Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly
Speaker 2: podcast where we talk about stuff related to money. I'm
Speaker 2: Matt Levin and I write the Money Stuff column for
Speaker 2: Bloomberg Opinion.
Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 1: an anchor for Bloomberg Television.
Speaker 2: Katie, what are we talking about today?
Speaker 1: We're going to talk about Direct TV buying Dish. We're
Speaker 1: going to talk about fan duel and gambling addiction, and
Speaker 1: we're also going to talk about Apollo. Hey, Matt, have
Speaker 1: you ever gotten a really bad haircut?
Speaker 2: I've almost exclusively gotten really bad haircuts.
Speaker 1: I feel like I reached you cut that out.
Speaker 2: I've recently moved on to getting better haircuts, but for
Speaker 2: much of my life I got bad.
Speaker 1: Your last few haircuts, I've said, you've got a haircut.
Speaker 1: It looks nice.
Speaker 2: Thank you. That's the highest compliment.
Speaker 1: It's really easy to tell with men because you shorter hair. Anyway,
Speaker 1: moving so long. So direct TV paying one dollar for
Speaker 1: Dish and nine point seventy five billion dollars of debt.
Speaker 2: Or less than that. Yeah, Well, go on, tell me
Speaker 2: why they're buying Dish Ray slightly negative or meaningfully negative
Speaker 2: amount of money, or they're trying to.
Speaker 1: They are trying, They're trying to.
Speaker 2: So Dish is a company sort of that is an entity,
Speaker 2: but it is owned by Echo Star, Charlie Ergan's satellite conglomerate,
Speaker 2: and so EchoStar wants to sell it to DirecTV. DirecTV
Speaker 2: wants to buy it, but the value of the company
Speaker 2: is apparently somewhat less than its debt. So it has
Speaker 2: like nine point seventy five billion dollars of bonds outstanding,
Speaker 2: and the direct TV doesn't want to pay all those
Speaker 2: bonds back, so it wants to buy it for one dollar,
Speaker 2: you know, a check for one dollar to do Echo
Speaker 2: Star and also for taking on the debt but taking
Speaker 2: on less than all of the debt. And basically to
Speaker 2: get the deal done, the bondholders have to agree to
Speaker 2: a bad haircut, an unpleasant haircut.
Speaker 1: Yeah, so we're talking about one point six billion dollars
Speaker 1: worth of haircutting going on.
Speaker 2: Yeah, so like you know, bond holder dets agree, Like
Speaker 2: they can just insist on getting their money back, but
Speaker 2: if they agree to take one point six billion dollars less,
Speaker 2: so like a total of like eight point two billion dollars,
Speaker 2: then the deal will go through. And if they say no,
Speaker 2: then then technically the deal doesn't have to go through.
Speaker 2: But like everyone understands that this is just the opening
Speaker 2: of negotiations, and so what is happening is that the
Speaker 2: bondholders have said no. And the way it works is
Speaker 2: you kind of get a vote, so, like you know,
Speaker 2: basically you need to get like two thirds of each
Speaker 2: series of bonds to agree, and so some bond holders
Speaker 2: have said that they have accumulated a blocking position, which
Speaker 2: means basically they have enough bonds to prevent the deal
Speaker 2: from going through, and they don't not want the deal
Speaker 2: to go through. This will be a better company that
Speaker 2: is more likely to pay off its debts if it
Speaker 2: gets more money in, and what they want is just
Speaker 2: get less of a haircut.
Speaker 1: Right.
Speaker 2: There's a different series of with different maturities that were
Speaker 2: trading at different market prices, and like the longest dated
Speaker 2: it was trading in like the fifties cents on the
Speaker 2: dollar area, and they are offered to pay it off
Speaker 2: at sixty cents on the dollar, and the vond holders
Speaker 2: were like more than sixty cents on the dollar. So
Speaker 2: that's sort of the state of plays. They've said no,
Speaker 2: but it's like an opening and negotiations.
Speaker 1: They would like a slightly less worse haircut, something that
Speaker 1: doesn't look as bad.
Speaker 2: I'm resisting the temptation to just spend the whole time
Speaker 2: talking about my own history of quests for getting haircuts.
Speaker 1: You know, I cut hair. Yeah, I cut men's hair.
Speaker 2: I cut Oh, that's right, I did know that.
Speaker 1: Yeah, I cut my husband's. Your Instagram if you're cutting
Speaker 1: your husband's, my dad, my brother, and my nephew. My
Speaker 1: nephew has gotten like three haircuts in his life, and
Speaker 1: I've done all of them.
Speaker 2: This is gonna be like the money stuff live event. Yeah.
Speaker 1: Well, actually I love cutting hair. I'm always looking for
Speaker 1: opportunities anyway, So yeah, Bloomberg News. That, of course is
Speaker 1: according to Bloomberg reporting about that locking position. Bloomberg also
Speaker 1: expanded on that in the Brink newsletter, going through the
Speaker 1: various contentions that this group of creditors have. First, they
Speaker 1: contend that they were being asked to take losses as
Speaker 1: high as forty percent of face value. That obviously doesn't
Speaker 1: sound great, While Echo Star owner Charlie Ergan comes out
Speaker 1: relatively unscathed in all of this.
