1 00:00:03,120 --> 00:00:08,400 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:10,760 --> 00:00:14,560 Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly podcast. 3 00:00:14,560 --> 00:00:18,560 Speaker 2: You've already talked about stuff really to money. I'm Matt 4 00:00:18,640 --> 00:00:21,400 Speaker 2: Levine and I read the Money Stuff column for Bloomberg Opinions. 5 00:00:21,560 --> 00:00:24,079 Speaker 3: And I'm Katie Greifeld, a reporter for Bloomberg News and 6 00:00:24,079 --> 00:00:25,640 Speaker 3: an anchor for Bloomberg Television. 7 00:00:25,920 --> 00:00:27,200 Speaker 2: What are you at today, Katie? 8 00:00:27,360 --> 00:00:29,240 Speaker 3: We're going to talk about M and A fees. Yep, 9 00:00:29,400 --> 00:00:32,879 Speaker 3: We're going to talk about private asset ETFs and then 10 00:00:32,880 --> 00:00:36,040 Speaker 3: we're going to do a mail bag mail bag. 11 00:00:37,040 --> 00:00:44,600 Speaker 2: All right, let's get to it MNA fees. 12 00:00:44,960 --> 00:00:49,040 Speaker 3: So how do investment bankers make money in a normal 13 00:00:49,159 --> 00:00:50,000 Speaker 3: M and A environment? 14 00:00:50,280 --> 00:00:55,120 Speaker 2: Stereotypically, investment bankers get paid for closing M and A deals. Yeah, 15 00:00:55,160 --> 00:00:58,160 Speaker 2: they spend most of their time prospecting for deals and 16 00:00:58,520 --> 00:01:01,200 Speaker 2: occasionally a deal actually happens, and then they get a 17 00:01:01,200 --> 00:01:03,080 Speaker 2: big check. You know, I wrote that they do most 18 00:01:03,080 --> 00:01:05,000 Speaker 2: of their work for free, and then sometimes they're wildly 19 00:01:05,040 --> 00:01:06,800 Speaker 2: over paid. Right, Like, you do a lot of pitching, 20 00:01:07,040 --> 00:01:08,920 Speaker 2: you do a lot of advising clients, You do a 21 00:01:08,920 --> 00:01:11,039 Speaker 2: lot of working on deals that don't happen. Then you 22 00:01:11,080 --> 00:01:12,440 Speaker 2: do a few deals that do happen and you get 23 00:01:12,480 --> 00:01:13,520 Speaker 2: a twenty million dollar check. 24 00:01:13,680 --> 00:01:16,880 Speaker 3: And like you said, occasionally deals close. It feels like 25 00:01:16,920 --> 00:01:21,200 Speaker 3: occasionally is turning into someone infrequently deals closed. In this 26 00:01:21,520 --> 00:01:21,880 Speaker 3: m ANDA. 27 00:01:21,920 --> 00:01:24,360 Speaker 2: Environment, the norm is if you do a deal, you 28 00:01:24,400 --> 00:01:26,640 Speaker 2: get paid, right, and doing a deal is like a 29 00:01:26,640 --> 00:01:29,040 Speaker 2: little bit of a the concept they pitch a lot 30 00:01:29,040 --> 00:01:30,880 Speaker 2: of deals that never happen or like you do some 31 00:01:30,920 --> 00:01:33,720 Speaker 2: work stories. Yeah, but like if you sign a deal, 32 00:01:33,920 --> 00:01:35,880 Speaker 2: you certainly expact that most of the deals that sign 33 00:01:36,040 --> 00:01:38,520 Speaker 2: close two companies agreed to merge and then they merge. Right, 34 00:01:39,000 --> 00:01:41,440 Speaker 2: in the current environment, it is less common. I mean 35 00:01:41,480 --> 00:01:43,640 Speaker 2: it's pretty common, but it's like a little bit less 36 00:01:43,640 --> 00:01:46,120 Speaker 2: certain that a deal that signs will close, right because 37 00:01:46,120 --> 00:01:49,200 Speaker 2: of anti trust regulatory scrutiny is like the sort of 38 00:01:49,240 --> 00:01:51,000 Speaker 2: big headline thing, but other reasons. 39 00:01:50,640 --> 00:01:52,600 Speaker 3: To the golden age of anti trust. 40 00:01:52,760 --> 00:01:54,880 Speaker 2: The golden age of anti trust, and so like some 41 00:01:54,920 --> 00:01:57,160 Speaker 2: big companies sign big deals and then they don't close. 42 00:01:57,720 --> 00:02:00,880 Speaker 2: And if you're a banker whose fee is continued closing, 43 00:02:01,000 --> 00:02:02,800 Speaker 2: then you don't get the fee and then you really sad. 44 00:02:03,040 --> 00:02:06,000 Speaker 3: So what do we do for these four investment bankers? 45 00:02:06,040 --> 00:02:09,440 Speaker 3: Because you wrote about it this week, probably you wrote 46 00:02:09,440 --> 00:02:11,680 Speaker 3: about it this week that it was a Reuter's article. 47 00:02:11,720 --> 00:02:13,520 Speaker 2: I hope I'm pronouncing that name right. 48 00:02:13,720 --> 00:02:16,919 Speaker 3: No, it was it Reuter's. I can say that again. Well, 49 00:02:16,960 --> 00:02:19,919 Speaker 3: you wrote about this week a Reuter's article about these 50 00:02:19,960 --> 00:02:23,400 Speaker 3: poor investment bankers who deals aren't closing as much as 51 00:02:23,400 --> 00:02:25,200 Speaker 3: they were. What are they to do? 52 00:02:25,639 --> 00:02:28,160 Speaker 2: There's been some amount of structuring where you could get 53 00:02:28,200 --> 00:02:30,480 Speaker 2: your fee in some set of installments, right where like 54 00:02:30,520 --> 00:02:32,800 Speaker 2: you could paid a little bit when the deal signs 55 00:02:32,840 --> 00:02:34,919 Speaker 2: and more when the deal closes, or you could get 56 00:02:34,919 --> 00:02:37,880 Speaker 2: paid something for a busted deal. But now bankers are 57 00:02:38,080 --> 00:02:41,440 Speaker 2: charging more of their money up front, like when a 58 00:02:41,480 --> 00:02:44,240 Speaker 2: deal signs, so like when they deliver a fairness opinion, 59 00:02:44,520 --> 00:02:46,680 Speaker 2: and like the deal is sort of formally announced, the 60 00:02:46,720 --> 00:02:51,080 Speaker 2: bank gets check. And they're also when deals get busted, 61 00:02:51,680 --> 00:02:54,080 Speaker 2: banks will write in their engagement letter, if you sign 62 00:02:54,160 --> 00:02:56,200 Speaker 2: a deal and then the deal doesn't close for like 63 00:02:56,200 --> 00:02:58,760 Speaker 2: red uterors, and often the company will get a breakup 64 00:02:58,800 --> 00:03:03,600 Speaker 2: fee closing for regulatory reasons. And banks will say, if 65 00:03:03,639 --> 00:03:05,320 Speaker 2: you get a breakup fee, we want a chunk of it. 66 00:03:05,400 --> 00:03:08,280 Speaker 2: And like both of those things, getting a chunk of 67 00:03:08,280 --> 00:03:11,240 Speaker 2: the breakup fee and getting paid on announcement are like 68 00:03:11,360 --> 00:03:14,120 Speaker 2: more common now and they make up a greater percentage 69 00:03:14,160 --> 00:03:16,240 Speaker 2: now than they used to. So it's like now banks 70 00:03:16,240 --> 00:03:18,440 Speaker 2: are getting like an aggregate twenty or twenty five percent 71 00:03:18,440 --> 00:03:20,880 Speaker 2: of their fees on signing as opposed to like five 72 00:03:21,000 --> 00:03:24,040 Speaker 2: ish percent a few years ago, and they are asking 73 00:03:24,120 --> 00:03:26,200 Speaker 2: for like a quarter of the breakup fee instead of 74 00:03:26,200 --> 00:03:27,360 Speaker 2: like ten or fifteen percent. 75 00:03:27,560 --> 00:03:30,400 Speaker 3: And you know, this world intimately much more than I do. 76 00:03:30,520 --> 00:03:32,919 Speaker 3: But I mean to me, that sounds totally reasonable. 77 00:03:33,040 --> 00:03:35,240 Speaker 2: Oh yeah, it's totally reasonable. It's just like it was 78 00:03:35,240 --> 00:03:38,160 Speaker 2: a norm that they didn't get paid that way. And 79 00:03:38,520 --> 00:03:39,840 Speaker 2: it's funny. You know, I was an M and A 80 00:03:39,960 --> 00:03:43,680 Speaker 2: lawyer and then I was an investment banker. Lawyers traditionally 81 00:03:43,960 --> 00:03:46,400 Speaker 2: get paid by the hour. That's not really true in 82 00:03:46,560 --> 00:03:49,960 Speaker 2: M and A anymore. A lot of lawyers, like bankers, 83 00:03:50,120 --> 00:03:52,920 Speaker 2: get paid success fees. There's a reason why bankers get 84 00:03:52,920 --> 00:03:55,920 Speaker 2: paid success fees so successfully, Like when the deal closes 85 00:03:56,320 --> 00:03:58,920 Speaker 2: in like a classic cell side assignment, if you're selling 86 00:03:58,960 --> 00:04:02,920 Speaker 2: a company and they're getting ten billion dollars for themselves 87 00:04:03,120 --> 00:04:06,040 Speaker 2: and you're like, I want half a percent of that, 88 00:04:06,320 --> 00:04:08,200 Speaker 2: and they're like, yeah, it's like free money. It's like 89 00:04:08,240 --> 00:04:09,840 Speaker 2: all this money gushing in the door, you can have 90 00:04:09,840 --> 00:04:11,320 Speaker 2: half a percent of it. I think that's a lot 91 00:04:11,320 --> 00:04:14,280 Speaker 2: of money. Right. When you are a sell slid banker 92 00:04:14,320 --> 00:04:17,440 Speaker 2: and you get paid only on deal closing, you are 93 00:04:17,440 --> 00:04:20,480 Speaker 2: effectively getting paid by someone else, right, the client who 94 00:04:20,520 --> 00:04:22,719 Speaker 2: hires yours like, ah, it's not my money, Like the 95 00:04:22,800 --> 00:04:25,440 Speaker 2: buyer is paying that money anyway, will be gone, you know, 96 00:04:25,520 --> 00:04:27,560 Speaker 2: will be great. You know, we're getting bought out at 97 00:04:27,560 --> 00:04:29,520 Speaker 2: a premium, so we don't care about giving you half 98 00:04:29,560 --> 00:04:32,359 Speaker 2: a percent of that. Right, And so if you're a banker, 99 00:04:32,440 --> 00:04:35,640 Speaker 2: you can charge a bigger fee if it's entirely contingent. 