WEBVTT - All the Biggest Tombstones: M&A, ETF, Mailbag 0:00:03.120 --> 0:00:08.400 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:10.760 --> 0:00:14.560 Hello and welcome to The Money Stuff Podcast, your weekly podcast. 0:00:14.560 --> 0:00:18.560 You've already talked about stuff really to money. I'm Matt 0:00:18.640 --> 0:00:21.400 Levine and I read the Money Stuff column for Bloomberg Opinions. 0:00:21.560 --> 0:00:24.079 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:24.079 --> 0:00:25.640 an anchor for Bloomberg Television. 0:00:25.920 --> 0:00:27.200 What are you at today, Katie? 0:00:27.360 --> 0:00:29.240 We're going to talk about M and A fees. Yep, 0:00:29.400 --> 0:00:32.879 We're going to talk about private asset ETFs and then 0:00:32.880 --> 0:00:36.040 we're going to do a mail bag mail bag. 0:00:37.040 --> 0:00:44.600 All right, let's get to it MNA fees. 0:00:44.960 --> 0:00:49.040 So how do investment bankers make money in a normal 0:00:49.159 --> 0:00:50.000 M and A environment? 0:00:50.280 --> 0:00:55.120 Stereotypically, investment bankers get paid for closing M and A deals. Yeah, 0:00:55.160 --> 0:00:58.160 they spend most of their time prospecting for deals and 0:00:58.520 --> 0:01:01.200 occasionally a deal actually happens, and then they get a 0:01:01.200 --> 0:01:03.080 big check. You know, I wrote that they do most 0:01:03.080 --> 0:01:05.000 of their work for free, and then sometimes they're wildly 0:01:05.040 --> 0:01:06.800 over paid. Right, Like, you do a lot of pitching, 0:01:07.040 --> 0:01:08.920 you do a lot of advising clients, You do a 0:01:08.920 --> 0:01:11.039 lot of working on deals that don't happen. Then you 0:01:11.080 --> 0:01:12.440 do a few deals that do happen and you get 0:01:12.480 --> 0:01:13.520 a twenty million dollar check. 0:01:13.680 --> 0:01:16.880 And like you said, occasionally deals close. It feels like 0:01:16.920 --> 0:01:21.200 occasionally is turning into someone infrequently deals closed. In this 0:01:21.520 --> 0:01:21.880 m ANDA. 0:01:21.920 --> 0:01:24.360 Environment, the norm is if you do a deal, you 0:01:24.400 --> 0:01:26.640 get paid, right, and doing a deal is like a 0:01:26.640 --> 0:01:29.040 little bit of a the concept they pitch a lot 0:01:29.040 --> 0:01:30.880 of deals that never happen or like you do some 0:01:30.920 --> 0:01:33.720 work stories. Yeah, but like if you sign a deal, 0:01:33.920 --> 0:01:35.880 you certainly expact that most of the deals that sign 0:01:36.040 --> 0:01:38.520 close two companies agreed to merge and then they merge. Right, 0:01:39.000 --> 0:01:41.440 in the current environment, it is less common. I mean 0:01:41.480 --> 0:01:43.640 it's pretty common, but it's like a little bit less 0:01:43.640 --> 0:01:46.120 certain that a deal that signs will close, right because 0:01:46.120 --> 0:01:49.200 of anti trust regulatory scrutiny is like the sort of 0:01:49.240 --> 0:01:51.000 big headline thing, but other reasons. 0:01:50.640 --> 0:01:52.600 To the golden age of anti trust. 0:01:52.760 --> 0:01:54.880 The golden age of anti trust, and so like some 0:01:54.920 --> 0:01:57.160 big companies sign big deals and then they don't close. 0:01:57.720 --> 0:02:00.880 And if you're a banker whose fee is continued closing, 0:02:01.000 --> 0:02:02.800 then you don't get the fee and then you really sad. 0:02:03.040 --> 0:02:06.000 So what do we do for these four investment bankers? 0:02:06.040 --> 0:02:09.440 Because you wrote about it this week, probably you wrote 0:02:09.440 --> 0:02:11.680 about it this week that it was a Reuter's article. 0:02:11.720 --> 0:02:13.520 I hope I'm pronouncing that name right. 