WEBVTT - Ford Bonds Are A Golden Opportunity If Rating Holds Up 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg P and L Podcast. I'm pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Abramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg P and 0:00:20.680 --> 0:00:31.160 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:31.280 --> 0:00:35.000 he comes bearing his own lanyard. You know that, Lisa. 0:00:35.440 --> 0:00:39.480 Joel Levington is our expert when it comes to all 0:00:39.600 --> 0:00:41.800 things having to do with credit. He is our senior 0:00:41.840 --> 0:00:45.159 credit analyst for Bloomberg Intelligence. And I mentioned his lanyard 0:00:45.479 --> 0:00:51.560 because it references a company called American Axle and Manufacturing 0:00:52.000 --> 0:00:55.440 and that leads us into automobiles. And we want to 0:00:55.440 --> 0:00:58.600 talk about the Ford Motor Company. Joel. This is a 0:00:58.640 --> 0:01:02.400 company whose stock has fallen more than thirty percent so 0:01:02.440 --> 0:01:05.160 far this year. They have more than eighty billion dollars 0:01:05.200 --> 0:01:08.280 in debt. It has a market cap of thirty three 0:01:08.280 --> 0:01:12.400 billion dollars. How do you balance that elephant on top 0:01:12.440 --> 0:01:17.840 of the peanut without crushing the peanut? Well, I am 0:01:17.880 --> 0:01:21.520 a man with with with the landard um, but I 0:01:21.560 --> 0:01:24.840 would but I would say that the debt is mostly 0:01:24.880 --> 0:01:28.600 at the finance company. Uh, the debt at the manufacturing 0:01:28.600 --> 0:01:31.200 company is about sixteen billion dollars, so I guess it's 0:01:31.240 --> 0:01:33.600 about a two to one ratio in terms of market 0:01:33.680 --> 0:01:36.600 cap to the debt. So there's a little bit more 0:01:36.680 --> 0:01:40.080 room than than the eight billion would imply. So does 0:01:40.120 --> 0:01:44.480 that room mean that the dividend that Ford is safe 0:01:44.560 --> 0:01:48.400 because they can afford to keep paying about fifteen cents 0:01:48.880 --> 0:01:51.880 per quarter per share. I don't think so. And the 0:01:51.880 --> 0:01:54.160 reason that I don't think so is because it's the 0:01:54.200 --> 0:01:58.320 dividend is running about a hundred and twenty free cash flow, 0:01:58.920 --> 0:02:02.520 and if you look at what the raiders focus on, 0:02:02.600 --> 0:02:07.280 which is liquidity, you can't spend more than you make 0:02:07.880 --> 0:02:10.480 without bumping into your liquidity. So at some point that 0:02:10.520 --> 0:02:14.560 becomes an issue, and the company desperately wants to hold 0:02:14.600 --> 0:02:17.760 and retaine its investment grade ratings, which will require it 0:02:17.840 --> 0:02:21.480 at some point either to improve its profitability or to 0:02:22.400 --> 0:02:24.600 you know, take an action on its dividends. All right, 0:02:24.800 --> 0:02:28.400 So just taking a step back, I mean, Ford is 0:02:28.760 --> 0:02:32.440 investment grade rated, but barely in the bond market, it 0:02:32.520 --> 0:02:35.280 is being treated basically as junk, right, I mean, I'm 0:02:35.280 --> 0:02:37.639 looking right now at its bonds that are maturing in 0:02:38.400 --> 0:02:41.160 six It was trading above par earlier this year at 0:02:41.160 --> 0:02:43.440 a hundred four cents to the dollar. It's currently trading 0:02:43.680 --> 0:02:45.880 at less than ninety cents in the dollar. This is 0:02:46.080 --> 0:02:47.880 a huge move in the bond market. If you see 0:02:47.919 --> 0:02:51.679 a fourteen fiftcent decline in a bunch of months when 0:02:51.680 --> 0:02:54.560 the company is not going under, is pretty significant. No, 0:02:54.720 --> 0:02:57.840 what is that telling you? Yeah, the bonds have been 0:02:57.840 --> 0:03:02.079 crushed as CDs has doubled on the company earnings expectations. 