100 00:04:35,680 --> 00:04:38,120 Speaker 2: If it's like you pay no money unless you get 101 00:04:38,120 --> 00:04:41,039 Speaker 2: bought out, right, So it's an attractive proposition. It's just 102 00:04:41,080 --> 00:04:43,520 Speaker 2: like if more deals don't close, then like your business 103 00:04:43,520 --> 00:04:46,760 Speaker 2: gets very risky, and like sometimes you don't make any money. 104 00:04:46,880 --> 00:04:51,640 Speaker 2: You know, lawyers traditionally get paid much more reliably. They 105 00:04:51,720 --> 00:04:54,920 Speaker 2: build by the hour, even law firms that charge success fees. 106 00:04:54,960 --> 00:04:57,240 Speaker 2: If a deal doesn't close, they usually get paid something anyway, 107 00:04:57,279 --> 00:04:59,320 Speaker 2: you know, whereas like bankers traditionally got less of that, 108 00:05:00,040 --> 00:05:03,400 Speaker 2: and the lawyers like the way they get paid. And 109 00:05:03,440 --> 00:05:07,080 Speaker 2: there have been criticisms from like lawyers and judges of 110 00:05:07,120 --> 00:05:09,679 Speaker 2: how bankers get paid, because like, if you're a banker 111 00:05:10,120 --> 00:05:12,919 Speaker 2: and you get paid only on completing a deal, you 112 00:05:12,960 --> 00:05:15,120 Speaker 2: have incentives to make sure that deals get done right. 113 00:05:15,240 --> 00:05:16,919 Speaker 2: The client is like, I don't know if this is 114 00:05:16,920 --> 00:05:19,360 Speaker 2: actually a good idea. Do we really want to sell? 115 00:05:19,360 --> 00:05:22,120 Speaker 2: Like we might be better off on our own. There is 116 00:05:22,160 --> 00:05:24,000 Speaker 2: a stereotype. The banker is like, no, you got to 117 00:05:24,040 --> 00:05:26,560 Speaker 2: sell them, And then I'm not really true and like 118 00:05:26,920 --> 00:05:29,360 Speaker 2: trusted investment banker knows what to say no and whatever. 119 00:05:29,400 --> 00:05:31,880 Speaker 2: But it's like something amount of truth to this, where 120 00:05:31,920 --> 00:05:35,320 Speaker 2: like the investment banker is always incentivized to do a deal, 121 00:05:35,360 --> 00:05:39,520 Speaker 2: whereas someone else might sometimes correctly advise the company like 122 00:05:39,600 --> 00:05:40,839 Speaker 2: do nothing. Bill. 123 00:05:42,200 --> 00:05:43,600 Speaker 3: I don't know how you feel, but I was very 124 00:05:43,600 --> 00:05:46,320 Speaker 3: excited reading money stuff this week. And then there was 125 00:05:46,480 --> 00:05:50,800 Speaker 3: a current news happening that very neatly illustrated what we're 126 00:05:50,800 --> 00:05:53,039 Speaker 3: talking about, because this, of course what we're talking about, 127 00:05:53,120 --> 00:05:55,440 Speaker 3: M and A bankers wanting more of the breakup fees 128 00:05:55,920 --> 00:05:59,440 Speaker 3: in part due to antitrust concerns, and this week one 129 00:05:59,440 --> 00:06:03,279 Speaker 3: of the biggest sorries was this cybersecurity startup named wiz 130 00:06:03,680 --> 00:06:08,200 Speaker 3: Google had offered a takeover bid of twenty three billion 131 00:06:08,279 --> 00:06:11,800 Speaker 3: dollars and Wiz turned it down. They said that they 132 00:06:11,839 --> 00:06:15,360 Speaker 3: were gonna go for an IPO instead, but Bloomberg reported 133 00:06:15,400 --> 00:06:19,200 Speaker 3: that Whiz decided it could ultimately be worth more as 134 00:06:19,200 --> 00:06:21,960 Speaker 3: a public company, but also concerns about the potential for 135 00:06:22,080 --> 00:06:26,120 Speaker 3: a protracted regulatory approval process also encouraged it to go 136 00:06:26,240 --> 00:06:29,040 Speaker 3: this route as well. So, I mean, twenty three billion 137 00:06:29,040 --> 00:06:32,720 Speaker 3: dollars is hard to walk away from. I think the 138 00:06:32,760 --> 00:06:35,600 Speaker 3: CEO called it a humbling offer. But I mean if 139 00:06:35,640 --> 00:06:40,640 Speaker 3: the deal's probably gonna come under scrutiny and probably won't close, 140 00:06:40,720 --> 00:06:42,040 Speaker 3: maybe it's not worth a headache. 141 00:06:42,680 --> 00:06:44,160 Speaker 2: Yeah, I mean you see a lot of this, like 142 00:06:44,200 --> 00:06:46,320 Speaker 2: where if you're a company and you get a really 143 00:06:46,480 --> 00:06:50,600 Speaker 2: tempting offer and you're like, there's a fifty percent chance 144 00:06:50,640 --> 00:06:53,120 Speaker 2: this won't close for regular tor reasons, Like you're in 145 00:06:53,160 --> 00:06:55,480 Speaker 2: a much worse situation in a lot of ways if 146 00:06:55,520 --> 00:06:59,120 Speaker 2: you like spend months working on getting this deal closed, 147 00:06:59,560 --> 00:07:02,320 Speaker 2: sort of spending all of your operations to plan a merger, 148 00:07:02,360 --> 00:07:05,040 Speaker 2: and then like it falls apart for regulatory reasons and 149 00:07:05,040 --> 00:07:08,000 Speaker 2: you're kind of back to nowhere. It's a bad situation. 150 00:07:08,120 --> 00:07:10,080 Speaker 2: To be in and so if the money sounds great, 151 00:07:10,120 --> 00:07:11,680 Speaker 2: but you might say, you know, this is like like 152 00:07:11,720 --> 00:07:14,200 Speaker 2: a mirage of getting all this money. I mean from 153 00:07:14,200 --> 00:07:16,920 Speaker 2: the banker's perspective too, the deals that don't close are 154 00:07:16,960 --> 00:07:18,600 Speaker 2: the ones that in some ways to take the most work, 155 00:07:18,640 --> 00:07:20,280 Speaker 2: right because like you signed the deal and that's like 156 00:07:20,280 --> 00:07:22,960 Speaker 2: this anti trust investigation and you're like sort of you know, 157 00:07:23,040 --> 00:07:25,960 Speaker 2: working to integrate the companies and also like respond to 158 00:07:26,680 --> 00:07:28,720 Speaker 2: regulatory concerns. It's a lot of work. And then it 159 00:07:28,760 --> 00:07:30,320 Speaker 2: doesn't close and you don't get bad. 160 00:07:30,520 --> 00:07:31,320 Speaker 3: So who's happy? 161 00:07:31,320 --> 00:07:31,560 Speaker 1: Here? 162 00:07:31,760 --> 00:07:34,160 Speaker 3: Is there silver lining? Like are the lawyers happy? Maybe 163 00:07:34,200 --> 00:07:36,520 Speaker 3: the bankers are sad, but the lawyers are happy. 164 00:07:36,640 --> 00:07:39,160 Speaker 2: The bankers are fine. Like what's happening is they're changing 165 00:07:39,160 --> 00:07:41,000 Speaker 2: their free structures to get pop. The people who are 166 00:07:41,040 --> 00:07:44,320 Speaker 2: unhappy to some degree are like the companies who were 167 00:07:44,400 --> 00:07:46,520 Speaker 2: used to paying for success, and like you pay nothing 168 00:07:46,560 --> 00:07:48,120 Speaker 2: unless you get a merger, and now it's like, you know, 169 00:07:48,200 --> 00:07:49,640 Speaker 2: you pay something if you don't get a merger, and 170 00:07:49,720 --> 00:07:51,320 Speaker 2: like that's a bummer to have your deal fall apart 171 00:07:51,320 --> 00:08:03,840 Speaker 2: and still get the bill from the bankers. 172 00:08:04,280 --> 00:08:06,640 Speaker 3: Okay, let's get to the good stuff. Let's talk about 173 00:08:06,800 --> 00:08:09,400 Speaker 3: private asset ETF. So we've already spoken about. 174 00:08:09,400 --> 00:08:11,720 Speaker 2: Yea, you were like, I think last week you were like, 175 00:08:12,240 --> 00:08:14,640 Speaker 2: how were we gonna put private assets into NAIs? Like, Yeah, 176 00:08:14,720 --> 00:08:17,080 Speaker 2: there's gotta be some way. Now we're going to talk 177 00:08:17,080 --> 00:08:17,680 Speaker 2: about it for real. 178 00:08:17,840 --> 00:08:20,960 Speaker 3: We're gonna talk about it for real because it's one 179 00:08:21,000 --> 00:08:25,280 Speaker 3: of the most fun and most frequent thought exercises that's 180 00:08:25,280 --> 00:08:27,760 Speaker 3: happening in the ETF industry right now. You have this 181 00:08:27,880 --> 00:08:32,720 Speaker 3: like super in demand asset class, this super in demand wrapper, 182 00:08:33,320 --> 00:08:35,320 Speaker 3: and you have all these big brains trying to figure 183 00:08:35,360 --> 00:08:39,960 Speaker 3: out how to put private assets into an ETF and 184 00:08:40,800 --> 00:08:43,880 Speaker 3: no one has cracked the code yet. 185 00:08:43,600 --> 00:08:44,959 Speaker 2: But you're gonna tell us how. 186 00:08:45,160 --> 00:08:46,440 Speaker 3: I'm not going to tell you how, but I'm going 187 00:08:46,480 --> 00:08:48,480 Speaker 3: to talk to you about different attempts to do that, 188 00:08:48,520 --> 00:08:50,960 Speaker 3: and you're gonna opine on it. Probably there's like all 189 00:08:50,960 --> 00:08:53,880 Speaker 3: these proxy sort of things. It sort of is similar 190 00:08:53,920 --> 00:08:57,360 Speaker 3: to when there weren't spot bitcoin or Bitcoin Futures ETF, 191 00:08:57,440 --> 00:09:00,240 Speaker 3: so you would have these ETFs that were launch that 192 00:09:00,280 --> 00:09:02,719 Speaker 3: held a bunch of bitcoin miners and things such as 193 00:09:02,720 --> 00:09:06,520 Speaker 3: that those exist right now. Then there was this filing 194 00:09:06,720 --> 00:09:11,920 Speaker 3: for the Crane shares Man Liquid Private Equity Index ETF, 195 00:09:12,160 --> 00:09:14,920 Speaker 3: which would basically seek to be a quote proxy for 196 00:09:14,960 --> 00:09:18,800 Speaker 3: private equity performance and risk exposures by focusing on small 197 00:09:18,840 --> 00:09:22,440 Speaker 3: and MidCap stocks that have characteristics similar to companies in 198 00:09:22,520 --> 00:09:25,280 Speaker 3: private equity buyout funds. And I thought that was interesting 199 00:09:25,320 --> 00:09:29,640 Speaker 3: because it's not buying shares of publicly listed private equity firms. 