0:02:13.720 --> 0:02:16.919 No, it was it Reuter's. I can say that again. Well, 0:02:16.960 --> 0:02:19.919 you wrote about this week a Reuter's article about these 0:02:19.960 --> 0:02:23.400 poor investment bankers who deals aren't closing as much as 0:02:23.400 --> 0:02:25.200 they were. What are they to do? 0:02:25.639 --> 0:02:28.160 There's been some amount of structuring where you could get 0:02:28.200 --> 0:02:30.480 your fee in some set of installments, right where like 0:02:30.520 --> 0:02:32.800 you could paid a little bit when the deal signs 0:02:32.840 --> 0:02:34.919 and more when the deal closes, or you could get 0:02:34.919 --> 0:02:37.880 paid something for a busted deal. But now bankers are 0:02:38.080 --> 0:02:41.440 charging more of their money up front, like when a 0:02:41.480 --> 0:02:44.240 deal signs, so like when they deliver a fairness opinion, 0:02:44.520 --> 0:02:46.680 and like the deal is sort of formally announced, the 0:02:46.720 --> 0:02:51.080 bank gets check. And they're also when deals get busted, 0:02:51.680 --> 0:02:54.080 banks will write in their engagement letter, if you sign 0:02:54.160 --> 0:02:56.200 a deal and then the deal doesn't close for like 0:02:56.200 --> 0:02:58.760 red uterors, and often the company will get a breakup 0:02:58.800 --> 0:03:03.600 fee closing for regulatory reasons. And banks will say, if 0:03:03.639 --> 0:03:05.320 you get a breakup fee, we want a chunk of it. 0:03:05.400 --> 0:03:08.280 And like both of those things, getting a chunk of 0:03:08.280 --> 0:03:11.240 the breakup fee and getting paid on announcement are like 0:03:11.360 --> 0:03:14.120 more common now and they make up a greater percentage 0:03:14.160 --> 0:03:16.240 now than they used to. So it's like now banks 0:03:16.240 --> 0:03:18.440 are getting like an aggregate twenty or twenty five percent 0:03:18.440 --> 0:03:20.880 of their fees on signing as opposed to like five 0:03:21.000 --> 0:03:24.040 ish percent a few years ago, and they are asking 0:03:24.120 --> 0:03:26.200 for like a quarter of the breakup fee instead of 0:03:26.200 --> 0:03:27.360 like ten or fifteen percent. 0:03:27.560 --> 0:03:30.400 And you know, this world intimately much more than I do. 0:03:30.520 --> 0:03:32.919 But I mean to me, that sounds totally reasonable. 0:03:33.040 --> 0:03:35.240 Oh yeah, it's totally reasonable. It's just like it was 0:03:35.240 --> 0:03:38.160 a norm that they didn't get paid that way. And 0:03:38.520 --> 0:03:39.840 it's funny. You know, I was an M and A 0:03:39.960 --> 0:03:43.680 lawyer and then I was an investment banker. Lawyers traditionally 0:03:43.960 --> 0:03:46.400 get paid by the hour. That's not really true in 0:03:46.560 --> 0:03:49.960 M and A anymore. A lot of lawyers, like bankers, 0:03:50.120 --> 0:03:52.920 get paid success fees. There's a reason why bankers get 0:03:52.920 --> 0:03:55.920 paid success fees so successfully, Like when the deal closes 0:03:56.320 --> 0:03:58.920 in like a classic cell side assignment, if you're selling 0:03:58.960 --> 0:04:02.920 a company and they're getting ten billion dollars for themselves 0:04:03.120 --> 0:04:06.040 and you're like, I want half a percent of that, 0:04:06.320 --> 0:04:08.200 and they're like, yeah, it's like free money. It's like 0:04:08.240 --> 0:04:09.840 all this money gushing in the door, you can have 0:04:09.840 --> 0:04:11.320 half a percent of it. I think that's a lot 0:04:11.320 --> 0:04:14.280 of money. Right. When you are a sell slid banker 0:04:14.320 --> 0:04:17.440 and you get paid only on deal closing, you are 0:04:17.440 --> 0:04:20.480 effectively getting paid by someone else, right, the client who 0:04:20.520 --> 0:04:22.719 hires yours like, ah, it's not my money, Like the 0:04:22.800 --> 0:04:25.440 buyer is paying that money anyway, will be gone, you know, 0:04:25.520 --> 0:04:27.560 will be great. You know, we're getting bought out at 0:04:27.560 --> 0:04:29.520 a premium, so we don't care about giving you half 0:04:29.560 --> 0:04:32.359 a percent of that. Right, And so if you're a banker, 0:04:32.440 --> 0:04:35.640 you can charge a bigger fee if it's entirely contingent. 