of feeds into my long term
Speaker 2: thinking that okay, package aside, it feels like this close
Speaker 2: end fund is going to trade at a discount. Given
Speaker 2: that we've talked about how there is all this demand
Speaker 2: out there for private companies from retail investors, you would
Speaker 2: expect that they would be drawn to this Robin Hood
Speaker 2: venture funds. And then you compare that to the portfolio
Speaker 2: and Bill Ackman's closed end funds.
Speaker 1: Which is not not large cap stocks.
Speaker 2: What are you talking about?
Speaker 1: I said, I said, it's not not large cap stocks.
Speaker 2: Right in Bill Ackmans. Yeah, No, I'm not saying that
Speaker 2: it's not I'm saying it's all public large cap stocks.
Speaker 2: It's not like the shiny pre IPO.
Speaker 1: There's a reason for telling it this way.
Speaker 2: Yeah, I know. I'm just saying the portfolio, like if
Speaker 2: you're looking at this like shiny package of like data bricks, ramp,
Speaker 2: like a lot of companies that are expected to go
Speaker 2: public in the near future, versus you know, a close
Speaker 2: and fund of large cap perhaps the right public stocks,
Speaker 2: but still public stocks that might not like appeal to
Speaker 2: people in the open market who might want to buy this.
Speaker 1: Oh yeah, the thing you're selling in the clothes n
Speaker 1: fund is not like the underlying investments, which are kind
Speaker 1: of a NOLLA. The thing you're selling is one Bill
Speaker 1: Ackman's future ability to pick good investments, and then two
Speaker 1: just like his persona, right, I mean, like this is
Speaker 1: a like to some extent, he's a public figure. He
Speaker 1: tweets a lot, like if you're interested in that, like
Speaker 1: this is in the way that Tesla is a way
Speaker 1: to access Elmus. This is the way to access like
Speaker 1: his brand, and maybe some people will buy that. Yeah,
Speaker 1: I should say like that a lot of this is
Speaker 1: spoken for, Like they have two point eight billion dollars
Speaker 1: of like pre IPO commitments.
Speaker 2: And those people got thirty shares.
Speaker 1: They have thirty Yes, yeah, the extra bonus, but those
Speaker 1: people are like institutions and family offices and stuff. I
Speaker 1: do want to tell you a little bit about it,
Speaker 1: Like the management company is going public, right, so it
Speaker 1: seems like the management company is going public sort of
Speaker 1: out of necessity to do the to close them fund deal.
Speaker 1: But it's also like they're always talking about taking it public.
Speaker 1: They're not raising money for the management company. They're just
Speaker 1: taking it public to give to the closes unfund shoulders.
Speaker 1: But they have to do a perspectives for the management company.
Speaker 1: And so you can see things about like comp including
Speaker 1: Akman got one hundred and forty three million dollars last
Speaker 1: year and a lot of birds and Brian Israel who
Speaker 1: is the actual chief investment officer and got forty four million.
Speaker 1: I also I want to quote one of the great
Speaker 1: sentences go on and this is actually from Ackman's letter,
Speaker 1: I think to shelders not from the actual perspective, but
Speaker 1: he writes, with one of the highest ratios of fee
Speaker 1: paying assets to investment professionals in our industry, Pershing Square
Speaker 1: is also an economically attractive place.
Speaker 2: To work, oh, which is like we're going to pay you.
Speaker 1: Like a great flax. Like it's like they have like whatever,
Speaker 1: they have like twelve employees and they run thirty billion dollars.
Speaker 1: They all get paid. It gets a great business. And
Speaker 1: the masging company is also interesting. They do a really
Speaker 1: interesting thing where they have, like most other hedgehn managers,
Speaker 1: they charge performance fees and they have what they call
Speaker 1: the preferred performance fee. It basically means the performance fee
Speaker 1: that they get on the first five percent of returns
Speaker 1: and their funds goes to the managment company to the
Speaker 1: shareolders basically and everything over that goes to employees. So
Speaker 1: one that incentivizes is employees because then get real or rich.
Speaker 1: And two they think they argue that it makes the
Speaker 1: management company a better investment because like the theory is
Speaker 1: that people don't like to buy shares of hedge fund
Speaker 1: companies because their returns are so variable. Because if they
Speaker 1: have a good year, they make a lot of money.
Speaker 1: If they have a bad year, they don't make any money.