200 00:09:29,760 --> 00:09:31,800 Speaker 3: There's a few ETFs that do that right now, but 201 00:09:31,880 --> 00:09:37,000 Speaker 3: it's basically trying to mimic the portfolio of these private 202 00:09:37,000 --> 00:09:37,880 Speaker 3: equity companies. 203 00:09:38,000 --> 00:09:40,160 Speaker 2: Yeah, there's a theory that like the value add from 204 00:09:40,240 --> 00:09:43,440 Speaker 2: private equity consists of like taking a certain tranch of 205 00:09:43,520 --> 00:09:46,560 Speaker 2: kind of smaller MidCap sort of cash flowty companies and 206 00:09:46,600 --> 00:09:49,200 Speaker 2: then levering them up a lot. The thought is, like 207 00:09:49,480 --> 00:09:51,480 Speaker 2: you can do that on your own instead of investing 208 00:09:51,520 --> 00:09:53,840 Speaker 2: with take Care or Blacks. Then to like buy out 209 00:09:53,880 --> 00:09:56,160 Speaker 2: these like MidCap companies and like put a bunch of 210 00:09:56,200 --> 00:09:58,480 Speaker 2: leverage on them. You can just buy their publicly traded 211 00:09:58,480 --> 00:10:01,200 Speaker 2: shares and like they got a margin and learn answer shares, 212 00:10:01,400 --> 00:10:04,200 Speaker 2: and then you kind of like recreated a private equity 213 00:10:04,240 --> 00:10:06,880 Speaker 2: portfolio that is true at like a very high level. 214 00:10:07,040 --> 00:10:10,080 Speaker 2: And then it's like it abstracts away from like whatever 215 00:10:10,120 --> 00:10:13,840 Speaker 2: operational improvements they make. Whatever clever financial engineering they do, 216 00:10:14,160 --> 00:10:16,800 Speaker 2: it takes away all of the like stuff they pride 217 00:10:16,800 --> 00:10:18,920 Speaker 2: themselves on doing. But like the basic thing of like 218 00:10:19,080 --> 00:10:21,880 Speaker 2: buying some companies with cash flows and borrowing against them, Like, yeah, 219 00:10:21,880 --> 00:10:23,400 Speaker 2: you can do that on your own, the ideas the 220 00:10:23,400 --> 00:10:25,760 Speaker 2: ETF can do that on insigne. I don't actually do 221 00:10:25,840 --> 00:10:28,640 Speaker 2: the leverage part as much as like people like started 222 00:10:28,640 --> 00:10:31,040 Speaker 2: to publicly traded vehicles to like try to make private 223 00:10:31,040 --> 00:10:33,240 Speaker 2: equity returns by doing that kind of trade. 224 00:10:33,360 --> 00:10:34,840 Speaker 3: Yeah, it is unsatisfying. 225 00:10:34,880 --> 00:10:35,080 Speaker 4: Though. 226 00:10:35,200 --> 00:10:39,319 Speaker 2: One reason it's unsatisfying is that when you talk about 227 00:10:39,360 --> 00:10:43,640 Speaker 2: like private assets being a hot asset class, like one 228 00:10:43,640 --> 00:10:45,360 Speaker 2: thing that means is like private credit is very hot. 229 00:10:45,520 --> 00:10:48,200 Speaker 2: But like when we talk about like people who want 230 00:10:48,240 --> 00:10:49,880 Speaker 2: to go to parties and say that they own blah 231 00:10:49,920 --> 00:10:51,800 Speaker 2: blah blah, Like the thing they want to own is 232 00:10:51,800 --> 00:10:55,079 Speaker 2: like SpaceX right or like stripe right, it's these hot 233 00:10:55,160 --> 00:10:59,480 Speaker 2: startups taking a like slice of mid cap companies. Is 234 00:10:59,520 --> 00:11:03,120 Speaker 2: not that there's no proxy for very fast growing private 235 00:11:03,400 --> 00:11:07,320 Speaker 2: tech space startups right, Like this is like a proxy 236 00:11:07,400 --> 00:11:10,000 Speaker 2: for like a middle market private equity fund, which is 237 00:11:10,000 --> 00:11:12,319 Speaker 2: like not quite the like sexy thing that you're trying to. 238 00:11:12,280 --> 00:11:14,720 Speaker 3: Sell yeah, And I mean part of the reason that 239 00:11:15,000 --> 00:11:17,280 Speaker 3: we're talking about this so much, and I've made us 240 00:11:17,280 --> 00:11:18,840 Speaker 3: talk about this for two weeks in a row, is 241 00:11:18,880 --> 00:11:22,440 Speaker 3: because speaking of a deal that actually did work, Blackrock 242 00:11:22,679 --> 00:11:27,680 Speaker 3: bought private markets data provider Prequin, and then BlackRock's chief 243 00:11:27,720 --> 00:11:30,520 Speaker 3: financial officer said that basically they want to take some 244 00:11:30,559 --> 00:11:34,080 Speaker 3: of the data that Prequin has, create investable indices and 245 00:11:34,160 --> 00:11:38,880 Speaker 3: launch quote things like exchange traded products. So when I 246 00:11:38,880 --> 00:11:40,840 Speaker 3: say the best and brightest, I mean, you know, some 247 00:11:40,880 --> 00:11:41,600 Speaker 3: of the biggest ones. 248 00:11:43,480 --> 00:11:44,200 Speaker 2: They're going to do that. 249 00:11:44,240 --> 00:11:47,200 Speaker 3: Well, that's the question, Matt, how do they do it. 250 00:11:47,240 --> 00:11:49,840 Speaker 3: You take a look at the SEC's rule book. They 251 00:11:49,880 --> 00:11:53,800 Speaker 3: have a fifteen percent limit on liquid investments for funds, 252 00:11:54,480 --> 00:11:56,360 Speaker 3: So I mean, maybe you have an ETF that's like 253 00:11:56,400 --> 00:11:59,640 Speaker 3: fifteen percent private assets. But the way that they define 254 00:11:59,679 --> 00:12:03,720 Speaker 3: a quid investments is that basically they're assets that can't 255 00:12:03,760 --> 00:12:07,200 Speaker 3: be sold in seven days without significantly changing the market 256 00:12:07,280 --> 00:12:12,040 Speaker 3: value of the investment. So that's also kind of unsatisfying. 257 00:12:12,240 --> 00:12:14,439 Speaker 3: I mean, you have an ETF, it does hold private assets, 258 00:12:14,480 --> 00:12:16,800 Speaker 3: they can only be fifteen percent of the fund and 259 00:12:16,840 --> 00:12:19,120 Speaker 3: then you kind of dilute the rest with like equities 260 00:12:19,240 --> 00:12:20,280 Speaker 3: or cash. Or something. 261 00:12:20,480 --> 00:12:23,040 Speaker 2: I love the idea that like it's a fifteen percent 262 00:12:23,080 --> 00:12:25,720 Speaker 2: priority and like you put the rest in like SMP. Right, Yeah, 263 00:12:25,800 --> 00:12:28,200 Speaker 2: this is like eighty five percent goes to your index 264 00:12:28,200 --> 00:12:30,800 Speaker 2: allocation and like fifteen percent goes to your private sellocation, 265 00:12:30,880 --> 00:12:33,000 Speaker 2: and like you just keep that in mind when you 266 00:12:33,000 --> 00:12:35,400 Speaker 2: buy the thing. Yeah, that's a cool idea. That's like 267 00:12:35,640 --> 00:12:40,680 Speaker 2: very like amateurish financial engineering. Like yeah, you know you 268 00:12:40,800 --> 00:12:43,080 Speaker 2: do that. You short eighty five percent as much of 269 00:12:43,160 --> 00:12:45,000 Speaker 2: like an SMP ETF and like, yeah, you're right, you 270 00:12:44,960 --> 00:12:45,680 Speaker 2: get a private. 271 00:12:45,440 --> 00:12:47,640 Speaker 3: Assets ct and that gets you a lot closer than 272 00:12:47,920 --> 00:12:48,920 Speaker 3: anything else, right now. 273 00:12:49,120 --> 00:12:51,440 Speaker 2: Obviously, Yeah, I do think that's like a hard thing 274 00:12:51,480 --> 00:12:53,880 Speaker 2: to market, to be like this is an eighty five 275 00:12:53,920 --> 00:12:57,199 Speaker 2: percent SMPTF and a fifteen percent pile of private assets. 276 00:12:57,240 --> 00:12:57,760 Speaker 2: That's weird. 277 00:12:57,920 --> 00:12:58,920 Speaker 3: It is a little bit weird. 