0:04:35.680 --> 0:04:38.120 If it's like you pay no money unless you get 0:04:38.120 --> 0:04:41.039 bought out, right, So it's an attractive proposition. It's just 0:04:41.080 --> 0:04:43.520 like if more deals don't close, then like your business 0:04:43.520 --> 0:04:46.760 gets very risky, and like sometimes you don't make any money. 0:04:46.880 --> 0:04:51.640 You know, lawyers traditionally get paid much more reliably. They 0:04:51.720 --> 0:04:54.920 build by the hour, even law firms that charge success fees. 0:04:54.960 --> 0:04:57.240 If a deal doesn't close, they usually get paid something anyway, 0:04:57.279 --> 0:04:59.320 you know, whereas like bankers traditionally got less of that, 0:05:00.040 --> 0:05:03.400 and the lawyers like the way they get paid. And 0:05:03.440 --> 0:05:07.080 there have been criticisms from like lawyers and judges of 0:05:07.120 --> 0:05:09.679 how bankers get paid, because like, if you're a banker 0:05:10.120 --> 0:05:12.919 and you get paid only on completing a deal, you 0:05:12.960 --> 0:05:15.120 have incentives to make sure that deals get done right. 0:05:15.240 --> 0:05:16.919 The client is like, I don't know if this is 0:05:16.920 --> 0:05:19.360 actually a good idea. Do we really want to sell? 0:05:19.360 --> 0:05:22.120 Like we might be better off on our own. There is 0:05:22.160 --> 0:05:24.000 a stereotype. The banker is like, no, you got to 0:05:24.040 --> 0:05:26.560 sell them, And then I'm not really true and like 0:05:26.920 --> 0:05:29.360 trusted investment banker knows what to say no and whatever. 0:05:29.400 --> 0:05:31.880 But it's like something amount of truth to this, where 0:05:31.920 --> 0:05:35.320 like the investment banker is always incentivized to do a deal, 0:05:35.360 --> 0:05:39.520 whereas someone else might sometimes correctly advise the company like 0:05:39.600 --> 0:05:40.839 do nothing. Bill. 0:05:42.200 --> 0:05:43.600 I don't know how you feel, but I was very 0:05:43.600 --> 0:05:46.320 excited reading money stuff this week. And then there was 0:05:46.480 --> 0:05:50.800 a current news happening that very neatly illustrated what we're 0:05:50.800 --> 0:05:53.039 talking about, because this, of course what we're talking about, 0:05:53.120 --> 0:05:55.440 M and A bankers wanting more of the breakup fees 0:05:55.920 --> 0:05:59.440 in part due to antitrust concerns, and this week one 0:05:59.440 --> 0:06:03.279 of the biggest sorries was this cybersecurity startup named wiz 0:06:03.680 --> 0:06:08.200 Google had offered a takeover bid of twenty three billion 0:06:08.279 --> 0:06:11.800 dollars and Wiz turned it down. They said that they 0:06:11.839 --> 0:06:15.360 were gonna go for an IPO instead, but Bloomberg reported 0:06:15.400 --> 0:06:19.200 that Whiz decided it could ultimately be worth more as 0:06:19.200 --> 0:06:21.960 a public company, but also concerns about the potential for 0:06:22.080 --> 0:06:26.120 a protracted regulatory approval process also encouraged it to go 0:06:26.240 --> 0:06:29.040 this route as well. So, I mean, twenty three billion 0:06:29.040 --> 0:06:32.720 dollars is hard to walk away from. I think the 0:06:32.760 --> 0:06:35.600 CEO called it a humbling offer. But I mean if 0:06:35.640 --> 0:06:40.640 the deal's probably gonna come under scrutiny and probably won't close, 0:06:40.720 --> 0:06:42.040 maybe it's not worth a headache. 0:06:42.680 --> 0:06:44.160 Yeah, I mean you see a lot of this, like 0:06:44.200 --> 0:06:46.320 where if you're a company and you get a really 0:06:46.480 --> 0:06:50.600 tempting offer and you're like, there's a fifty percent chance 0:06:50.640 --> 0:06:53.120 this won't close for regular tor reasons, Like you're in 0:06:53.160 --> 0:06:55.480 a much worse situation in a lot of ways if 0:06:55.520 --> 0:06:59.120 you like spend months working on getting this deal closed, 0:06:59.560 --> 0:07:02.320 sort of spending all of your operations to plan a merger, 0:07:02.360 --> 0:07:05.040 and then like it falls apart for regulatory reasons and 0:07:05.040 --> 0:07:08.000 you're kind of back to nowhere. It's a bad situation. 