0:03:02.360 --> 0:03:04.440 At the beginning of the year, we're about thirteen million 0:03:04.440 --> 0:03:07.760 dollars worth of EVRA, it's about ten billion today. So 0:03:08.480 --> 0:03:11.200 the fact that you're seeing that in the bond market 0:03:11.200 --> 0:03:13.800 as a reflection of the weakness of the business performance 0:03:14.080 --> 0:03:17.360 and that's gonna continue LISA for several more quarters. So 0:03:17.400 --> 0:03:19.720 how much does it pressure them that they're borrowing costs 0:03:19.760 --> 0:03:24.080 arising so rapidly at a time when they need cheap 0:03:24.120 --> 0:03:26.560 financing to try to dig themselves out of this whole Oh, 0:03:26.680 --> 0:03:28.880 it's a It's a big issue for the finance company 0:03:28.880 --> 0:03:31.200 and it's one of the reasons why they really have 0:03:31.360 --> 0:03:35.080 to retain investment grade readings as a mechanism to reduce 0:03:35.160 --> 0:03:38.560 the lower you know, or it's implausible. I think it 0:03:38.640 --> 0:03:41.800 is plausible, and and and in fact, you know, we 0:03:41.840 --> 0:03:45.080 wrote a note on it today because SMP had a 0:03:45.760 --> 0:03:51.560 closed door meeting for investors on Friday morning where they 0:03:51.680 --> 0:03:55.400 basically laid out a plan where they were saying, you know, 0:03:55.880 --> 0:04:00.120 they could reduce UH forwards ratings by a notch but 0:04:00.240 --> 0:04:03.760 not but not cutting into junk. So at some point 0:04:03.920 --> 0:04:07.120 it's gonna look like it looks like an ugly duckling today, 0:04:07.160 --> 0:04:09.160 but this thing is gonna look like a golden goose 0:04:09.560 --> 0:04:12.120 not that far away. And that's what we've been writing 0:04:12.160 --> 0:04:15.120 about as well. Doesn't it all come down to whether 0:04:15.160 --> 0:04:18.440 they can sell more automobiles? Really they can sell more 0:04:18.520 --> 0:04:23.080 F one pickup trucks, well, it's selling more profitably as well, 0:04:23.240 --> 0:04:26.200 like that, you don't have to sell more product. In fact, 0:04:26.279 --> 0:04:30.520 they might consider the opposite of getting of divesting. F 0:04:30.680 --> 0:04:33.560 one fifty is very very profitable business for them. North 0:04:33.560 --> 0:04:36.720 America is a very profitable business. But the rest of 0:04:36.800 --> 0:04:41.000 the world for them, Asia, the Middle Eastern Africa, Europe 0:04:41.400 --> 0:04:44.919 is money losing. And so sometimes it's additioned by subtraction. 0:04:45.520 --> 0:04:47.760 As how the math people work it and you if 0:04:47.760 --> 0:04:51.599 you get rid of the addition by subtraction, that's good. 0:04:51.839 --> 0:04:53.680 If you if you get rid of the of the 0:04:53.760 --> 0:04:58.080 painful parts of that business, it makes the overall forward 0:04:58.160 --> 0:05:01.160 a stronger company. Joe, We'll have to have you back 0:05:01.200 --> 0:05:03.400 and talk more about this, because that's a bold call, 0:05:03.839 --> 0:05:07.280 basically that this could be a real buying opportunity essentially 0:05:07.400 --> 0:05:10.360 if for does retain its investment grade ratings. Unfortunately, we 0:05:10.400 --> 0:05:12.359 have to leave with their Joel Levington, senior credit analyst 0:05:12.360 --> 0:05:16.159 for Bloomberg Intelligence talking about the auto sector, and I 0:05:16.200 --> 0:05:18.479 will just give him a shout out that he nailed 0:05:18.960 --> 0:05:22.200 that auto parts are auto auto suppliers. Bonds of those 0:05:22.240 --> 0:05:24.880 companies would not do well this year and they have 0:05:24.960 --> 0:05:28.200 absolutely been crushed. So he is somebody to listen to. 0:05:28.279 --> 0:05:42.240 Also with Tesla, I'm impressed by Joel's calls. We're getting 0:05:42.279 --> 0:05:44.120 a lot of predictions about what will happen in the 0:05:44.160 --> 0:05:46.320 wake of the midterm elections that are coming up in 0:05:46.360 --> 0:05:49.760 the next two weeks. Uh Coleman Sacks coming out this 0:05:49.839 --> 0:05:53.440 morning and saying that equity equity volatility may rise if 0:05:53.480 --> 0:05:56.880 Democrats take the House. Let's hear what Michael Jesus has 0:05:56.880 --> 0:05:59.520 to say, Michael Jesus ahead of US Public Policy and 0:05:59.560 --> 0:06:02.840 municipal credit Strategy at Morgan Stanley. Michael, thank you so 0:06:02.920 --> 0:06:05.360 much for joining us. First of all, what do you 0:06:05.360 --> 0:06:08.040 think is the most likely outcome from the midterm elections 0:06:08.040 --> 0:06:11.760 and how should markets be positioning? Well, I mean, we're 0:06:12.000 --> 0:06:14.080 really just following the polls and the models here, and 0:06:14.080 --> 0:06:16.479 it tells you that over the last few weeks anyway, 0:06:16.520 --> 0:06:18.760 that the base case is becoming more and more likely. 