Speaker 1: And so, you know, stereotypically, investors do not place a
Speaker 1: high multiple on performance fees and pushing squares. Theory is like, well,
Speaker 1: the first five percent, we'll get that every year, and
Speaker 1: so that's like almost like a management fee. It's like
Speaker 1: just like a guaranteed fee. And so investor shop plays
Speaker 1: a highmultiple on that. So they're like carving up the
Speaker 1: fees in a nice way where like shareholders place a
Speaker 1: high value on the low part of the fees, like
Speaker 1: the very predictable stuff, and employees plays a high value
Speaker 1: on the upside lottery tickets, and so we're going to
Speaker 1: carve it up so that everyone gets the piece they value.
Speaker 2: Mm hmm.
Speaker 1: So we'll see that works. But it's a good idea.
Speaker 2: I feel like we're going to be talking about this
Speaker 2: more as we get closer.
Speaker 1: Maybe yeh.
Speaker 2: Can something we've been talking about a lot which we're
Speaker 2: going to talk about more right now, probably credit. She's
Speaker 2: the Louis vibes are atrocious.
Speaker 1: Yes, I guess they're bad. Yeah, I guess they're bad.
Speaker 2: They're bad. Well, if you have an optimistic.
Speaker 1: Take the story about a golden executor who said at
Speaker 1: a conference with that so good credit glans, we're enjoying
Speaker 1: the war and Iran because at least the distracts from
Speaker 1: questions about gates and yeah, you really don't want to
Speaker 1: say that.
Speaker 2: I keep that. I feel like that also points to
Speaker 2: the vibes being atrocious. War.
Speaker 1: I guess. Actually, after we recorded last week, eah Lend
Speaker 1: the HPS slash black Rock Big Private BDC gated itself.
Speaker 1: Investors requested to a breading about nine percent of their
Speaker 1: shares and HPS says, nope, our cap is five percent,
Speaker 1: so we're not giving you back the rest of your money.
Speaker 2: They didn't have their employees pitch in, they.
Speaker 1: Didn't have their pitch in, and they basically said the
Speaker 1: correct things, which are the point of private credit, is
Speaker 1: that you accept some illiquidity in exchange for expected higher returns.
Speaker 1: And because we own a liquid stuff, we can't just
Speaker 1: cast you out whenever you want, and so we set
Speaker 1: a limit of five percent so you can get some
Speaker 1: money out if you need it, but we're keeping them
Speaker 1: limit a five percent.
Speaker 2: Tough cookies, And.
Speaker 1: It's funny you say the vibes are bad the vibes
Speaker 1: are not good. But a lot of people in the
Speaker 1: private credits you're like, they did the right thing. The
Speaker 1: gates are to prodict the clients, and you want to
Speaker 1: not have a run on the bank and you say, nope,
Speaker 1: the bank is closed. Then you do prevent that at
Speaker 1: the cost of getting awkward questions and getting bad headlines
Speaker 1: and having bad vibes. But I think it is like
Speaker 1: people in private credit, is the right thing to do?
Speaker 2: Was it Blackstone that the employees pitched? Yeah, maybe the
Speaker 2: employees a Blackstone forked over some cash to meet the
Speaker 2: x ex redemptions. We're like, God, I wish that black
Speaker 2: Rocket done that a week earlier so we wouldn't have
Speaker 2: had to pay off very possibly.
Speaker 1: There are like differences in numbers that are kind of
Speaker 1: kind of matter a little, Like Blackstone got seven point
Speaker 1: nine percent redemptions, which like you can kind of do
Speaker 1: seven percent in your ten to offward then it's like
Speaker 1: zero point nine, Well, we'll find the money somewhere, whereas
Speaker 1: like HP has got nine point three, where it's like
Speaker 1: nine point three really got to do something, And there
Speaker 1: have been since then. There's like cliff Water had a
Speaker 1: fourteen percent Yeah, and you.
Speaker 2: Gotta shut Morgan Stanley as well. Yeah, it just feels
Speaker 2: like if you haven't, the whole thing.
Speaker 1: Has been kind of like the numbers have been creeping
Speaker 1: up because this is all kind of cumulative, right, Like
Speaker 1: you go out and you say how many people would
Speaker 1: like to redeem, and like seven percent say we'd like
Speaker 1: to redeem, and then you announce that and they're bad headlines,
Speaker 1: and then like the next fund that does it, it's
Speaker 1: like eight percent, you know, and so it keeps getting worse.
Speaker 2: Kind of like a vicious cycle or feedback loss.