278 00:12:59,040 --> 00:13:01,079 Speaker 2: It's also weird, by the way, is like the ETF 279 00:13:01,080 --> 00:13:03,560 Speaker 2: structure is like there are legal limits, but there's also 280 00:13:03,679 --> 00:13:06,440 Speaker 2: like the point of the ETF structure is that you 281 00:13:06,480 --> 00:13:08,920 Speaker 2: can create and redeem it in kind, right, or you 282 00:13:08,960 --> 00:13:11,920 Speaker 2: can create and redeem it anyway, right, So like if 283 00:13:12,800 --> 00:13:16,719 Speaker 2: the price of the ETF is not in line with 284 00:13:16,760 --> 00:13:18,640 Speaker 2: like the value of the underlying assets. Then like some 285 00:13:18,800 --> 00:13:22,440 Speaker 2: arbor treasure can like buy the ETF and you know, 286 00:13:22,600 --> 00:13:25,880 Speaker 2: sell the assets or vice versa to bring the price 287 00:13:25,920 --> 00:13:28,280 Speaker 2: back in line. It's much harder to do with private 288 00:13:28,280 --> 00:13:31,000 Speaker 2: assets that don't trade even away from like the SEC rules. 289 00:13:31,000 --> 00:13:33,200 Speaker 2: You need to set up some mechanism to keep the 290 00:13:33,240 --> 00:13:35,600 Speaker 2: price online. It just like the easy way to do 291 00:13:35,760 --> 00:13:40,360 Speaker 2: a like private asset ETF more or less is and 292 00:13:40,400 --> 00:13:41,960 Speaker 2: we've talked about it a bunch of times, the Destiny 293 00:13:42,000 --> 00:13:42,800 Speaker 2: take one hundred fund. 294 00:13:42,880 --> 00:13:43,040 Speaker 4: Right. 295 00:13:43,120 --> 00:13:44,680 Speaker 2: The easy way to do it is you have a 296 00:13:44,720 --> 00:13:48,280 Speaker 2: product that trades, that is a closed end fund that 297 00:13:49,040 --> 00:13:50,080 Speaker 2: owns private assets. 298 00:13:50,160 --> 00:13:50,360 Speaker 3: Right. 299 00:13:50,480 --> 00:13:53,880 Speaker 2: The whole problem with that is that the trading price 300 00:13:53,880 --> 00:13:55,760 Speaker 2: of the product doesn't have to have anything to do 301 00:13:56,120 --> 00:13:58,200 Speaker 2: with the value of the underlying assets, and so Destiny 302 00:13:58,240 --> 00:14:01,120 Speaker 2: trade out a keete premium in a way that makes 303 00:14:01,160 --> 00:14:04,280 Speaker 2: it feel not like a great proxy for the assets, 304 00:14:04,280 --> 00:14:08,400 Speaker 2: because like you're not buying SpaceX or buying this huge premium. Yeah, 305 00:14:09,960 --> 00:14:11,199 Speaker 2: and that's like a hard nut. 306 00:14:11,000 --> 00:14:15,319 Speaker 3: To crack, right, Yeah, it's like the ultimate liquidity mismatch. 307 00:14:15,600 --> 00:14:19,000 Speaker 3: Some of the conversations that I've been having around private 308 00:14:19,000 --> 00:14:21,360 Speaker 3: asset ETFs uh, and I've had a lot of them 309 00:14:21,360 --> 00:14:23,520 Speaker 3: with issuers who aren't quite ready to go on the 310 00:14:23,560 --> 00:14:26,560 Speaker 3: record yet. But the big question is how do you 311 00:14:26,640 --> 00:14:31,680 Speaker 3: take a wrapper that is liquid by definition trees like water, 312 00:14:32,240 --> 00:14:35,880 Speaker 3: take these assets that don't really trade and put them together. 313 00:14:36,000 --> 00:14:38,480 Speaker 3: And it sounds like a lot of the conversations I 314 00:14:38,520 --> 00:14:41,880 Speaker 3: was having in early twenty twenty about fixed income ETFs. 315 00:14:41,880 --> 00:14:42,960 Speaker 3: There was a lot of I. 316 00:14:42,880 --> 00:14:45,000 Speaker 2: Was going to say, like, right, so, first of all, 317 00:14:45,040 --> 00:14:47,200 Speaker 2: like liquidity mismatch is a term that I used to 318 00:14:47,200 --> 00:14:48,560 Speaker 2: write about all the time when I had like a 319 00:14:48,680 --> 00:14:51,720 Speaker 2: jerky daily section in the newsletter. Yeah, that old people 320 00:14:51,720 --> 00:14:54,720 Speaker 2: are worried about bond rocket liquidity because like, oh, these 321 00:14:54,760 --> 00:14:56,560 Speaker 2: bond ETFs you can trade them all the time, but 322 00:14:56,600 --> 00:14:58,880 Speaker 2: the bonds don't trade that much, and like what will happen? 323 00:14:58,880 --> 00:15:01,440 Speaker 3: I did see something o her in your eyes and 324 00:15:01,560 --> 00:15:03,480 Speaker 3: your listener. I wish you could have seen it when. 325 00:15:03,320 --> 00:15:07,280 Speaker 2: I spent equity mismatch. It's such a misconception to think 326 00:15:07,320 --> 00:15:09,160 Speaker 2: that you can't have a liquid wrapper for an I 327 00:15:09,200 --> 00:15:12,120 Speaker 2: liquid thing, because all stocks are that, right, Like a 328 00:15:12,160 --> 00:15:14,760 Speaker 2: company is like a bunch of like factories and like 329 00:15:14,760 --> 00:15:17,560 Speaker 2: employment contracts and all this like super I liquid like 330 00:15:17,600 --> 00:15:18,360 Speaker 2: hard to value. 331 00:15:18,160 --> 00:15:20,840 Speaker 3: Stuff they're not just on the screen, right. 332 00:15:20,760 --> 00:15:22,320 Speaker 2: Right, like a company. I'll say, it's just not but 333 00:15:22,320 --> 00:15:24,160 Speaker 2: you can like completely abstract it to a line that 334 00:15:24,200 --> 00:15:27,880 Speaker 2: trades like every millisecond. Right, So the liquidity mismatch point 335 00:15:27,920 --> 00:15:30,120 Speaker 2: is so strange what people worry about with bond funds, 336 00:15:30,120 --> 00:15:32,920 Speaker 2: And it's really much more about mutual funds than ETFs, 337 00:15:32,960 --> 00:15:35,840 Speaker 2: but people lump them together. People worry about like it's 338 00:15:35,880 --> 00:15:38,640 Speaker 2: not the liquidity of the rapper versus the liquidity of 339 00:15:38,640 --> 00:15:40,800 Speaker 2: the underlying It's like sometimes you want to take the 340 00:15:40,880 --> 00:15:44,080 Speaker 2: underlying out of the wrapper, and like that is hard, right, 341 00:15:44,080 --> 00:15:47,240 Speaker 2: Like you're used to liquidly trading the ETF and then 342 00:15:47,280 --> 00:15:49,520 Speaker 2: like you like get the bombs and oh, these bonds 343 00:15:49,520 --> 00:15:51,760 Speaker 2: don't trade with a company. That's not a problem because 344 00:15:51,800 --> 00:15:54,400 Speaker 2: you're not taking assets out of the company. 345 00:15:54,560 --> 00:15:54,800 Speaker 3: Right. 346 00:15:55,080 --> 00:15:56,760 Speaker 2: With a closed un fund, it's not a problem because 347 00:15:56,760 --> 00:15:58,560 Speaker 2: you're not taking assets out of the clothes un fund. 348 00:15:58,680 --> 00:16:01,360 Speaker 2: The problem is how with a company it can trade 349 00:16:01,880 --> 00:16:03,880 Speaker 2: at a price that doesn't reflect the value of the 350 00:16:03,960 --> 00:16:06,240 Speaker 2: underlying assets. I would say the other problem with like 351 00:16:07,320 --> 00:16:11,840 Speaker 2: this whole idea is that it's one thing to be 352 00:16:11,880 --> 00:16:13,960 Speaker 2: like people want to buy private assets, so we have 353 00:16:14,000 --> 00:16:16,480 Speaker 2: to find a convenient rapper to sell these private assets 354 00:16:16,560 --> 00:16:19,000 Speaker 2: to retail investors. But like, where do you get the 355 00:16:19,000 --> 00:16:22,040 Speaker 2: private assets? Like, there's plenty of private assets in the world, right, 356 00:16:22,040 --> 00:16:24,560 Speaker 2: there's plenty of people who will sell you a private investment, 357 00:16:24,720 --> 00:16:27,440 Speaker 2: but like there are fewer people who will sell you SpaceX, right, 358 00:16:27,520 --> 00:16:29,840 Speaker 2: there are fewer people who will sell you Stripe. The 359 00:16:30,400 --> 00:16:34,160 Speaker 2: private assets that people really want are allocated. They're like 360 00:16:35,120 --> 00:16:39,560 Speaker 2: owned fairly tightly by like big investors who one might 361 00:16:39,600 --> 00:16:42,360 Speaker 2: not want to sell, and two the company tries to 362 00:16:42,440 --> 00:16:44,840 Speaker 2: keep them close, right, Like Stripe tries very hard to 363 00:16:44,880 --> 00:16:48,800 Speaker 2: prevent its investors from selling any stock to destiny. 364 00:16:48,880 --> 00:16:50,840 Speaker 3: I want to say Blackrock can just do a ton 365 00:16:50,960 --> 00:16:52,920 Speaker 3: of what forward contracts on Stripe. 