0:06:18.839 --> 0:06:21.600 The base case being that the Democrats get get controlled 0:06:21.640 --> 0:06:24.080 the House, but the Republicans kind of hold serve in 0:06:24.120 --> 0:06:28.600 the Senate. And obviously there's a pretty substantial structural advantage 0:06:28.600 --> 0:06:30.600 of the Republicans have in the Senate at this time around, 0:06:30.600 --> 0:06:33.880 because they're only defending nine seats. The Democrats are defending 0:06:33.920 --> 0:06:38.000 twenty six seats and ten of them are in red states. Uh. 0:06:38.160 --> 0:06:40.120 And what's happened is this kind of divergence in the 0:06:40.120 --> 0:06:43.160 polls over the last few weeks where the Democrats are 0:06:43.160 --> 0:06:45.640 doing better in the House and worse in those kind 0:06:45.680 --> 0:06:49.200 of red Senate seats that they're competing in. So, you know, 0:06:49.240 --> 0:06:51.600 what does the base case gets you? Um, I think 0:06:51.600 --> 0:06:53.479 it really just kind of gets you, at least for 0:06:53.520 --> 0:06:55.960 the next couple of years. The existing policy set that 0:06:56.000 --> 0:06:59.320 we have on board more or less frozen. Right, So 0:07:00.120 --> 0:07:03.160 fiscal policy doesn't necessarily get any better or worse. Right, 0:07:03.200 --> 0:07:06.080 you don't get more tax cuts or any tax roll back. 0:07:06.800 --> 0:07:09.560 In trade policy is still kind of an independent variable. 0:07:09.600 --> 0:07:13.160 There's no sort of obvious reaction to the idea that 0:07:13.560 --> 0:07:17.280 a change in Congress means that the President is any 0:07:17.360 --> 0:07:20.600 less likely to to put a lot of pressure on 0:07:20.720 --> 0:07:23.840 China and escalate that situation further. Uh, you know, we 0:07:23.920 --> 0:07:27.760 think we're gonna get to a place relatively early next year. 0:07:28.520 --> 0:07:31.800 We're probably gonna be teriffing everything that we that we 0:07:31.880 --> 0:07:35.360 import from China. So um. The most likely outcome, I 0:07:35.400 --> 0:07:37.520 think is that the existing policy set that you have 0:07:37.640 --> 0:07:40.600 right now is going to continue the more interesting divergences. 0:07:40.680 --> 0:07:43.320 Or if the Democrats somehow win the Senate, or if 0:07:43.320 --> 0:07:47.680 the Republicans somehow holds hold their advantage in the House, well, 0:07:47.760 --> 0:07:50.400 let's just say with the consensus for just a second, Michael, 0:07:50.440 --> 0:07:52.520 and just give us your thoughts on a couple of 0:07:52.600 --> 0:07:56.640 key equity sectors such as pharmaceuticals, telecom as well as 0:07:56.680 --> 0:08:00.720 healthcare services. What do you think if the Democrats are 0:08:00.760 --> 0:08:04.840 able to take the House, what will happen to those sectors? Yes, 0:08:05.040 --> 0:08:08.160 so those are the most outcome. Sense of the sectors 0:08:08.280 --> 0:08:11.760 less because it's less about whether or not the Democrats 0:08:11.760 --> 0:08:13.600 can get the House, and it's more about whether or 0:08:13.640 --> 0:08:16.240 not they can get the Senate in addition to the House. 0:08:16.360 --> 0:08:18.880 Because the reason those are the sense of the sectors 0:08:18.960 --> 0:08:21.960 is because, um, those are the sectors that have benefit 0:08:22.040 --> 0:08:26.480 the most from regulatory rollback. So it's any outcome that 0:08:26.560 --> 0:08:29.760 tells you that that regulatory rollback is less likely or 0:08:29.800 --> 0:08:32.559 could go in the other direction, that's gonna be that's 0:08:32.559 --> 0:08:36.719 going to make them underperformers or vice versa. So if 0:08:36.720 --> 0:08:39.320 the Democrats get the Senate, it's not that they're going 0:08:39.360 --> 0:08:42.640 to be able to force the executive branchs to change 0:08:42.800 --> 0:08:47.200 direction on the regulatory rollbacks that they've