0:07:08.120 --> 0:07:10.080 To be in and so if the money sounds great, 0:07:10.120 --> 0:07:11.680 but you might say, you know, this is like like 0:07:11.720 --> 0:07:14.200 a mirage of getting all this money. I mean from 0:07:14.200 --> 0:07:16.920 the banker's perspective too, the deals that don't close are 0:07:16.960 --> 0:07:18.600 the ones that in some ways to take the most work, 0:07:18.640 --> 0:07:20.280 right because like you signed the deal and that's like 0:07:20.280 --> 0:07:22.960 this anti trust investigation and you're like sort of you know, 0:07:23.040 --> 0:07:25.960 working to integrate the companies and also like respond to 0:07:26.680 --> 0:07:28.720 regulatory concerns. It's a lot of work. And then it 0:07:28.760 --> 0:07:30.320 doesn't close and you don't get bad. 0:07:30.520 --> 0:07:31.320 So who's happy? 0:07:31.320 --> 0:07:31.560 Here? 0:07:31.760 --> 0:07:34.160 Is there silver lining? Like are the lawyers happy? Maybe 0:07:34.200 --> 0:07:36.520 the bankers are sad, but the lawyers are happy. 0:07:36.640 --> 0:07:39.160 The bankers are fine. Like what's happening is they're changing 0:07:39.160 --> 0:07:41.000 their free structures to get pop. The people who are 0:07:41.040 --> 0:07:44.320 unhappy to some degree are like the companies who were 0:07:44.400 --> 0:07:46.520 used to paying for success, and like you pay nothing 0:07:46.560 --> 0:07:48.120 unless you get a merger, and now it's like, you know, 0:07:48.200 --> 0:07:49.640 you pay something if you don't get a merger, and 0:07:49.720 --> 0:07:51.320 like that's a bummer to have your deal fall apart 0:07:51.320 --> 0:08:03.840 and still get the bill from the bankers. 0:08:04.280 --> 0:08:06.640 Okay, let's get to the good stuff. Let's talk about 0:08:06.800 --> 0:08:09.400 private asset ETF. So we've already spoken about. 0:08:09.400 --> 0:08:11.720 Yea, you were like, I think last week you were like, 0:08:12.240 --> 0:08:14.640 how were we gonna put private assets into NAIs? Like, Yeah, 0:08:14.720 --> 0:08:17.080 there's gotta be some way. Now we're going to talk 0:08:17.080 --> 0:08:17.680 about it for real. 0:08:17.840 --> 0:08:20.960 We're gonna talk about it for real because it's one 0:08:21.000 --> 0:08:25.280 of the most fun and most frequent thought exercises that's 0:08:25.280 --> 0:08:27.760 happening in the ETF industry right now. You have this 0:08:27.880 --> 0:08:32.720 like super in demand asset class, this super in demand wrapper, 0:08:33.320 --> 0:08:35.320 and you have all these big brains trying to figure 0:08:35.360 --> 0:08:39.960 out how to put private assets into an ETF and 0:08:40.800 --> 0:08:43.880 no one has cracked the code yet. 0:08:43.600 --> 0:08:44.959 But you're gonna tell us how. 0:08:45.160 --> 0:08:46.440 I'm not going to tell you how, but I'm going 0:08:46.480 --> 0:08:48.480 to talk to you about different attempts to do that, 0:08:48.520 --> 0:08:50.960 and you're gonna opine on it. Probably there's like all 0:08:50.960 --> 0:08:53.880 these proxy sort of things. It sort of is similar 0:08:53.920 --> 0:08:57.360 to when there weren't spot bitcoin or Bitcoin Futures ETF, 0:08:57.440 --> 0:09:00.240 so you would have these ETFs that were launch that 0:09:00.280 --> 0:09:02.719 held a bunch of bitcoin miners and things such as 0:09:02.720 --> 0:09:06.520 that those exist right now. Then there was this filing 0:09:06.720 --> 0:09:11.920 for the Crane shares Man Liquid Private Equity Index ETF, 0:09:12.160 --> 0:09:14.920 which would basically seek to be a quote proxy for 0:09:14.960 --> 0:09:18.800 private equity performance and risk exposures by focusing on small 0:09:18.840 --> 0:09:22.440 and MidCap stocks that have characteristics similar to companies in 0:09:22.520 --> 0:09:25.280 private equity buyout funds. And I thought that was interesting 0:09:25.320 --> 0:09:29.640 because it's not buying shares of publicly listed private equity firms. 