366 00:16:52,960 --> 00:16:55,320 Speaker 2: If you're big enough, you probably can get some of 367 00:16:55,320 --> 00:16:59,080 Speaker 2: these things, and you probably can negotiate terms. Right. But 368 00:16:59,120 --> 00:17:01,400 Speaker 2: there are a lot of big financial institutions that would 369 00:17:01,440 --> 00:17:04,720 Speaker 2: love to have a big pile of Stripper SpaceX to 370 00:17:04,760 --> 00:17:08,560 Speaker 2: sell to their customers, and these private companies to them 371 00:17:08,640 --> 00:17:10,600 Speaker 2: like there's a reason they having on public, right, and 372 00:17:10,680 --> 00:17:14,919 Speaker 2: like going semi public by like selling some shares to 373 00:17:14,960 --> 00:17:17,199 Speaker 2: some vehicle that is going to list publicly. It is 374 00:17:17,359 --> 00:17:19,760 Speaker 2: like kind of an annoyance for them if you crack 375 00:17:19,800 --> 00:17:24,919 Speaker 2: the code in such a way that your vehicle provides 376 00:17:24,960 --> 00:17:28,680 Speaker 2: even by proxy, like a mark for the private assets. Right, 377 00:17:28,760 --> 00:17:30,600 Speaker 2: if you're like if you can look at the like 378 00:17:31,320 --> 00:17:34,720 Speaker 2: Kitty Greifeld Private Markets ETF and be like, oh, that 379 00:17:34,760 --> 00:17:37,360 Speaker 2: tells me that SpaceX is trading at thirty seven, then 380 00:17:37,400 --> 00:17:39,480 Speaker 2: like that's like what SpaceX is trying to prevent, Like 381 00:17:39,480 --> 00:17:41,000 Speaker 2: they don't want their price to go up and down 382 00:17:41,000 --> 00:17:43,080 Speaker 2: every day. Yeah, and so like, to the extent this 383 00:17:43,400 --> 00:17:47,320 Speaker 2: works mechanically, it's annoying for the issuers. And then like 384 00:17:47,359 --> 00:17:49,360 Speaker 2: you know, the question is if you have this product, 385 00:17:49,640 --> 00:17:53,880 Speaker 2: it's easier for you to get bad private companies. Yeah, 386 00:17:54,200 --> 00:17:56,200 Speaker 2: like like oh, sure, I'll sell you one hundred million 387 00:17:56,200 --> 00:17:58,280 Speaker 2: shares for your thing. You know, you talk about Blackrock 388 00:17:58,320 --> 00:18:00,600 Speaker 2: wanting to index the private markets. Like if you could 389 00:18:00,640 --> 00:18:03,320 Speaker 2: get like a true like index slice of the private markets, 390 00:18:03,320 --> 00:18:05,119 Speaker 2: First of all, that might be bad, right, but you 391 00:18:05,160 --> 00:18:07,000 Speaker 2: really want it's like the good companies. But like the 392 00:18:07,480 --> 00:18:09,320 Speaker 2: real worry is like you would end up with not 393 00:18:09,359 --> 00:18:11,400 Speaker 2: an index of all the companies, but like the bad 394 00:18:11,440 --> 00:18:13,800 Speaker 2: ones that are willing to be involved in your index. Yeah, 395 00:18:13,840 --> 00:18:15,080 Speaker 2: that might be even worse. 396 00:18:14,880 --> 00:18:19,199 Speaker 3: Than just yeah, so you want your blue chip private 397 00:18:19,200 --> 00:18:21,840 Speaker 3: companies the one who would have iPod in a normal market. 398 00:18:21,840 --> 00:18:23,679 Speaker 3: But we're not in a normal market. 399 00:18:23,920 --> 00:18:25,840 Speaker 2: It's not clear to me exactly why some of the 400 00:18:25,880 --> 00:18:28,280 Speaker 2: blue chip companies don't IPO, and like some of it 401 00:18:28,320 --> 00:18:29,840 Speaker 2: is like we're in a bad IPO market. But I 402 00:18:29,880 --> 00:18:31,680 Speaker 2: think some of it is you're now in an environment 403 00:18:31,680 --> 00:18:34,760 Speaker 2: where you can be a very large private company without IPO, 404 00:18:34,840 --> 00:18:37,159 Speaker 2: and your cost of capital is not that high, and 405 00:18:37,280 --> 00:18:41,280 Speaker 2: you have some like attractive benefits of not having the 406 00:18:41,359 --> 00:18:44,159 Speaker 2: nuisances of a public market. ELI and mus doesn't like 407 00:18:44,200 --> 00:18:46,560 Speaker 2: being public that much, right, Like would SpaceX go public 408 00:18:46,600 --> 00:18:48,399 Speaker 2: even in a good IPO market? I don't know. 409 00:18:48,560 --> 00:18:51,320 Speaker 3: Yeah, And I mean Stripe is sort of the same 410 00:18:51,359 --> 00:18:54,199 Speaker 3: idea they could have iPod, right, I mean, if you 411 00:18:54,240 --> 00:18:56,439 Speaker 3: had an index of private assets, could you just do 412 00:18:56,600 --> 00:18:58,720 Speaker 3: like swaps for disposure. 413 00:18:58,840 --> 00:19:00,320 Speaker 2: That's the other thing I was thinking, like when I 414 00:19:00,359 --> 00:19:02,399 Speaker 2: was thinking about just like the abstract question of like 415 00:19:02,440 --> 00:19:05,000 Speaker 2: can you do an ETF of private markets? The natural 416 00:19:05,000 --> 00:19:07,440 Speaker 2: way to do it is the way bitcoin ETFs worked 417 00:19:07,480 --> 00:19:10,359 Speaker 2: before the like spot bitcoin ETFs were approved for whatever reason, 418 00:19:10,400 --> 00:19:13,240 Speaker 2: you can't hold the asset here because you can't buy 419 00:19:13,240 --> 00:19:15,600 Speaker 2: the shares or because you have liquidity rules that don't 420 00:19:15,600 --> 00:19:17,399 Speaker 2: allow you to buy the shares, so you hold like 421 00:19:17,720 --> 00:19:20,320 Speaker 2: a derivative on the underlying asset, right, Like you get 422 00:19:20,359 --> 00:19:23,560 Speaker 2: some hedge fund bank speculator to write you a swap 423 00:19:23,600 --> 00:19:28,399 Speaker 2: on the value of SpaceX shares and then you use that, 424 00:19:28,440 --> 00:19:30,360 Speaker 2: you put that in the thing, and like that's your proxy. 425 00:19:30,600 --> 00:19:33,240 Speaker 3: That sounds like it could happen pretty soon. 426 00:19:33,640 --> 00:19:36,000 Speaker 2: Yeah, it's like tricky, right, first all the SEC has 427 00:19:36,040 --> 00:19:38,159 Speaker 2: rules about derivatives and funds. But like again, like it 428 00:19:38,280 --> 00:19:41,439 Speaker 2: can be done, right, Bitcoin futures ets did it. Secondly, 429 00:19:41,440 --> 00:19:43,560 Speaker 2: you have to have someone write you that swap and 430 00:19:43,640 --> 00:19:48,320 Speaker 2: like be short SpaceX restrip, which is a risky pat Now, 431 00:19:49,640 --> 00:19:51,959 Speaker 2: somebody who writes you that swap might be able to 432 00:19:52,000 --> 00:19:54,639 Speaker 2: hedge it by owning the underlying shares, right, but like 433 00:19:54,720 --> 00:19:57,800 Speaker 2: that's a risky proposition too, Like you don't know who 434 00:19:57,800 --> 00:19:59,639 Speaker 2: that person is, and like you know their contracts with 435 00:19:59,640 --> 00:20:02,200 Speaker 2: the company. You might ban them from hedging by writing swaps. 436 00:20:02,440 --> 00:20:06,520 Speaker 2: And you have like pricing problems, right because like you 437 00:20:06,520 --> 00:20:08,679 Speaker 2: know the forward contracts for some of these private companies. 438 00:20:08,680 --> 00:20:11,000 Speaker 2: It's like when they go public, you deliver the shares 439 00:20:11,000 --> 00:20:13,520 Speaker 2: and so like, there's ultimately a price for the forward contract, 440 00:20:13,680 --> 00:20:15,520 Speaker 2: but like, how do you market to market before they 441 00:20:15,520 --> 00:20:17,480 Speaker 2: go public with an ETF, Like you kind of need 442 00:20:17,520 --> 00:20:20,439 Speaker 2: a daily market price, and it's hard to hard to 443 00:20:20,480 --> 00:20:24,880 Speaker 2: mark that thing to market without actual trading, and with swaps, 444 00:20:24,960 --> 00:20:26,800 Speaker 2: it's not obvious that some of these things will ever 445 00:20:26,840 --> 00:20:28,760 Speaker 2: go public. So I don't know you could do it 446 00:20:28,800 --> 00:20:31,080 Speaker 2: that way. But like, you have a lot of mechanics 447 00:20:31,119 --> 00:20:31,400 Speaker 2: to work. 448 00:20:31,400 --> 00:20:34,320 Speaker 3: There a lot of big questions. But boy, isn't it 449 00:20:34,320 --> 00:20:35,119 Speaker 3: fun to think about? 450 00:20:35,800 --> 00:20:46,359 Speaker 4: I love it. 451 00:20:36,119 --> 00:20:49,600 Speaker 1: It's time for mail bag, mail bag, mail bag. 452 00:20:50,000 --> 00:20:52,560 Speaker 3: So we did a call out for mail back questions 453 00:20:52,640 --> 00:20:55,840 Speaker 3: last week. We were thinking, well, should we say we 454 00:20:55,880 --> 00:20:57,280 Speaker 3: want you to keep sending questions? 455 00:20:57,480 --> 00:20:59,600 Speaker 2: We got really good ones. We did get really try 456 00:20:59,640 --> 00:21:02,320 Speaker 2: to like respond to them enthusiastically so that you'll send 457 00:21:02,359 --> 00:21:02,720 Speaker 2: us more. 458 00:21:02,880 --> 00:21:05,879 Speaker 3: Yeah, please send us more. We're going to answer a 459 00:21:05,920 --> 00:21:07,000 Speaker 3: few of them right now. 460 00:21:06,800 --> 00:21:08,439 Speaker 2: But please send us more more in the hopper. 461 00:21:08,880 --> 00:21:13,480 Speaker 3: Yeah, boy, and they are fun to read. Andrew had 462 00:21:13,520 --> 00:21:16,880 Speaker 3: a fun one. We were talking about Ron Barron last week, 463 00:21:17,320 --> 00:21:21,360 Speaker 3: and and Andrew wrote, I was catching up with Friday Show, 464 00:21:21,359 --> 00:21:24,000 Speaker 3: listening to the general trend of active management getting squeezed 465 00:21:24,040 --> 00:21:26,720 Speaker 3: on their fees. It reminded me of a conversation I 466 00:21:26,760 --> 00:21:29,000 Speaker 3: had in the sauna with this guy who was in 467 00:21:29,040 --> 00:21:31,880 Speaker 3: town for the Baron Funds annual meeting. He ran money 468 00:21:31,920 --> 00:21:34,120 Speaker 3: for an institution and told me he kept some money 469 00:21:34,119 --> 00:21:37,320 Speaker 3: in their funds just for the entertainment at their annual meeting. 