initiated. But it 0:08:47.240 --> 0:08:50.560 tells you something given those barriers, how hard it would 0:08:50.559 --> 0:08:52.480 be to take the Senate. It tells you something about 0:08:52.480 --> 0:08:56.480 how progressive minded the electorate has become. And think the 0:08:56.600 --> 0:09:02.280 market would start thinking ahead to what a possible democratic 0:09:02.280 --> 0:09:04.280 control of both of the White House and both has 0:09:04.400 --> 0:09:08.400 the Congress would mean for those sectors. Um. Conversely, if 0:09:08.400 --> 0:09:11.280 the Republicans are able to keep the House, uh, you know, 0:09:11.360 --> 0:09:13.200 that tells you that the elector it's not in a 0:09:13.240 --> 0:09:16.600 mood to deliver over the next few years the kind 0:09:16.679 --> 0:09:19.160 of uh you know, the kind of legislative backdrop that 0:09:19.200 --> 0:09:23.240 would push back on the regulatory rollback that's helped those sectors. Michael, 0:09:23.240 --> 0:09:26.440 how much do you believe the polls? I think the 0:09:26.440 --> 0:09:28.560 polls are are are fine. Uh. Yeah, we get this 0:09:28.640 --> 0:09:31.360 question all the time. I think the problem is not 0:09:31.400 --> 0:09:35.839 with the polls. The problem is sometimes with how uh 0:09:35.880 --> 0:09:38.760 you know, not just investors, but all of us understand 0:09:38.760 --> 0:09:42.640 the probabilities implied by those polls. Right, So if you 0:09:42.640 --> 0:09:48.360 think back to um, there weren't really polling errors at play. Um, 0:09:48.559 --> 0:09:51.480 you know, the national I think the national polling average 0:09:51.559 --> 0:09:54.280 lead for Clinton going into the election night was about 0:09:54.640 --> 0:09:57.160 four percentage points, with a kind of plus or minus 0:09:57.160 --> 0:10:00.080 three on each side, and she won the popular the 0:10:00.160 --> 0:10:03.839 rope by about two percent I believe so. And if 0:10:03.840 --> 0:10:05.959 you if you look at most states that everything was 0:10:06.000 --> 0:10:08.880 more or less within the margin of error. So the 0:10:09.200 --> 0:10:12.040 against the probabilities implied by that, which is to say 0:10:12.080 --> 0:10:15.560 that going into election night you should have. You know, 0:10:15.559 --> 0:10:17.600 you shouldn't have thought of Clinton as more than a 0:10:17.679 --> 0:10:21.640 roughly seventy chance of winning, and anything that has a 0:10:21.679 --> 0:10:25.560 thirty percent chance of happening in this case, in that case, 0:10:25.600 --> 0:10:30.320 the Trump presidency, it shouldn't be that surprising events happened 0:10:30.400 --> 0:10:32.760 quite frequently. I guess that there's a question that I have, 0:10:32.920 --> 0:10:36.600 which is, is there some sentiment or some population that 0:10:36.720 --> 0:10:40.880 isn't being picked up in the polls, or where polls, 0:10:41.000 --> 0:10:45.479 you know, aren't necessarily I don't know, representing the zeitgeist 0:10:45.520 --> 0:10:49.080 in the way that perhaps people would like a surprise. Maybe. Yeah, 0:10:49.120 --> 0:10:50.640 I mean, I guess I'm just trying to figure out 0:10:50.720 --> 0:10:55.880 where the disconnect came from people's confidence versus what's been 0:10:55.920 --> 0:10:59.920 happening in elections. Yeah, I mean again, I think it's 0:11:00.280 --> 0:11:06.679 you know, the the recent history up to would suggest 0:11:06.800 --> 0:11:09.000 that or sort of would make people feel that a 0:11:09.040 --> 0:11:12.160 three or four percentage point lead in polls should be 0:11:12.200 --> 0:11:15.280 pretty solid. And in fact, if you think back to 0:11:17.040 --> 0:11:21.440 the polling error actually went in favor of Barack Obama 0:11:21.679 --> 0:11:24.559 versus meant Romney and so, and he was the leader 0:11:24.640 --> 0:11:27.199 going in. So I think some of this is recency 0:11:27.280 --> 0:11:32.120 bias where investors perceive a polling lead as insurmountable, even 0:11:32.120 --> 0:11:35.920 if it's relatively small, and so what I would recommend is, 0:11:36.120 --> 0:11:40.440 yet you should have appropriate um respect for you know, 0:11:40.640 --> 0:11:44.000 a small single