0:09:29.760 --> 0:09:31.800 There's a few ETFs that do that right now, but 0:09:31.880 --> 0:09:37.000 it's basically trying to mimic the portfolio of these private 0:09:37.000 --> 0:09:37.880 equity companies. 0:09:38.000 --> 0:09:40.160 Yeah, there's a theory that like the value add from 0:09:40.240 --> 0:09:43.440 private equity consists of like taking a certain tranch of 0:09:43.520 --> 0:09:46.560 kind of smaller MidCap sort of cash flowty companies and 0:09:46.600 --> 0:09:49.200 then levering them up a lot. The thought is, like 0:09:49.480 --> 0:09:51.480 you can do that on your own instead of investing 0:09:51.520 --> 0:09:53.840 with take Care or Blacks. Then to like buy out 0:09:53.880 --> 0:09:56.160 these like MidCap companies and like put a bunch of 0:09:56.200 --> 0:09:58.480 leverage on them. You can just buy their publicly traded 0:09:58.480 --> 0:10:01.200 shares and like they got a margin and learn answer shares, 0:10:01.400 --> 0:10:04.200 and then you kind of like recreated a private equity 0:10:04.240 --> 0:10:06.880 portfolio that is true at like a very high level. 0:10:07.040 --> 0:10:10.080 And then it's like it abstracts away from like whatever 0:10:10.120 --> 0:10:13.840 operational improvements they make. Whatever clever financial engineering they do, 0:10:14.160 --> 0:10:16.800 it takes away all of the like stuff they pride 0:10:16.800 --> 0:10:18.920 themselves on doing. But like the basic thing of like 0:10:19.080 --> 0:10:21.880 buying some companies with cash flows and borrowing against them, Like, yeah, 0:10:21.880 --> 0:10:23.400 you can do that on your own, the ideas the 0:10:23.400 --> 0:10:25.760 ETF can do that on insigne. I don't actually do 0:10:25.840 --> 0:10:28.640 the leverage part as much as like people like started 0:10:28.640 --> 0:10:31.040 to publicly traded vehicles to like try to make private 0:10:31.040 --> 0:10:33.240 equity returns by doing that kind of trade. 0:10:33.360 --> 0:10:34.840 Yeah, it is unsatisfying. 0:10:34.880 --> 0:10:35.080 Though. 0:10:35.200 --> 0:10:39.319 One reason it's unsatisfying is that when you talk about 0:10:39.360 --> 0:10:43.640 like private assets being a hot asset class, like one 0:10:43.640 --> 0:10:45.360 thing that means is like private credit is very hot. 0:10:45.520 --> 0:10:48.200 But like when we talk about like people who want 0:10:48.240 --> 0:10:49.880 to go to parties and say that they own blah 0:10:49.920 --> 0:10:51.800 blah blah, Like the thing they want to own is 0:10:51.800 --> 0:10:55.079 like SpaceX right or like stripe right, it's these hot 0:10:55.160 --> 0:10:59.480 startups taking a like slice of mid cap companies. Is 0:10:59.520 --> 0:11:03.120 not that there's no proxy for very fast growing private 0:11:03.400 --> 0:11:07.320 tech space startups right, Like this is like a proxy 0:11:07.400 --> 0:11:10.000 for like a middle market private equity fund, which is 0:11:10.000 --> 0:11:12.319 like not quite the like sexy thing that you're trying to. 0:11:12.280 --> 0:11:14.720 Sell yeah, And I mean part of the reason that 0:11:15.000 --> 0:11:17.280 we're talking about this so much, and I've made us 0:11:17.280 --> 0:11:18.840 talk about this for two weeks in a row, is 0:11:18.880 --> 0:11:22.440 because speaking of a deal that actually did work, Blackrock 0:11:22.679 --> 0:11:27.680 bought private markets data provider Prequin, and then BlackRock's chief 0:11:27.720 --> 0:11:30.520 financial officer said that basically they want to take some 0:11:30.559 --> 0:11:34.080 of the data that Prequin has, create investable indices and 0:11:34.160 --> 0:11:38.880 launch quote things like exchange traded products. So when I 0:11:38.880 --> 0:11:40.840 say the best and brightest, I mean, you know, some 0:11:40.880 --> 0:11:41.600 of the biggest ones. 0:11:43.480 --> 0:11:44.200 They're going to do that. 0:11:44.240 --> 0:11:47.200 Well, that's the question, Matt, how do they do it. 0:11:47.240 --> 0:11:49.840 You take a look at the SEC's rule book. They 0:11:49.880 --> 0:11:53.800 have a fifteen percent limit on liquid investments for funds, 0:11:54.480 --> 0:11:56.360 So I mean, maybe you have an ETF that's like 0:11:56.400 --> 0:11:59.640 fifteen percent private assets. But the way that they define 0:11:59.679 --> 0:12:03.720 a quid investments is that basically they're assets that can't 0:12:03.760 --> 0:12:07.200 be sold in seven days without significantly changing the market 0:12:07.280 --> 0:12:12.040 value of the investment. So that's also kind of unsatisfying. 0:12:12.240 --> 0:12:14.439 I mean, you have an ETF, it does hold private assets, 0:12:14.480 --> 0:12:16.800 they can only be fifteen percent of the fund and 0:12:16.840 --> 0:12:19.120 then you kind of dilute the rest with like equities 0:12:19.240 --> 0:12:20.280 or cash. Or something. 0:12:20.480 --> 0:12:23.040 I love the idea that like it's a fifteen percent 0:12:23.080 --> 0:12:25.720 priority and like you put the rest in like SMP. Right, Yeah, 0:12:25.800 --> 0:12:28.200 this is like eighty five percent goes to your index 0:12:28.200 --> 0:12:30.800 allocation and like fifteen percent goes to your private sellocation, 0:12:30.880 --> 0:12:33.000 and like you just keep that in mind when you 0:12:33.000 --> 0:12:35.400 buy the thing. Yeah, that's a cool idea. That's like 0:12:35.640 --> 0:12:40.680 very like amateurish financial engineering. Like yeah, you know you 0:12:40.800 --> 0:12:43.080 do that. You short eighty five percent as much of 0:12:43.160 --> 0:12:45.000 like an SMP ETF and like, yeah, you're right, you 0:12:44.960 --> 0:12:45.680 get a private. 0:12:45.440 --> 0:12:47.640 Assets ct and that gets you a lot closer than 0:12:47.920 --> 0:12:48.920 anything else, right now. 0:12:49.120 --> 0:12:51.440 Obviously, Yeah, I do think that's like a hard thing 0:12:51.480 --> 0:12:53.880 to market, to be like this is an eighty five 0:12:53.920 --> 0:12:57.199 percent SMPTF and a fifteen percent pile of private assets. 0:12:57.240 --> 0:12:57.760 That's weird. 0:12:57.920 --> 0:12:58.920 It is a little bit weird. 0:12:59.040 --> 0:13:01.079 It's also weird, by the way, is like the ETF 0:13:01.080 --> 0:13:03.560 structure is like there are legal limits, but there's also 0:13:03.679 --> 0:13:06.440 like the point of the ETF structure is that you 0:13:06.480 --> 0:13:08.920 can create and redeem it in kind, right, or you 0:13:08.960 --> 0:13:11.920 can create and redeem it anyway, right, So like if 0:13:12.800 --> 0:13:16.719 the price of the ETF is not in line with 0:13:16.760 --> 0:13:18.640 like the value of the underlying assets. Then like some 0:13:18.800 --> 0:13:22.440 arbor treasure can like buy the ETF and you know, 0:13:22.600 --> 0:13:25.880 sell the assets or vice versa to bring the price 0:13:25.920 --> 0:13:28.280 back in line. It's much harder to do with private 0:13:28.280 --> 0:13:31.000 assets that don't trade even away from like the SEC rules. 0:13:31.000 --> 0:13:33.200 You need to set up some mechanism to keep the 0:13:33.240 --> 0:13:35.600 price online. It just like the easy way to do 0:13:35.760 --> 0:13:40.360 a like private asset ETF more or less is and 0:13:40.400 --> 0:13:41.960 we've talked about it a bunch of times, the Destiny 0:13:42.000 --> 0:13:42.800 take one hundred fund. 0:13:42.880 --> 0:13:43.040 Right. 0:13:43.120 --> 0:13:44.680 The easy way to do it is you have a 0:13:44.720 --> 0:13:48.280 product that trades, that is a closed end fund that 0:13:49.040 --> 0:13:50.080 owns private assets. 0:13:50.160 --> 0:13:50.360 Right. 