470 00:21:37,720 --> 00:21:41,080 Speaker 3: Look at the bands that get to perform at their meetings, Fleetwood, Mac, 471 00:21:41,520 --> 00:21:44,520 Speaker 3: Justin Timberlake, lots of others. I thought that type of 472 00:21:44,520 --> 00:21:47,440 Speaker 3: thing would have been eliminated years ago, but he said, 473 00:21:47,480 --> 00:21:49,840 Speaker 3: you just have to have any amount of money invested 474 00:21:49,880 --> 00:21:53,560 Speaker 3: and you get an invite. That is incredible. I love that. 475 00:21:53,560 --> 00:21:55,880 Speaker 2: It's like a real model in investment management. Right. Yeah, 476 00:21:55,960 --> 00:21:57,879 Speaker 2: It's like you give your clients some like you know, 477 00:21:57,920 --> 00:22:01,080 Speaker 2: ancillary cool service and exchange. You get to manage some 478 00:22:01,080 --> 00:22:02,879 Speaker 2: of their money for them at higher fees than they 479 00:22:02,880 --> 00:22:04,160 Speaker 2: would pay the van card. 480 00:22:04,240 --> 00:22:04,359 Speaker 4: Right. 481 00:22:04,960 --> 00:22:07,480 Speaker 2: The guy in this lot is like an institutional allocator, 482 00:22:07,520 --> 00:22:09,840 Speaker 2: which is like a little weird, right yeah, because like 483 00:22:09,880 --> 00:22:12,919 Speaker 2: he's putting his clients money into Barren so that he 484 00:22:12,960 --> 00:22:15,560 Speaker 2: can go to the justin Termala truck. But like you 485 00:22:15,600 --> 00:22:18,920 Speaker 2: read about like private equity funds have like LP advisory 486 00:22:18,960 --> 00:22:20,760 Speaker 2: councils like sort of like a board of directors or 487 00:22:20,760 --> 00:22:22,919 Speaker 2: like a private equity fund, Like you know, ten of 488 00:22:22,960 --> 00:22:24,920 Speaker 2: their big investors will be on some sort of board 489 00:22:24,960 --> 00:22:27,040 Speaker 2: where like every quarter they review the investments and like 490 00:22:27,080 --> 00:22:29,919 Speaker 2: they chat with the GP. But they have those meetings 491 00:22:29,960 --> 00:22:33,680 Speaker 2: and like vacation destinations and like those meetings are fun. 492 00:22:33,760 --> 00:22:37,400 Speaker 2: Right if you're like the like state treasurer or whatever, 493 00:22:37,520 --> 00:22:40,240 Speaker 2: you can like go to like a really ritzy resort 494 00:22:40,280 --> 00:22:43,439 Speaker 2: for a weekend to like be on your advisory council 495 00:22:43,480 --> 00:22:45,320 Speaker 2: and like then maybe you all get some more money 496 00:22:45,359 --> 00:22:46,320 Speaker 2: to that private equity fund. 497 00:22:46,600 --> 00:22:48,280 Speaker 3: Makes a lot of sense to me. I was so 498 00:22:48,400 --> 00:22:52,200 Speaker 3: delighted to get this email because this touches on something 499 00:22:52,240 --> 00:22:54,840 Speaker 3: that you were writing about in the newsletter this past week. 500 00:22:55,080 --> 00:22:58,680 Speaker 3: You quoted Sebastian Mallaby. He is the author of More 501 00:22:58,760 --> 00:23:01,639 Speaker 3: Money than God Hedge Funds and the Making of the 502 00:23:01,680 --> 00:23:04,200 Speaker 3: New Elite. And one of the conclusions that you reached 503 00:23:04,200 --> 00:23:06,040 Speaker 3: in the newsletter this week was that the parties are 504 00:23:06,119 --> 00:23:09,040 Speaker 3: less fun because traditional stock picking is going away. 505 00:23:09,520 --> 00:23:11,920 Speaker 2: There was a vogue for hedge funds being like celebrity 506 00:23:11,960 --> 00:23:14,840 Speaker 2: stock pickers who like went to conferences and were like ah, 507 00:23:15,200 --> 00:23:17,280 Speaker 2: putting my best idea is blah blah blah. Right, and 508 00:23:17,320 --> 00:23:20,040 Speaker 2: now it's a much more like grinding out alpha kind 509 00:23:20,040 --> 00:23:23,400 Speaker 2: of business. And you know it's just like more professionalized 510 00:23:23,400 --> 00:23:25,560 Speaker 2: and less like party driven, but it's still like there's 511 00:23:25,600 --> 00:23:29,040 Speaker 2: still a lot of like party driven stuff. And oh yeah, finance. 512 00:23:29,359 --> 00:23:32,000 Speaker 2: The other thing you know in this vein a famous 513 00:23:32,000 --> 00:23:35,400 Speaker 2: fact about finance is like some number of investment firms 514 00:23:36,040 --> 00:23:41,280 Speaker 2: either like started as or like are marketed by email newsletters, 515 00:23:41,520 --> 00:23:43,720 Speaker 2: and like Bridgewater is the most famous one. Like Bridgewater 516 00:23:43,760 --> 00:23:46,120 Speaker 2: sort of starts as an investment newsletter and people like, yeah, 517 00:23:46,119 --> 00:23:48,080 Speaker 2: your newsletter is so good, I'd like to give you money. 518 00:23:48,080 --> 00:23:49,560 Speaker 2: And now like they have the most money of any 519 00:23:49,560 --> 00:23:52,160 Speaker 2: hedge fund, they sort of say, well, you know, some 520 00:23:52,520 --> 00:23:56,120 Speaker 2: investors allocate to Bridgewater not because the returns are so great, 521 00:23:56,200 --> 00:23:59,159 Speaker 2: but because they like getting Bridgewater's research right. You know, 522 00:23:59,200 --> 00:24:01,760 Speaker 2: it's more boring and like going to the justin Timberlake party. 523 00:24:01,800 --> 00:24:04,040 Speaker 2: But again, it's like you're providing some benefit other than 524 00:24:04,119 --> 00:24:06,760 Speaker 2: like managing the money in the best way, and people 525 00:24:07,040 --> 00:24:08,800 Speaker 2: are willing to give you some of the money in 526 00:24:08,880 --> 00:24:11,399 Speaker 2: exchange for like nice aura around all the services you 527 00:24:11,480 --> 00:24:13,400 Speaker 2: provide and they hope that they'll that you'll make the money. 528 00:24:13,440 --> 00:24:13,600 Speaker 4: You have. 529 00:24:14,160 --> 00:24:17,480 Speaker 3: Interesting that you mentioned justin Timberlake but not Fleetwood Mac. 530 00:24:18,560 --> 00:24:20,360 Speaker 2: It was just like thinking that the kids these days, 531 00:24:20,359 --> 00:24:23,280 Speaker 2: But of course justin Timberlake is like far bend the 532 00:24:23,320 --> 00:24:24,000 Speaker 2: kids these days. 533 00:24:24,000 --> 00:24:25,120 Speaker 3: It's going to ruin the tour. 534 00:24:25,280 --> 00:24:25,920 Speaker 2: It's going to ruin. 535 00:24:27,359 --> 00:24:29,360 Speaker 3: Is pokers taking a security? 536 00:24:29,600 --> 00:24:31,399 Speaker 2: Is poker's taking a security? Do you want to read 537 00:24:31,440 --> 00:24:32,440 Speaker 2: the email? Yes? 538 00:24:32,480 --> 00:24:36,119 Speaker 3: No, I love reading from an anonymous reader. Writer, No, 539 00:24:36,240 --> 00:24:39,920 Speaker 3: I guess they're a reader anyway, from an anonymous reader. 540 00:24:40,480 --> 00:24:43,480 Speaker 3: It is fairly common for poker players to be staked. 541 00:24:43,520 --> 00:24:45,600 Speaker 3: By that, I mean that a person or a group 542 00:24:45,640 --> 00:24:47,960 Speaker 3: of people provide some or all of the money the 543 00:24:47,960 --> 00:24:51,640 Speaker 3: poker player is gambling with parentheses, either as the entry 544 00:24:51,680 --> 00:24:54,040 Speaker 3: fee to a tournament or the bank roll they used 545 00:24:54,080 --> 00:24:56,640 Speaker 3: to play in cash games, and in return they get 546 00:24:56,720 --> 00:24:59,640 Speaker 3: some agreed upon percentage of the winnings, if there are any. 547 00:25:00,160 --> 00:25:01,960 Speaker 3: There are even sites where you can buy and sell 548 00:25:01,960 --> 00:25:06,320 Speaker 3: stakes for tournaments. Do poker steaks past the Howie test? 549 00:25:06,960 --> 00:25:10,320 Speaker 3: Are these staking websites unregistered security exchanges? 550 00:25:10,960 --> 00:25:14,719 Speaker 2: So I was having any people an investment firm last week, 551 00:25:14,880 --> 00:25:18,440 Speaker 2: and they kept asking a questions and I kept saying, 552 00:25:19,119 --> 00:25:21,800 Speaker 2: I'm sorry to do this, but really this is about cryptoe. 553 00:25:22,000 --> 00:25:24,000 Speaker 2: I'm sick of crypto. We're all sick of CRI. Yeah, 554 00:25:24,000 --> 00:25:26,800 Speaker 2: but like crypto has really changed how a lot of 555 00:25:26,800 --> 00:25:28,960 Speaker 2: people understand a lot of things in finance. And like, 556 00:25:29,040 --> 00:25:30,600 Speaker 2: this question is a crypto. 557 00:25:30,280 --> 00:25:33,000 Speaker 3: Question, Like do you feel like they're trying to trick you? 558 00:25:33,040 --> 00:25:36,200 Speaker 2: No, No, I'm not sure that our anonymous reader thinks 559 00:25:36,200 --> 00:25:38,280 Speaker 2: it's a crypto. It's just like it is a cryptical question. 560 00:25:38,400 --> 00:25:41,280 Speaker 2: So here's the deal. There's like an ancient Supreme Court 561 00:25:41,280 --> 00:25:46,159 Speaker 2: case called Howie where the Supreme Court said that a security, 562 00:25:46,600 --> 00:25:50,080 Speaker 2: subject to like sec securities regulation, is an investment of 563 00:25:50,080 --> 00:25:53,000 Speaker 2: money in a common enterprise, with profits to come solely 564 00:25:53,000 --> 00:25:55,840 Speaker 2: from the efforts of others. Right. And so for most 565 00:25:55,880 --> 00:25:59,680 Speaker 2: of my career, if you ask what is a security, 566 00:25:59,720 --> 00:26:01,840 Speaker 2: people like, yeah, it's like a stock or a bond, right, 567 00:26:02,280 --> 00:26:06,080 Speaker 2: And most sec cases are stocks and bonds, not all, 568 00:26:06,160 --> 00:26:09,760 Speaker 2: but like most. And that was like the focus of securities. 