digit lead suggest that there's a meaningful 0:11:44.040 --> 0:11:48.600 probability that the outcome is different than the poll lead, right, 0:11:48.679 --> 0:11:51.560 And so for for this particular election, you know, the 0:11:51.559 --> 0:11:54.160 base case that we described at the top of this talk, 0:11:54.960 --> 0:11:57.440 it probably is not no more than a sixty or 0:11:57.480 --> 0:12:01.320 sixty five probability outcome tells you that it's almost a 0:12:01.360 --> 0:12:04.960 toss up. That's something different. Either the Democrats get control 0:12:05.040 --> 0:12:07.640 of both houses or the Republicans hold on to control. 0:12:08.520 --> 0:12:12.400 Uh is something you really have to seriously consider. That's 0:12:12.440 --> 0:12:15.160 almost at chance that one of those two things will happen, 0:12:15.600 --> 0:12:18.440 and the markets move in very different directions based on that, 0:12:18.520 --> 0:12:20.079 which is you know why in our last note we 0:12:20.120 --> 0:12:22.360 said we think the equity volatility is very week We 0:12:22.480 --> 0:12:25.000 got to run, but we're sorry, thanks very much. Michael 0:12:25.240 --> 0:12:29.439 Jesus He is the chief US policy and municipal strategist 0:12:29.520 --> 0:12:43.160 for Morgan Stanley. We're going to focus on a story 0:12:43.240 --> 0:12:46.760 that is interesting from so many angles. It talks about 0:12:46.760 --> 0:12:50.319 how Blackstone it managed to get a twenty billion dollar 0:12:50.400 --> 0:12:56.520 commitment from Saudi Arabia's main fund for its infrastructure fund. 0:12:57.000 --> 0:13:00.800 And it talks about the fee structure which was beneficial, 0:13:01.000 --> 0:13:04.040 and some other perks. And this comes at a time 0:13:04.080 --> 0:13:08.079 when US Saudi relationships has been strained significantly. Let's bring 0:13:08.080 --> 0:13:10.360 in the author of this story, Jillian Tans, and your 0:13:10.360 --> 0:13:14.040 reporter for Bloomberg News. Julian, can you first explain exactly 0:13:14.280 --> 0:13:19.640 what Blackstone promised Saudi Arabia in order to get their money. Sure, 0:13:20.080 --> 0:13:22.080 I guess at the very heart of the story, and 0:13:22.120 --> 0:13:24.520 the main point that is surprising to a lot of 0:13:24.559 --> 0:13:28.840 folks today is that Blackstone agreed to deal where for 0:13:29.000 --> 0:13:32.960 every dollar that any other investor, for example, Pennsylvania teachers 0:13:33.120 --> 0:13:36.000 or Texas teachers, or whoever it may be, that pays 0:13:36.040 --> 0:13:39.280 a management fee to Blackstone, for every dollar that one 0:13:39.400 --> 0:13:42.720 other investor pays, Saudi Arabia's Sovereign Wealth Fund gets to 0:13:42.720 --> 0:13:45.719 pay fifteen cents less. So it's essentially structured as a 0:13:45.800 --> 0:13:50.320 revenue sharing agreement. It's offset as a fifteen percent discount 0:13:50.320 --> 0:13:52.960 to the fees that they would pay. But very clearly 0:13:52.960 --> 0:13:54.720 in our story, we have a chart that sort of 0:13:54.760 --> 0:13:59.480 illustrates exactly how that money is taken off pi's commitment. 0:13:59.600 --> 0:14:03.320 So just in other words, Saudi Arabia not only is 0:14:03.360 --> 0:14:08.040 being offered lower fees, but in order to offset its fees, 0:14:08.360 --> 0:14:11.880 some of the fees that other investors, including pensions and 0:14:11.920 --> 0:14:14.680 others in the United States that are investing in this fund, 0:14:14.920 --> 0:14:19.840 the fees that they pay are funneled to Saudi Arabia. Essentially, yes, 0:14:19.920 --> 0:14:22.160 but I guess the word funnel is a little bit touchy, 0:14:22.200 --> 0:14:25.120 but it's yeah, it's offset against the phase that Saudi 0:14:25.160 --> 0:14:29.520 Arabia would pay. So hypothetically Blackstone could write a fifteen 0:14:29.840 --> 0:14:33.480 percent check, but that's unnecessary given that Saudi's owe them 0:14:33.520 --> 0:14:35.480 so much in pease anyway, so it just comes off 0:14:35.480 --> 0:14:40.200 their fee. Tital are other investors when they were being 0:14:40.280 --> 0:14:44.400 pitched this fund? Were they given the same deal or 0:14:44.520 --> 0:14:47.400 