0:13:50.480 --> 0:13:53.880 The whole problem with that is that the trading price 0:13:53.880 --> 0:13:55.760 of the product doesn't have to have anything to do 0:13:56.120 --> 0:13:58.200 with the value of the underlying assets, and so Destiny 0:13:58.240 --> 0:14:01.120 trade out a keete premium in a way that makes 0:14:01.160 --> 0:14:04.280 it feel not like a great proxy for the assets, 0:14:04.280 --> 0:14:08.400 because like you're not buying SpaceX or buying this huge premium. Yeah, 0:14:09.960 --> 0:14:11.199 and that's like a hard nut. 0:14:11.000 --> 0:14:15.319 To crack, right, Yeah, it's like the ultimate liquidity mismatch. 0:14:15.600 --> 0:14:19.000 Some of the conversations that I've been having around private 0:14:19.000 --> 0:14:21.360 asset ETFs uh, and I've had a lot of them 0:14:21.360 --> 0:14:23.520 with issuers who aren't quite ready to go on the 0:14:23.560 --> 0:14:26.560 record yet. But the big question is how do you 0:14:26.640 --> 0:14:31.680 take a wrapper that is liquid by definition trees like water, 0:14:32.240 --> 0:14:35.880 take these assets that don't really trade and put them together. 0:14:36.000 --> 0:14:38.480 And it sounds like a lot of the conversations I 0:14:38.520 --> 0:14:41.880 was having in early twenty twenty about fixed income ETFs. 0:14:41.880 --> 0:14:42.960 There was a lot of I. 0:14:42.880 --> 0:14:45.000 Was going to say, like, right, so, first of all, 0:14:45.040 --> 0:14:47.200 like liquidity mismatch is a term that I used to 0:14:47.200 --> 0:14:48.560 write about all the time when I had like a 0:14:48.680 --> 0:14:51.720 jerky daily section in the newsletter. Yeah, that old people 0:14:51.720 --> 0:14:54.720 are worried about bond rocket liquidity because like, oh, these 0:14:54.760 --> 0:14:56.560 bond ETFs you can trade them all the time, but 0:14:56.600 --> 0:14:58.880 the bonds don't trade that much, and like what will happen? 0:14:58.880 --> 0:15:01.440 I did see something o her in your eyes and 0:15:01.560 --> 0:15:03.480 your listener. I wish you could have seen it when. 0:15:03.320 --> 0:15:07.280 I spent equity mismatch. It's such a misconception to think 0:15:07.320 --> 0:15:09.160 that you can't have a liquid wrapper for an I 0:15:09.200 --> 0:15:12.120 liquid thing, because all stocks are that, right, Like a 0:15:12.160 --> 0:15:14.760 company is like a bunch of like factories and like 0:15:14.760 --> 0:15:17.560 employment contracts and all this like super I liquid like 0:15:17.600 --> 0:15:18.360 hard to value. 0:15:18.160 --> 0:15:20.840 Stuff they're not just on the screen, right. 0:15:20.760 --> 0:15:22.320 Right, like a company. I'll say, it's just not but 0:15:22.320 --> 0:15:24.160 you can like completely abstract it to a line that 0:15:24.200 --> 0:15:27.880 trades like every millisecond. Right, So the liquidity mismatch point 0:15:27.920 --> 0:15:30.120 is so strange what people worry about with bond funds, 0:15:30.120 --> 0:15:32.920 And it's really much more about mutual funds than ETFs, 0:15:32.960 --> 0:15:35.840 but people lump them together. People worry about like it's 0:15:35.880 --> 0:15:38.640 not the liquidity of the rapper versus the liquidity of 0:15:38.640 --> 0:15:40.800 the underlying It's like sometimes you want to take the 0:15:40.880 --> 0:15:44.080 underlying out of the wrapper, and like that is hard, right, 0:15:44.080 --> 0:15:47.240 Like you're used to liquidly trading the ETF and then 0:15:47.280 --> 0:15:49.520 like you like get the bombs and oh, these bonds 0:15:49.520 --> 0:15:51.760 don't trade with a company. That's not a problem because 0:15:51.800 --> 0:15:54.400 you're not taking assets out of the company. 0:15:54.560 --> 0:15:54.800 Right. 