569 00:26:09,800 --> 00:26:12,960 Speaker 2: And so you had this world where people would offer 570 00:26:12,960 --> 00:26:14,919 Speaker 2: stocks and bonds and the sec would regulate it. And 571 00:26:14,960 --> 00:26:16,719 Speaker 2: you have the world of people that other like investment 572 00:26:16,760 --> 00:26:18,800 Speaker 2: opportunities and they're like you know, ways to make money. 573 00:26:18,920 --> 00:26:22,320 Speaker 2: People trade baseball cards, you know, like people had beanie babies, 574 00:26:22,400 --> 00:26:25,679 Speaker 2: and all this stuff was like clearly not a security, 575 00:26:25,760 --> 00:26:27,560 Speaker 2: and like no one would think it was a security. 576 00:26:27,680 --> 00:26:30,000 Speaker 2: And then crypto came along, and cryptos like, we're gonna 577 00:26:30,000 --> 00:26:32,680 Speaker 2: start companies. We're gonna raise hundreds of millions of dollars 578 00:26:32,680 --> 00:26:35,119 Speaker 2: from public offerings. We're gonna use that money to do 579 00:26:35,280 --> 00:26:39,000 Speaker 2: businesses and promise people share of the profits of that business, 580 00:26:39,240 --> 00:26:41,399 Speaker 2: and we're gonna all call it crypto on the blockchain, 581 00:26:41,560 --> 00:26:43,560 Speaker 2: and it's not going to be a security because it's 582 00:26:43,560 --> 00:26:45,919 Speaker 2: not a stock or a bond, and we're gonna not 583 00:26:46,000 --> 00:26:48,000 Speaker 2: be regulated, and we're gonna steal half of the money, 584 00:26:48,040 --> 00:26:51,320 Speaker 2: right Yeah. And so the SEC responded to that slowly 585 00:26:51,880 --> 00:26:54,560 Speaker 2: by saying, this is all securities, right, this is all passes. 586 00:26:54,560 --> 00:26:56,320 Speaker 2: The how he does this is an investment of money 587 00:26:56,440 --> 00:26:58,840 Speaker 2: in a common enterprise with profits to come solely from 588 00:26:58,880 --> 00:27:00,960 Speaker 2: the efforts of others, and so it's all a security. 589 00:27:01,000 --> 00:27:02,760 Speaker 2: And this is like hotly litigated and there's a lot 590 00:27:02,760 --> 00:27:05,240 Speaker 2: of fighting over like particular cases, but like that's what 591 00:27:05,280 --> 00:27:08,520 Speaker 2: the SEC things. But one result of that is like 592 00:27:08,560 --> 00:27:10,840 Speaker 2: the SEC then like kind of goes back and looks 593 00:27:10,880 --> 00:27:13,280 Speaker 2: at everything else that like no one would have thought 594 00:27:13,280 --> 00:27:15,400 Speaker 2: was the security twenty years ago and was like, oh, 595 00:27:15,400 --> 00:27:17,440 Speaker 2: that's not a security like that. That kind of also 596 00:27:17,480 --> 00:27:20,800 Speaker 2: looks like a crypto token. I quote sometimes Hester Pierce 597 00:27:20,960 --> 00:27:26,359 Speaker 2: is a SEC commissioner, Like the SEC basically like approved 598 00:27:26,480 --> 00:27:30,280 Speaker 2: some crypto company for doing like gift cards for private 599 00:27:30,359 --> 00:27:33,680 Speaker 2: jet travel or something, and Aster Pierce said in a 600 00:27:33,720 --> 00:27:37,399 Speaker 2: speech like if those tokens are security is then you 601 00:27:37,400 --> 00:27:39,560 Speaker 2: can't distinguish them from any other sort of gift card, 602 00:27:39,600 --> 00:27:42,119 Speaker 2: because a Starbucks gift card of security, right, and like 603 00:27:42,400 --> 00:27:44,840 Speaker 2: there's like now kind of almost like a live question 604 00:27:44,880 --> 00:27:48,320 Speaker 2: as a Starbucks gift card of security. So anyway, poker, 605 00:27:48,560 --> 00:27:52,000 Speaker 2: like if you're investing in someone's like poker business, like, yeah, 606 00:27:52,000 --> 00:27:53,119 Speaker 2: that's clearly a security. 607 00:27:53,600 --> 00:27:54,199 Speaker 1: It just is. 608 00:27:54,640 --> 00:27:56,920 Speaker 2: We looked online and there's some lawry articles being like, yeah, 609 00:27:56,920 --> 00:28:00,560 Speaker 2: this is obviously security. Is there any history of enforcement? 610 00:28:00,920 --> 00:28:05,280 Speaker 2: In twenty seventeen, the SEC looked into one of these 611 00:28:05,359 --> 00:28:08,800 Speaker 2: taking platforms, and the staking platform actually sued the SEC 612 00:28:09,280 --> 00:28:11,000 Speaker 2: to make them drop their case and say we're not 613 00:28:11,040 --> 00:28:14,679 Speaker 2: a security. That didn't get litigated. The SEC moved on 614 00:28:14,760 --> 00:28:18,760 Speaker 2: and dropped the case, it's twenty seventeen. Like, I think 615 00:28:19,600 --> 00:28:24,320 Speaker 2: the twenty twenty four SEC one might not bother because 616 00:28:24,920 --> 00:28:27,679 Speaker 2: they're busy with all the crypto lawsuits. But two, if 617 00:28:27,720 --> 00:28:29,480 Speaker 2: they did bother, they'd be like, this is clearly a 618 00:28:29,480 --> 00:28:31,480 Speaker 2: security what are you doing here? So I don't know, 619 00:28:31,520 --> 00:28:35,080 Speaker 2: I might be missing something in the legal analysis that 620 00:28:35,280 --> 00:28:37,639 Speaker 2: poker staking sites are currently doing, but like, yeah, this 621 00:28:37,760 --> 00:28:41,400 Speaker 2: is a thing that the current SEC would probably think 622 00:28:41,480 --> 00:28:42,200 Speaker 2: is a security. 623 00:28:42,480 --> 00:28:46,200 Speaker 3: Poker staking poker station is a security Starbucks gift cards though. 624 00:28:46,120 --> 00:28:50,200 Speaker 2: Not legal advice. Got There's two questions, like one is 625 00:28:50,200 --> 00:28:52,600 Speaker 2: is it a security? And the other is like are 626 00:28:52,600 --> 00:28:54,320 Speaker 2: you offering it to the public, because if you are, 627 00:28:54,440 --> 00:28:56,720 Speaker 2: you have to register at the SEC blah blah. If 628 00:28:56,760 --> 00:28:58,800 Speaker 2: you're not, if you're like only doing it to the 629 00:28:59,320 --> 00:29:01,880 Speaker 2: certain kinds of credit investors, and it's like less of 630 00:29:01,920 --> 00:29:04,520 Speaker 2: a problem. So maybe that's how Hooker's taking works. But 631 00:29:04,960 --> 00:29:08,560 Speaker 2: it's like a little risky. Yeah, all right, her reader asks, 632 00:29:08,760 --> 00:29:11,560 Speaker 2: having just listened to the episode on hedge fund training programs. 633 00:29:11,760 --> 00:29:15,240 Speaker 2: I'm wondering where the tipping point for too many portfolio 634 00:29:15,240 --> 00:29:18,960 Speaker 2: managers is, like, is alpha like calculus where you just 635 00:29:19,040 --> 00:29:21,640 Speaker 2: keep reducing it into smaller and smaller amounts, and the 636 00:29:21,680 --> 00:29:24,680 Speaker 2: marginal return on a new PM is falling or is 637 00:29:24,680 --> 00:29:27,080 Speaker 2: their finite alpha. So when we train our ten thousandth 638 00:29:27,280 --> 00:29:30,560 Speaker 2: or one hundred thousandth portfolio manager, we have perfect equilibrium 639 00:29:30,560 --> 00:29:33,160 Speaker 2: where all the pro portfolio managers find all the new 640 00:29:33,160 --> 00:29:35,640 Speaker 2: alpha for the day and no more can be found. 641 00:29:35,920 --> 00:29:38,520 Speaker 2: Then you just have a replacement market for portfolio managers. 642 00:29:38,560 --> 00:29:41,320 Speaker 2: Like long snappers, in the NFL, there's always exactly thirty 643 00:29:41,320 --> 00:29:44,440 Speaker 2: two professional long snappers because teams all carry exactly one 644 00:29:44,480 --> 00:29:47,800 Speaker 2: long snapper. I think imagine being the thirty third best 645 00:29:47,880 --> 00:29:50,960 Speaker 2: long snapper. There's like camps for long snappers. Yeah're like, 646 00:29:51,000 --> 00:29:53,479 Speaker 2: they train you to be a long snapper, and if 647 00:29:53,520 --> 00:29:55,719 Speaker 2: you're the thirty third best in the world, you're like, yeah, 648 00:29:55,760 --> 00:29:55,960 Speaker 2: you know. 649 00:29:56,160 --> 00:29:58,640 Speaker 3: Gotta say, I have no idea what a long snapper is. 650 00:29:58,840 --> 00:29:58,959 Speaker 1: Uh. 651 00:29:59,040 --> 00:30:01,120 Speaker 2: It's a guy who throws the football between his legs 652 00:30:01,160 --> 00:30:03,320 Speaker 2: a long distance so that someone can ticket. 653 00:30:04,480 --> 00:30:05,960 Speaker 3: Jeez, Louise, it sounds like a fish. 654 00:30:06,360 --> 00:30:06,719 Speaker 1: Uh. 655 00:30:06,800 --> 00:30:09,320 Speaker 3: But in any case, I do love this idea that 656 00:30:09,360 --> 00:30:15,240 Speaker 3: there's finite alpha, that like alpha is a scarce commodity. 