were they at least alerted to what they would be 0:14:47.440 --> 0:14:49.680 buying into in terms of how that would change the 0:14:49.760 --> 0:14:55.320 relationship financially between Saudi Arabian investment and the fund. Okay, 0:14:55.360 --> 0:14:59.120 on the first point, um, all other investors were not 0:14:59.200 --> 0:15:02.240 offered the same to so based on public filings, we 0:15:02.280 --> 0:15:04.920 can see that, for example, the biggest investor that's not 0:15:05.080 --> 0:15:09.040 the Saudi Fund is Pennsylvania Teachers Fund, and they are 0:15:09.080 --> 0:15:12.240 paying seventy five basis points for the first two years, 0:15:12.240 --> 0:15:14.920 and that quickly jumps to ninety basis points after that. 0:15:15.680 --> 0:15:18.080 The Saudi Fund gets to pay seventy five basis points 0:15:18.080 --> 0:15:20.960 on the first ten billion, and then sixty five basis 0:15:21.000 --> 0:15:23.720 points after that. So that's just the very basic fact. 0:15:23.960 --> 0:15:27.200 Is that unusual? That b it's less unusual because you know, 0:15:27.400 --> 0:15:29.760 it's such a big commitment. Black Stone points out, it's 0:15:29.840 --> 0:15:33.080 I think the biggest commitment in their history, maybe ten 0:15:33.120 --> 0:15:36.120 times the size of any other commitment. What is unusual 0:15:36.320 --> 0:15:38.560 is the revenue sharing that comes after that. Sort it's 0:15:38.560 --> 0:15:42.760 an additional concession where fift of what any other investor 0:15:42.840 --> 0:15:47.080 is paying Blackstone then comes off the Saudi fees. Okay, 0:15:47.360 --> 0:15:50.680 so this isn't this comes at an interesting time. I 0:15:50.520 --> 0:15:53.680 imagine you would have written this story even if Saudi 0:15:53.760 --> 0:15:56.560 Arabia and the US who weren't engaged in a sort 0:15:56.560 --> 0:15:59.320 of tense situation right now. But it's complicated by this 0:15:59.440 --> 0:16:02.320 fact that Saudi Arabia, which has a lot of money 0:16:02.360 --> 0:16:05.040 that it wants to invest, is now sort of being 0:16:05.040 --> 0:16:08.840 accused of some pretty substantial human rights violations and clamping 0:16:08.840 --> 0:16:12.480 down on the freedom of press, and it sort of 0:16:12.640 --> 0:16:16.120 caused some executives to back away. So has there been 0:16:16.360 --> 0:16:19.240 any kind of rethink, Is there an ability to rethink 0:16:19.280 --> 0:16:22.160 from Blackstone's part? How does that kind of come into this. 0:16:22.520 --> 0:16:24.960 So my understanding is that all the investors that are 0:16:25.000 --> 0:16:28.880 already committed, including pif UM and the US pensions that 0:16:28.920 --> 0:16:32.080 are already locked in, they've signed pretty tight agreements. But 0:16:32.560 --> 0:16:35.120 I think this more impacts the investors that Blackstones out 0:16:35.160 --> 0:16:37.760 speaking to today or you know, this week, this month, 0:16:37.840 --> 0:16:40.920 this year, next year. Um. I think they're raising right 0:16:41.040 --> 0:16:43.480 until next March, and I think that's when the fund 0:16:43.480 --> 0:16:45.200 will close for a little while and then they'll invest 0:16:45.280 --> 0:16:48.040 that money. But the interesting thing will be if other 0:16:48.080 --> 0:16:50.920 pensions sort of feel uncomfortable with the fact that you know, 0:16:51.240 --> 0:16:55.400 every dollar of their management phase is you know, that 0:16:55.440 --> 0:16:58.440 will offset the Southeast and if you think about the 0:16:58.520 --> 0:17:02.239 broad sort of political content next, you know, investing alongside 0:17:02.240 --> 0:17:05.480 the Saudis is very fraught in itself right now because 0:17:05.480 --> 0:17:09.159 you have a situation where the Saudi Arabian government is 0:17:09.200 --> 0:17:15.000 being accused of killing the journalist Jamal Kashogi in their 0:17:15.080 --> 0:17:19.919 consulate in Is temple correct. So if that's the case 0:17:20.320 --> 0:17:26.520 and investors other than the Saudis are getting a less 0:17:26.840 --> 0:17:31.159 virtuous deal, then isn't there a way for them to 0:17:31.600 --> 0:17:34.840 say to the people running the fund, we want the 0:17:34.920 --> 0:17:37.880 same deal as the Saudias, and if we can't get 0:17:37.880 --> 0:17:40.880 the same deal as the Saudis, we don't necessarily want 0:17:40.920 --> 0:17:44.119 to participate. Can they pull out? I think the existing 0:17:44.160 --> 0:17:47.159 investors will have a hard time because UM just knowing 0:17:47.200 --> 0:17:50.920 how all these fear agreements or just general relationships agreements 0:17:50.920 --> 0:17:53.600 are structured, they're pretty water tight. They probably won't be 0:17:53.640 --> 0:17:55.119 able to pull out. But it's more the ones that 0:17:55.200 --> 0:17:57.680 are perspective, they probably will look at that, and they'll 0:17:57.720 --> 0:18:00.280 look at the current landscape. There's just so any other 0:18:00.320 --> 0:18:03.119 infrastructure funds being raised right now, Brookfield and g I 0:18:03.160 --> 0:18:06.320 P with massive funds of their own, Morgan Stanley, others 0:18:06.560 --> 0:18:08.840 three I. There's just a lot of options out there, 0:18:08.960 --> 0:18:10.600 and if you can kind of deal with the firm 0:18:10.640 --> 0:18:13.920 that's maybe not um investing along or where you would 0:18:13.920 --> 0:18:16.080 not be investing alongside the Saudis, maybe that's a better 0:18:16.119 --> 0:18:19.040 option for them. Do you do you see that the 0:18:19.160 --> 0:18:23.439 board of directors of the pension funds in this case Pennsylvania. 0:18:23.680 --> 0:18:26.840 Would they get involved at this nitty gritty level, and 0:18:26.920 --> 0:18:30.160 would the people who benefit from the pension fund, the pensioneers, 0:18:30.760 --> 0:18:35.960 they're now going to learn about this in equal investment opportunity. Yes, 0:18:36.040 --> 0:18:38.040 So they've declined to comment to me. They only just 0:18:38.080 --> 0:18:40.760 got back to me this morning. For sure, their their 0:18:40.760 --> 0:18:43.480 pension is can lolly them. I'm sure they'll hear from them. 0:18:43.480 --> 0:18:45.159 I think people might be a little bit upset, a 0:18:45.160 --> 0:18:48.320 little bit outraged. Um, But yeah, I think for the 0:18:48.320 --> 0:18:50.480 folks that are in I don't know if they're stuck, 0:18:50.520 --> 0:18:52.639 I'm very interested in that. The other thing that I 0:18:52.680 --> 0:18:54.639 would just point out that we haven't talked about is 0:18:55.040 --> 0:18:57.320 the cipious I was going to get there. That's what 0:18:57.359 --> 0:19:00.840 I think is really interesting as well. Yeah, so in 0:19:00.880 --> 0:19:02.960 part of our reporting, we sort of learned a few 0:19:03.000 --> 0:19:06.440 things that PIV has some rights where they PEP being 0:19:06.480 --> 0:19:10.760 the Saudi Arabian Fund is the Saudi Arabian Fund Um. 0:19:10.800 --> 0:19:14.840 They and Blackstone sort of struck a deal where black 0:19:14.880 --> 0:19:18.919 Stone can and piff sorry for keeping using PIV, but 0:19:19.040 --> 0:19:22.119 they can, in their best interests encourage CIFIUS not to 0:19:22.160 --> 0:19:26.359 require certain disclosures about folks on the on the Saudi 0:19:26.480 --> 0:19:29.680 board um in deference to their royalty, and that's because 0:19:29.800 --> 0:19:33.280 crown prints Muhammad bin Salman is on the PIFF board. 0:19:34.080 --> 0:19:37.960 So in other words, basically there is certain controls in place. 0:19:38.000 --> 0:19:40.560 There are certain controls and police where the Saudi Arabian 0:19:40.640 --> 0:19:44.640 Fund can get involved in specific deals if they run 0:19:44.800 --> 0:19:46.840 a mark of Siphius, or they can be sort of 0:19:46.880 --> 0:19:49.439 a little bit more hands on with certain investments. Uh 0:19:50.240 --> 0:19:52.200 just I wouldn't structure it just like that. It's more 0:19:52.240 --> 0:19:55.840 that they can opt out or be excluded from deals 0:19:55.840 --> 0:19:58.480 where Syphius might you know, throw a fit because it 0:19:58.760 --> 0:20:02.359 threatens national security, whether it's an airport support or utilities. 