Speaker 1: Yeah, it's it's just people get nervouser and nervouser, and
Speaker 1: these redemption numbers are index of nervousness. But I don't
Speaker 1: know how much this has to do with like fund
Speaker 1: by fund like performance or like trusting the matters, and
Speaker 1: how much of it is just like each fund gets
Speaker 1: a little bit more redemption requests than the fun before.
Speaker 2: Well, the private credit titans would tell you that this
Speaker 2: is totally disconnected from fundamentals of the portfolios. Apollo trying
Speaker 2: to maybe combat that by offering more frequent.
Speaker 1: Marks, more frequent marks.
Speaker 2: That was one of the stories out this week.
Speaker 1: Yeah, no, they're going to mark their stuff more frequently.
Speaker 2: Monthly with ambition to get to daily.
Speaker 1: Yeah, and also with ambition to get third party marks,
Speaker 1: which I think is interesting, right, Like if you're a
Speaker 1: hedge fund and you're just like, well, we think all
Speaker 1: our stuff is worth one hundred cents on the dollar,
Speaker 1: Like that's bad. You can't do that. Like someone's like
Speaker 1: you're supposed to have like some sort of third party
Speaker 1: justifiable marks. If you're private credit fund, you're like, yeah,
Speaker 1: it's our loans. We think it's good. And I think
Speaker 1: that Apollo certainly sees it shifting to a world war.
Speaker 1: You have third party evaluations and you can say no,
Speaker 1: these marks are right. The value of that is like,
Speaker 1: like why are people redeeming One reason might be they
Speaker 1: want to quit it to Another reason is they think
Speaker 1: things worse, But like it does sort of seem like
Speaker 1: part of it is that people don't trust the marks. Yeah.
Speaker 1: You see stories about like private credit funds carrying a
Speaker 1: loan at one hundred cents on the dollar and then
Speaker 1: marking it down to zero, Like that's like it's like
Speaker 1: kind of no step, that's kind of like that kind
Speaker 1: of makes sense, Like yeah, in terms of like, yeah,
Speaker 1: you're a lender, like either paying the loan or they're not.
Speaker 1: If they're paying, it's worth a hundred. If they're not,
Speaker 1: it's maybe wor zero. Yeah, But like that's not how
Speaker 1: people in public markets think. And so you kind of
Speaker 1: want the intermediate moves. And so if you have some person,
Speaker 1: some outside person saying yeah, today it's worth ninety seven,
Speaker 1: that like might inspire some confidence among your investors.
Speaker 2: Well that's what I was wondering. What the hope from
Speaker 2: Apollo that you know, we show you your marks more frequently,
Speaker 2: you can see that this portfolio isn't actually going down
Speaker 2: the tube, so you'll be less likely to redeem.
Speaker 1: Yeah. And also just like redemptions are like a nav arbitrage,
Speaker 1: Like if you think the fund is worth ninety five
Speaker 1: and the fund says it's worth one hundred, then you
Speaker 1: should redeem because they'll give you one hundred for something
Speaker 1: you think is worth ninety five. And if you're right,
Speaker 1: that's really bad for the investors who stay in because
Speaker 1: they're giving you one hundred for something it's worth ninety five.
Speaker 1: And so like everyone else has less, and so it's
Speaker 1: a run on the bank, right, And if Apollo is
Speaker 1: really confident and it's marks, then doesn't have to worry
Speaker 1: about a run on the bank because you can pay
Speaker 1: people at what it thinks is it the right value.
Speaker 1: And if you believe that as an investor, then you
Speaker 1: won't redeem because you're like, well, if it's worth ninety five,
Speaker 1: they'll give me ninety five, and so like there's no
Speaker 1: point in me redeeming and so so it's that right,
Speaker 1: it's to avoid the run on the bank problem. If
Speaker 1: you and all of your investors are confident in the marks,
Speaker 1: then you're less likely to have a run. The other thing,
Speaker 1: it is just like weird, like Apollo has like has
Speaker 1: a trading desk, Like they just have a different vision
Speaker 1: of what private credit will be than other people, and
Speaker 1: like they're, you know, they're trying to make their vision
Speaker 1: come true. And some of that is like if they
Speaker 1: can move the world to a marked to market world,
Speaker 1: then like their trading desk is going to have more business.
Speaker 1: They're going to be providing the third party marks to
Speaker 1: other firms, you know, So it's a differentiated business decision.
Speaker 2: Have we talked about the push to put private assets
Speaker 2: in retirement ETFs? Have we ever talked about that well,
Speaker 2: Apollo famously has an ETF with State Street that has
Speaker 2: daily marks, right, all.