0:15:55.080 --> 0:15:56.760 With a closed un fund, it's not a problem because 0:15:56.760 --> 0:15:58.560 you're not taking assets out of the clothes un fund. 0:15:58.680 --> 0:16:01.360 The problem is how with a company it can trade 0:16:01.880 --> 0:16:03.880 at a price that doesn't reflect the value of the 0:16:03.960 --> 0:16:06.240 underlying assets. I would say the other problem with like 0:16:07.320 --> 0:16:11.840 this whole idea is that it's one thing to be 0:16:11.880 --> 0:16:13.960 like people want to buy private assets, so we have 0:16:14.000 --> 0:16:16.480 to find a convenient rapper to sell these private assets 0:16:16.560 --> 0:16:19.000 to retail investors. But like, where do you get the 0:16:19.000 --> 0:16:22.040 private assets? Like, there's plenty of private assets in the world, right, 0:16:22.040 --> 0:16:24.560 there's plenty of people who will sell you a private investment, 0:16:24.720 --> 0:16:27.440 but like there are fewer people who will sell you SpaceX, right, 0:16:27.520 --> 0:16:29.840 there are fewer people who will sell you Stripe. The 0:16:30.400 --> 0:16:34.160 private assets that people really want are allocated. They're like 0:16:35.120 --> 0:16:39.560 owned fairly tightly by like big investors who one might 0:16:39.600 --> 0:16:42.360 not want to sell, and two the company tries to 0:16:42.440 --> 0:16:44.840 keep them close, right, Like Stripe tries very hard to 0:16:44.880 --> 0:16:48.800 prevent its investors from selling any stock to destiny. 0:16:48.880 --> 0:16:50.840 I want to say Blackrock can just do a ton 0:16:50.960 --> 0:16:52.920 of what forward contracts on Stripe. 0:16:52.960 --> 0:16:55.320 If you're big enough, you probably can get some of 0:16:55.320 --> 0:16:59.080 these things, and you probably can negotiate terms. Right. But 0:16:59.120 --> 0:17:01.400 there are a lot of big financial institutions that would 0:17:01.440 --> 0:17:04.720 love to have a big pile of Stripper SpaceX to 0:17:04.760 --> 0:17:08.560 sell to their customers, and these private companies to them 0:17:08.640 --> 0:17:10.600 like there's a reason they having on public, right, and 0:17:10.680 --> 0:17:14.919 like going semi public by like selling some shares to 0:17:14.960 --> 0:17:17.199 some vehicle that is going to list publicly. It is 0:17:17.359 --> 0:17:19.760 like kind of an annoyance for them if you crack 0:17:19.800 --> 0:17:24.919 the code in such a way that your vehicle provides 0:17:24.960 --> 0:17:28.680 even by proxy, like a mark for the private assets. Right, 0:17:28.760 --> 0:17:30.600 if you're like if you can look at the like 0:17:31.320 --> 0:17:34.720 Kitty Greifeld Private Markets ETF and be like, oh, that 0:17:34.760 --> 0:17:37.360 tells me that SpaceX is trading at thirty seven, then 0:17:37.400 --> 0:17:39.480 like that's like what SpaceX is trying to prevent, Like 0:17:39.480 --> 0:17:41.000 they don't want their price to go up and down 0:17:41.000 --> 0:17:43.080 every day. Yeah, and so like, to the extent this 0:17:43.400 --> 0:17:47.320 works mechanically, it's annoying for the issuers. And then like 0:17:47.359 --> 0:17:49.360 you know, the question is if you have this product, 0:17:49.640 --> 0:17:53.880 it's easier for you to get bad private companies. Yeah, 0:17:54.200 --> 0:17:56.200 like like oh, sure, I'll sell you one hundred million 0:17:56.200 --> 0:17:58.280 shares for your thing. You know, you talk about Blackrock 0:17:58.320 --> 0:18:00.600 wanting to index the private markets. Like if you could 0:18:00.640 --> 0:18:03.320 get like a true like index slice of the private markets, 0:18:03.320 --> 0:18:05.119 First of all, that might be bad, right, but you 0:18:05.160 --> 0:18:07.000 really want it's like the good companies. But like the 0:18:07.480 --> 0:18:09.320 real worry is like you would end up with not 0:18:09.359 --> 0:18:11.400 an index of all the companies, but like the bad 0:18:11.440 --> 0:18:13.800 ones that are willing to be involved in your index. Yeah, 0:18:13.840 --> 0:18:15.080 that might be even worse. 0:18:14.880 --> 0:18:19.199 Than just yeah, so you want your blue chip private 0:18:19.200 --> 0:18:21.840 companies the one who would have iPod in a normal market. 0:18:21.840 --> 0:18:23.679 But we're not in a normal market. 0:18:23.920 --> 0:18:25.840 It's not clear to me exactly why some of the 0:18:25.880 --> 0:18:28.280 blue chip companies don't IPO, and like some of it 0:18:28.320 --> 0:18:29.840