0:20:03.440 --> 0:20:06.359 Incredible story. Thank you very much Jillian Tan for sharing 0:20:06.400 --> 0:20:08.880 it with us. You can follow Jillian on Twitter at 0:20:08.960 --> 0:20:12.480 Jillian Tan. That's all one word, and uh, well, we'll 0:20:12.480 --> 0:20:14.600 have to see what happens with those other investors. They 0:20:14.640 --> 0:20:17.360 include the Teachers Retirement System of the State of Illinois, 0:20:17.720 --> 0:20:21.399 Teachers Retirement System of Texas, and the New Mexico State 0:20:21.560 --> 0:20:27.800 Investment Council, among other major investors in that fund that 0:20:27.920 --> 0:20:42.440 Blackstone launched for infrastructure twenty billion dollars. The topic right now, 0:20:42.880 --> 0:20:44.679 maybe a little early in the day for some. But 0:20:44.960 --> 0:20:48.000 the topic is whiskey and joining us as the founding 0:20:48.040 --> 0:20:53.080 partner and managing director of Glass Revolution Imports. Raj sabarrow 0:20:53.160 --> 0:20:56.240 Wall he joins us now he's the founding partner. Raj, 0:20:56.359 --> 0:20:58.720 thank you very much for being with us. How did 0:20:58.760 --> 0:21:04.040 you come to create eat this company, Glass Revolution Imports? 0:21:04.280 --> 0:21:07.720 Why did you decide to do this? Pam First, thanks 0:21:07.760 --> 0:21:10.320 for having me on this morning. I appreciate it. Um. 0:21:10.359 --> 0:21:13.119 I was in the corporate world, got tired of working 0:21:13.119 --> 0:21:17.000 for big corporations and decided to follow my passion and 0:21:17.119 --> 0:21:20.720 started the company in two thousand and nine. At that time, 0:21:20.800 --> 0:21:24.440 we were lucky enough to get access to arm Roots 0:21:24.480 --> 0:21:27.320 single malt, which was the first single malt out of 0:21:27.320 --> 0:21:31.240 India to be exported, and we started with that brand. Um, 0:21:31.320 --> 0:21:34.679 like I said, nine years ago, we've added several different 0:21:34.680 --> 0:21:38.159 brands now and are one of the leading importers of 0:21:38.240 --> 0:21:42.480 world whiskey into the US. So let's talk about how 0:21:42.480 --> 0:21:45.080 whiskey is taking off. And I'm thinking about whiskey bars 0:21:45.080 --> 0:21:47.560 that are starting up in Brooklyn, and I feel like 0:21:48.119 --> 0:21:50.560 that that hard drinks, in particular whiskey and bourbon are 0:21:50.640 --> 0:21:55.400 kind of overtaking in some places even beer among millennials. 0:21:55.960 --> 0:21:57.399 What do you think is driving us how many? How 0:21:57.480 --> 0:22:02.399 much more can whiskey and urban kind of infiltrate the 0:22:02.480 --> 0:22:06.440 alcohol scene and gain share here? I let you go question. So, 0:22:06.800 --> 0:22:10.280 I think that obviously beer sales are declining and they're 0:22:10.320 --> 0:22:14.639 giving way to spirits. Spirits continue to uh increase in 0:22:14.720 --> 0:22:17.680 sales UH, And I think that the consumers really are 0:22:17.680 --> 0:22:21.520 looking for different uniqueness. Um. You know, we can see 0:22:21.520 --> 0:22:25.240 that premium Scotch sales are up slightly, Bourbon sales that 0:22:25.320 --> 0:22:27.800 you mentioned, and world whiskey in general. I mean, I 0:22:27.840 --> 0:22:31.400 think led by the Japanese praise um, and now that's 0:22:31.440 --> 0:22:37.000 being affected by both shortages in Japanese whiskey availability and 0:22:37.440 --> 0:22:41.600 increasing prices. So I think consumers are still appreciating brown 0:22:41.680 --> 0:22:46.439 spirits as a general category and spirits overall. RAJ, in 0:22:46.480 --> 0:22:51.199 addition to Amerate whiskey that you import, you also have 0:22:51.320 --> 0:22:56.680 in your portfolio Blackadder whiskey, English whiskey stock, and barrel whiskey. 0:22:56.800 --> 0:23:00.560 You also have gin. What does it come we have 0:23:00.760 --> 0:23:04.200 to do in order to get RAJ interested in importing 0:23:04.200 --> 0:23:08.000 it into the United States? Great question. We everything we 0:23:08.080 --> 0:23:11.920 bring in is either owned by a small family distillery 0:23:12.040 --> 0:23:16.080 or have some history in producing product, So we're dealing 0:23:16.080 --> 0:23:20.639 directly with the owners of the company and the distillers. UM. 0:23:20.680 --> 0:23:23.320 You know the gin you mentioned that is from Spain. 0:23:23.359 --> 0:23:26.160