Speaker 1: Right, put private credit and retirement funds? Have we probably
Speaker 1: probably I read about it a lot.
Speaker 2: I was thinking about it yesterday because there was a
Speaker 2: comment from Elizabeth Warren saying that, you know, we need
Speaker 2: to stop this push right now.
Speaker 1: It's just incredibly awkward time.
Speaker 2: We also heard from the Treasury Secretary of Scott Besson
Speaker 2: saying the DOUBLET no saying actually agreeing, saying.
Speaker 1: That we need to no one like no one's going
Speaker 1: around right this minute, being like, you know, what we
Speaker 1: need is to put more private credit in to retirement funds.
Speaker 1: Two weeks ago they were sure.
Speaker 2: But it's like it's kind of beautiful to right, It's
Speaker 2: like a bipartisan moment among our government, two leading figures
Speaker 2: in the US government uniting on this issue in this
Speaker 2: wrought time.
Speaker 1: And I've written this like structurally, it actually makes a
Speaker 1: lot of sense to put private credit and retirement funds
Speaker 1: because like your money and your retirement funds, you shouldn't
Speaker 1: need until you retire, so you can lock it up
Speaker 1: for a long time, right, And like you know, it's
Speaker 1: a percent interest or whatever, So it's nice to have
Speaker 1: been in a text the fur retirement account.
Speaker 2: But Elizabeth Warren is listening right now.
Speaker 1: But nobody believes that. And I do think that, like
Speaker 1: the last couple of weeks demonstrate why no one believes that,
Speaker 1: because like, in fact, retail investors do not want to
Speaker 1: lock up their money for twenty years, and you have
Speaker 1: real structural problems giving even a little bit of liquidity
Speaker 1: to indivitional investors in private credit cands, right, I mean,
Speaker 1: like part of what what's happening here is like structurally
Speaker 1: these funds are fine, like they don't need to give
Speaker 1: money back because they're set up in a way where
Speaker 1: they can keep the money and only return five percent
Speaker 1: per quarter and so forth. But the vibes of doing
Speaker 1: it that way are bad.
Speaker 2: So do you want to mention JP Morgan as well?
Speaker 1: Oh yeah, JP Morgan is like allegedly marking down some
Speaker 1: private credit loans because they're like they provide back leverage
Speaker 1: to these private credit funds, and they lend money against
Speaker 1: private credit loans that some loan to value ratio. And
Speaker 1: when I say some loan to value ratio, like private
Speaker 1: credit firms can tell their retail customers these are what
Speaker 1: the loans are worth. But when they go to JP Morgan,
Speaker 1: JP Morgan tells them what the loans are worth, and
Speaker 1: so JP Morgan told them the loans are worth less
Speaker 1: than they thought.
Speaker 2: It's funny because you know, we heard from Jamie Diamond
Speaker 2: famously CEO of JP Morgan saying that there's probably more
Speaker 2: cockroaches around if you see one, and turns out he
Speaker 2: was right.
Speaker 1: JP Morgan marking down these loans doesn't prove that you
Speaker 1: A Morgan is right. It just pears that JP Morgan
Speaker 1: is marking down the lens. The FC article about the
Speaker 1: JP Morgan markedown like quoted some private credit people anonymously
Speaker 1: being like they're more nervous than everyone else, right, Like,
Speaker 1: it's always evaluation dispute, but when you're getting your levers
Speaker 1: from JP Morgan, they kind of win the evaluation disputes.
Speaker 2: Yeah, this one was interesting because again, when we're talking
Speaker 2: about redemptions, it's mostly psychological. Again, we're not really talking
Speaker 2: about the fundamentals.
Speaker 1: Whereas maybe, well you say that, like, it's possible that
Speaker 1: all the retail private credit investors who are like I
Speaker 1: would like my money back are just like looking around
Speaker 1: at the macro environment and being like these companies are
Speaker 1: gonna get destroyed by AI. Like maybe they're right, Like
Speaker 1: maybe they are the people running the private credit firms
Speaker 1: who are like there's no fundamental problem here, Like they
Speaker 1: have they have money on the line. On that view,
Speaker 1: the people taking their money they have they have their
Speaker 1: own potentially valid opinions.
Speaker 2: What I'm saying is like, we don't know that. Whereas
Speaker 2: JP Morgan it gets back to the software sort of
Speaker 2: apocalypse story that we were talking about a couple.