657 00:30:15,760 --> 00:30:18,600 Speaker 2: So I was talking actually this week to a hedgehund 658 00:30:18,640 --> 00:30:21,840 Speaker 2: manager who like helped me orient my thinking on this. 659 00:30:22,600 --> 00:30:25,880 Speaker 2: If you think about what hedge funds do, and particularly 660 00:30:25,880 --> 00:30:27,480 Speaker 2: like these kinds of hedgeh ones. So we were talking 661 00:30:27,520 --> 00:30:29,600 Speaker 2: about like the hedge funds that have like the big 662 00:30:29,680 --> 00:30:32,080 Speaker 2: multi strategy funds that have a lot of portfolio managers 663 00:30:32,080 --> 00:30:36,000 Speaker 2: and like have training programs to like identify new portfolio managers. 664 00:30:36,080 --> 00:30:38,920 Speaker 2: What those funds are doing is like they're providing some 665 00:30:38,960 --> 00:30:41,440 Speaker 2: sort of financial service to the market. They're providing like 666 00:30:41,480 --> 00:30:45,320 Speaker 2: typically liquidity, but like they are intermediating some trades in 667 00:30:45,320 --> 00:30:47,560 Speaker 2: some ways. They're doing what banks used to do. Right, 668 00:30:48,120 --> 00:30:50,040 Speaker 2: we think about like the big trades that like these 669 00:30:50,360 --> 00:30:53,760 Speaker 2: like multi strategy funds do. It's things like index rebalancing, 670 00:30:53,760 --> 00:30:55,960 Speaker 2: where they like buy all the stocks before they get 671 00:30:55,960 --> 00:30:57,400 Speaker 2: put into the index and then they sell them to 672 00:30:57,400 --> 00:31:00,280 Speaker 2: the index funds. Or it's like the basis trade where 673 00:31:00,280 --> 00:31:03,840 Speaker 2: they buy treasury bonds and sell treasury futures and like 674 00:31:04,280 --> 00:31:06,520 Speaker 2: they're buying the bonds from treasury essentially, and they're selling 675 00:31:06,560 --> 00:31:08,960 Speaker 2: the futures to like investment managers who for whatever reason 676 00:31:09,200 --> 00:31:12,360 Speaker 2: don't want to own the bombs themselves. All this stuff 677 00:31:12,440 --> 00:31:15,840 Speaker 2: is like service provision. It's like intermediation. It's like liquidity provision. 678 00:31:15,880 --> 00:31:18,920 Speaker 2: It's like some sort of like business. Right. It's not 679 00:31:19,040 --> 00:31:21,520 Speaker 2: like the mystical skill of like picking the stocks that 680 00:31:21,560 --> 00:31:24,280 Speaker 2: will go up. It's like doing work on behalf of 681 00:31:24,320 --> 00:31:26,240 Speaker 2: people and then you charge them money and they pay. 682 00:31:27,400 --> 00:31:29,240 Speaker 2: So I think if you have that model, this question 683 00:31:29,320 --> 00:31:32,120 Speaker 2: is like a little easier to understand, right, Like how 684 00:31:32,200 --> 00:31:35,000 Speaker 2: much alpha is there? It's not alpha, it's like you know, 685 00:31:35,240 --> 00:31:39,200 Speaker 2: fees for services, and so like if you find a 686 00:31:39,280 --> 00:31:43,120 Speaker 2: new market where it would be valuable to provide liquidity 687 00:31:43,120 --> 00:31:44,600 Speaker 2: in it, then like there's more alpha in the world, 688 00:31:44,640 --> 00:31:45,800 Speaker 2: and like you can do some of that and you 689 00:31:45,800 --> 00:31:47,800 Speaker 2: can get paid, right, And so like the question of 690 00:31:47,840 --> 00:31:50,160 Speaker 2: like how do you train new portfolio managers? Like again, 691 00:31:50,200 --> 00:31:52,520 Speaker 2: like when I hear this description, I think of like 692 00:31:52,800 --> 00:31:54,760 Speaker 2: what banks used to do before they got like more 693 00:31:54,880 --> 00:31:57,960 Speaker 2: risk averse and more capital regulated. Like when I worked 694 00:31:57,960 --> 00:31:59,600 Speaker 2: at a bank, It's like heay, like, let's find a 695 00:31:59,600 --> 00:32:01,800 Speaker 2: new customer base that we can sell new kinds of 696 00:32:01,800 --> 00:32:03,480 Speaker 2: derivatives too, right, And like you sit in the lab 697 00:32:03,520 --> 00:32:05,400 Speaker 2: and you cook up derivatives and you try to sell them. 698 00:32:05,800 --> 00:32:07,840 Speaker 2: I think there's like something like that at Multi Strategy 699 00:32:07,840 --> 00:32:09,520 Speaker 2: Hedge funds where it's like you sit in the lab 700 00:32:09,920 --> 00:32:12,440 Speaker 2: and you think up, not like what alpha can we 701 00:32:12,440 --> 00:32:14,440 Speaker 2: extract from the market, but like what's the need that 702 00:32:14,480 --> 00:32:17,160 Speaker 2: people have? Like what's a demand for a product that 703 00:32:17,200 --> 00:32:19,600 Speaker 2: we can intermediate and then make money on. So I 704 00:32:19,600 --> 00:32:21,720 Speaker 2: think that's the answer, right, Like, and I think the 705 00:32:21,760 --> 00:32:24,280 Speaker 2: other part of the answer is like if you're doing that, 706 00:32:24,440 --> 00:32:28,200 Speaker 2: one thing you're doing is making financial markets more efficient, right, 707 00:32:28,240 --> 00:32:30,720 Speaker 2: Like when you talk to a lot of these multi 708 00:32:30,760 --> 00:32:33,520 Speaker 2: strategy hedge funds, you're like, what are you doing for 709 00:32:33,600 --> 00:32:36,160 Speaker 2: society besides making a lot of money? And the answers 710 00:32:36,200 --> 00:32:37,400 Speaker 2: are making markets more efficient? 711 00:32:37,480 --> 00:32:37,640 Speaker 4: Right. 712 00:32:37,760 --> 00:32:40,120 Speaker 2: If you make markets more efficient, there's more trading, and 713 00:32:40,240 --> 00:32:42,800 Speaker 2: like you're capturing a smaller slice of that trading because 714 00:32:42,920 --> 00:32:45,479 Speaker 2: the market's more efficient, but like you're capturing a smaller 715 00:32:45,520 --> 00:32:48,280 Speaker 2: slice of a bigger pie because you've made the market 716 00:32:48,280 --> 00:32:51,080 Speaker 2: more attractive, some more people trade. So like is there 717 00:32:51,160 --> 00:32:53,600 Speaker 2: finite alpha now? Like if you like make the market 718 00:32:53,680 --> 00:32:55,440 Speaker 2: more efficient, then like there'll be a bigger market and 719 00:32:55,480 --> 00:32:56,120 Speaker 2: you'll get more of it. 720 00:32:57,120 --> 00:33:00,880 Speaker 3: Just maatging that written on a tombstone here lies so 721 00:33:01,000 --> 00:33:04,680 Speaker 3: and so they made markets more efficient, beloved. 722 00:33:04,640 --> 00:33:07,240 Speaker 2: You know all the biggest stairs. 723 00:33:08,520 --> 00:33:12,280 Speaker 3: That's true. So they just throw the football between their legs. 724 00:33:12,720 --> 00:33:13,120 Speaker 3: That's it. 725 00:33:13,320 --> 00:33:17,680 Speaker 2: Well yeah, yeah, well but accurately, like with people running 726 00:33:17,680 --> 00:33:18,200 Speaker 2: at them. 727 00:33:18,400 --> 00:33:21,000 Speaker 3: Yeah, all right, it's a hard job. But like again, 728 00:33:21,400 --> 00:33:26,240 Speaker 3: I scream at a little camera for hours. Yeah, accurately, 729 00:33:26,600 --> 00:33:30,200 Speaker 3: right you also and worthy, Yeah. 730 00:33:31,920 --> 00:33:32,760 Speaker 1: That was so fun. 731 00:33:32,840 --> 00:33:36,040 Speaker 3: Send us more mail at money pod at Bloomberg dot net. 732 00:33:36,240 --> 00:33:41,000 Speaker 2: Money at Bloomberg dots Jesus, And that was the Money 733 00:33:41,000 --> 00:33:41,800 Speaker 2: Stuff Podcast. 734 00:33:42,160 --> 00:33:44,280 Speaker 3: I'm Matt Levin and I'm Katie Greifeld. 735 00:33:46,600 --> 00:33:48,720 Speaker 2: You can find my work by subscribing to the Money 736 00:33:48,720 --> 00:33:51,280 Speaker 2: Stuff newsletter on Bloomberg dot com. 737 00:33:50,880 --> 00:33:53,360 Speaker 3: And you can find me on Bloomberg TV every day 738 00:33:53,440 --> 00:33:57,000 Speaker 3: on Open Interest between nine to eleven am Eastern. 739 00:33:57,480 --> 00:33:59,240 Speaker 2: We'd love to hear from you. You can send an 740 00:33:59,280 --> 00:34:02,360 Speaker 2: email to money at Bloomberg dot net, ask us a 741 00:34:02,440 --> 00:34:04,240 Speaker 2: question and we might answer it on the air. 742 00:34:04,880 --> 00:34:07,360 Speaker 3: You can also subscribe to our show wherever you're listening 743 00:34:07,400 --> 00:34:09,719 Speaker 3: right now and leave us a review. It helps more 744 00:34:09,760 --> 00:34:10,600 Speaker 3: people find the show. 745 00:34:11,320 --> 00:34:14,239 Speaker 2: The Money Stuff Podcast is produced by Anna Maserakus and 746 00:34:14,280 --> 00:34:17,440 Speaker 2: Moses Ondam In special thanks this week to cal Brooks. 747 00:34:17,920 --> 00:34:20,040 Speaker 3: Our theme music was composed by Blake Maples. 748 00:34:20,960 --> 00:34:23,719 Speaker 2: Brandon Francis Newdian is our executive producer, and. 749 00:34:23,719 --> 00:34:25,799 Speaker 3: Sage Bauman is Bloomberg's head of podcasts. 750 00:34:26,360 --> 00:34:29,000 Speaker 2: Thanks for listening to the Money Stuff Podcast. We'll be 751 00:34:29,080 --> 00:34:30,600 Speaker 2: back next week with more stuff