Speaker 1: Of weeks ago, looking after themselves, like.
Speaker 2: Guess that's what you do.
Speaker 1: That's definitely what you do. I heard this week about
Speaker 1: Calshi is getting sued for not paying out bets on
Speaker 1: Ali Kimenya off leaving office as Supreme Leader of Iran.
Speaker 1: Calshi had markets on Camanie leaving office as of certain dates,
Speaker 1: including as of April first, and as it became clear
Speaker 1: that he was going to leave office, those prices spite
Speaker 1: because people were betting on him leaving office and then
Speaker 1: he left office. But Calshi said those bets will not
Speaker 1: pay off that one hundred cents on the dollar because
Speaker 1: there's an exception if he leaves office due to death,
Speaker 1: which is why he left office. Then you don't get
Speaker 1: paid the full amount and you get paid just the
Speaker 1: last trading price before his death, which is very hard
Speaker 1: to measure because these markets are trading minute by minute,
Speaker 1: as like the US is conducting military operations. So I
Speaker 1: don't even know what the last trade was. I mean,
Speaker 1: like the last trade before they paused it was like
Speaker 1: in the forties, but like it got up to the sixties,
Speaker 1: so we don't really know what the last trade was.
Speaker 1: But yeah, so they were not paying those bets at
Speaker 1: one hundred cents on the dollar. And the reason for that,
Speaker 1: I think is that the US commodities rules for prediction
Speaker 1: markets specifically do say you can't have bets on war
Speaker 1: or assassination fair for pretty good reasons about not wanting
Speaker 1: to encourage assassinations.
Speaker 2: Yeah, there's an easy but extreme way to.
Speaker 1: Manipulate that market, so it is not technically allowed. And
Speaker 1: so the way cal she deals with that is by
Speaker 1: having bats on people leaving office, but specifically excluding leaving
Speaker 1: office by death. And they apparently didn't exclude it clearly
Speaker 1: enough because there's like a lawsuit filed against them saying no,
Speaker 1: we should get our or hold money back, which you
Speaker 1: know the lawsuit is basically like sure it was in
Speaker 1: the fine print, but it wasn't on the front page.
Speaker 1: And the way I think about it's like, as a
Speaker 1: matter of consumer protection and like you know the user
Speaker 1: interface on your consumer facing financial site, like that's kind
Speaker 1: of a reasonable claim, right it should be on the
Speaker 1: front page. And then as a matter of like this
Speaker 1: is a commodity derivatives exchange, like you should be reading
Speaker 1: the whole contract when you try to commodity futures contract.
Speaker 1: And if you don't, like that's kind of on you.
Speaker 1: So I'm unsympathetic about side too.
Speaker 2: Yeah, I wonder what if you're calci, what you're going
Speaker 2: to do.
Speaker 1: They've done their best to be like we've refounded everyone.
Speaker 1: Nobody lost money. It was just whatever, Like they're going
Speaker 1: to pay out some amount of money to make everyone
Speaker 1: as whole as possible. But they can't really go to
Speaker 1: we'll pay one hundred cents on the dollar because that
Speaker 1: would probably violate their rules, the safety c rules there
Speaker 1: and presumably these people one hundredth in.
Speaker 2: You also wrote that polymarket doesn't care, just paid one
Speaker 2: It's weird.
Speaker 1: Polymarket is like creeping into being as regulated commodities exchange,
Speaker 1: but it's like all the way the area. Yeah, I
Speaker 1: think they have like a US site that is only
Speaker 1: sports betting, but I could be wrong about that. But yeah,
Speaker 1: like there can many leaving office bets paid out no
Speaker 1: problem because they are not subject to the same rules.
Speaker 2: I don't want to talk about ETFs, but I know
Speaker 2: you want to time think about ETFs because you know,
Speaker 2: this was a a hullabaloo over like the concept of
Speaker 2: complex ETFs where it's really easy to lose your money.
Speaker 2: But we live in a disclosure based system and you
Speaker 2: know on all of these funds perspectuses that risk is
Speaker 2: spelled out that there's a big chance of losing your
Speaker 2: money here. So like the idea that like this was
Speaker 2: in the fine print, but the print was too fine.
Speaker 2: I don't know.
Speaker 1: Yeah, you're right. Part of it is like you're right,
Speaker 1: and they probably won't win this lawsuit. Yeah, legal advice,
Speaker 1: But part of it is like this is a new thing,
Speaker 1: Like there is widespread acceptance of the disclosure rules in
Speaker 1: the stock market, and you're like if you're like, oh
Speaker 1: I didn't read the perspectives, I lost money. I think
Speaker 1: the lawyers are not going to take that case, it's
Speaker 1: like you're supposed to the perspectives right, and even that, we.
Speaker 2: Know no one reads this, but I'll just scroll past it.
Speaker 1: But with a consumer gambling site, it feels more reasonable
Speaker 1: to make complaints about the user interface. I mean part
Speaker 1: of it is like the SEC really regulates the user
Speaker 1: interface for things like ets, right, Like your perspectus is
Speaker 1: not designed by the world's best user interface engineers to
Speaker 1: be attractive and informative. Your perspectus is designed by decades
Speaker 1: of accretion of like SEC lawyers, and so your perspectives
Speaker 1: works the way it works, and if it's not readable, like,
Speaker 1: that's not your fault, that's like the law's fault. But
Speaker 1: with the consumer gambling site, everyone's kind of making it
Speaker 1: up as they go along, and some maybe they should
Speaker 1: make it up better.
Speaker 2: I really want to talk about this quote that you
Speaker 2: included from Shane Coplan, the founder of Polymarket, from a
Speaker 2: conference in twenty twenty six. I don't know why I
Speaker 2: thought this would have been a couple of years ago,
Speaker 2: but it's right now. Not necessarily about the Iran War,
Speaker 2: obviously that time stamps it, but just like the concept
Speaker 2: of warbats, given that it is a.
Speaker 1: Top of mind.
Speaker 2: Yeah, a touchy topic. So he said, there's still a
Speaker 2: lot of resistance to innovation that kind of also seems
Speaker 2: daring to begin with.
Speaker 1: I love when people are like selling the worst possible products.
Speaker 1: They're like, people are so resistant to innovation. Like when
Speaker 1: you say, when you hear innovation, that means like scam. Like,
Speaker 1: if you have something good, you're like, this is good.
Speaker 1: Here's why it's good. But you have something bad, you're like,
Speaker 1: it's innovative. Yeah, you're just an exaggerating MELLINGI a little.
Speaker 2: Man, resisting innovation man. But he also said when I
Speaker 2: get hit up by people.
Speaker 1: Nobody's resist nobody's like, nobody wakes up at the morning
Speaker 1: like I want to resist innovation. The thing I don't
Speaker 1: like is innovation. So I'm going to stop innovation. What
Speaker 1: they say is I'm going to stop people from betting
Speaker 1: on assassinations, which is a different thing from resisting innovation.
Speaker 2: It's different. Okay, this quote though, it's so amazing.
Speaker 1: Sorry, go on.
Speaker 2: When I get hit up by people in the Middle
Speaker 2: East who are saying, hey, we're looking at poly market
Speaker 2: to decide whether we sleep near the bomb shelter. We
Speaker 2: look at it every day and I'm like, oh, it's
Speaker 2: really that popular over there. That's the first reaction that's
Speaker 2: very powerful. That's an undeniable value of proposition that did
Speaker 2: not exist before.
Speaker 1: Ah yeah, I mean what I wrote about that is
Speaker 1: like the other value proposition that didn't exist before is
Speaker 1: right now, if you are launching a missile strike, you
Speaker 1: can make money on it by betting on poly market.
Speaker 2: That's the thing. Like, if you see those different value
Speaker 2: proposition going up, one of the questions I have is like,
Speaker 2: why are they going up? Who is bidding this up?
Speaker 1: If you're like in the Middle East debating whether to
Speaker 1: sleep in your bomb shelter, and you see the odds
Speaker 1: going up and you think, well, that's probably an insider trader,
Speaker 1: then you should sleep in the bomb shelter. Yeah right, yeah,
Speaker 1: it is. It is more informative if there's insider trading,
Speaker 1: which has always been the like taboo thing that real
Speaker 1: prediction markets heads will say is like, yeah, it should
Speaker 1: be insider trading. Is that makes it more informative. On
Speaker 1: the other hand, if it's the better training making money
Speaker 1: by dropping moms, maybe.
Speaker 2: The US military is also watching these odds on poll market.
Speaker 1: Yeah, I would hope so, and if the odds of
Speaker 1: a like Iranian action go up, then they should prepare
Speaker 1: for that action. And if the odds of a US
Speaker 1: action go up too much, they should like check to
Speaker 1: see who's insider trading. Yeah, yeah, pretty grammar. And that
Speaker 1: was the Money Stuff Podcast.
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.
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