Speaker 2: Yeah, I don't know the full history of it, but
Speaker 2: like obviously you know they're selling it for zero dollars
Speaker 2: of equity value, right, So like it's respecting seniority in
Speaker 2: the sense that the equity is getting nothing, and like
Speaker 2: there's apparently so little value here that in addition to
Speaker 2: the equity hitting nothing, the bond holders have to take
Speaker 2: a haircut in order to sort of sell the asset, right,
Speaker 2: And the fact that the bonds are trading it, you know,
Speaker 2: fifty something sounds on the dollars. Is that you know,
Speaker 2: people did not think there was a ton of equity
Speaker 2: value here before. This deal, isn't nun So Yeah, like
Speaker 2: this is a deal where you look at like the
Speaker 2: trading prices of the bonds and you're like, oh, if
Speaker 2: we can get this asset for the value implied by
Speaker 2: these trading prices and also paying a dollar to the equity,
Speaker 2: then it's a good deal. Right. And then you're like, oh,
Speaker 2: pay a little premium to the values applied by the
Speaker 2: trading prices, and like that's you know, that's like normal MNA,
Speaker 2: except that here, you know, the thing is underwater, and
Speaker 2: so instead of paying off the shareholders. You're paying off
Speaker 2: the bond holders, but you know you're not paying them
Speaker 2: that much of a premium to the trading prices, and
Speaker 2: unlike shareholders, they have a contractual right to demand their
Speaker 2: money back. So it's a it's a fight.
Speaker 1: Well to that point. One of the other contentions is
Speaker 1: that some of them argue, and I'm reading directly from
Speaker 1: the Brink newsletter, some of them argue that the sale
Speaker 1: direct TV for one dollar confirms that the company was
Speaker 1: already insolvent when it completed a contentious deal in January
Speaker 1: to strip them of their collateral. If the company wasn't
Speaker 1: solvent at the time, that transaction could be avoided and
Speaker 1: the whole plan could be called off.
Speaker 2: Yes, but you have like your legal rights, but you
Speaker 2: also have like you know, like if you win those arguments,
Speaker 2: like what the company is into bankruptcy, we won, Like yeah,
Speaker 2: you like there is going to be some intro credit
Speaker 2: or fighting about like you know, who gets the collateral
Speaker 2: or whatever. But like I think in general, you would
Speaker 2: rather have the company be solvent and get paid a
Speaker 2: premium to the market value of the bonds than have
Speaker 2: the company not be solvent and sort of take your chances,
Speaker 2: but you want to get paid a premium to the
Speaker 2: market value of the bonds, and like this premium was
Speaker 2: a little it was a little slim.
Speaker 1: It's interesting that this might be what kills the deal
Speaker 1: because I remember when this was the whole deal. I know,
Speaker 1: but people were talking about regulatory concerns, blah blah blah.
Speaker 1: Wasn't going to get blocked because you remember the history
Speaker 1: of these two companies, DirecTV and Dish. They've been flirting
Speaker 1: with merging for like two decades, and that regulators sued
Speaker 1: in two thousand and two to block a previous attempt
Speaker 1: to combine. Now they're coming back together. It's sort of
Speaker 1: like j Lo and ben Affleck and we know how
Speaker 1: that ended. They recently filed.
Speaker 2: For Direction exactly. Yeah, followed that closely. Ye, I don't know.
Speaker 2: The world has changed in two thousand and two, and
Speaker 2: like the idea of that Dish DirecTV are monopolists in
Speaker 2: the provision of television is a lot less compelling than
Speaker 2: it was twenty years ago, right, I mean, like, who
Speaker 2: has shir DirecTV likes? It's just yeah, streaming has overtaken them,
Speaker 2: and so it is now like these two somewhat troubled
Speaker 2: players are trying to merge.
Speaker 1: Well, that's the thing, Like, what are we fighting over.
Speaker 1: There's some great Bloomberg Intelligence data that shows that together
Speaker 1: Dish and DirecTV have lost sixty three percent of their
Speaker 1: satellite customers since twenty sixteen. Uh, that's according to the companies.
Speaker 1: And then Bloomberg Intelligence says that nearly thirty percent of
Speaker 1: that loss of their user base or six million subscribers,
Speaker 1: has been since the start of twenty twenty two. So,
Speaker 1: I mean it's ugly, Like, this is a tough, tough business,
Speaker 1: and you're right, things have obviously changed dramatically in the
Speaker 1: past twenty two years.
Speaker 2: Right, it's a tough business. And I mean trading for
Speaker 2: lower than the value of the done is maybe something
Speaker 2: to be done.
Speaker 1: Yeah.
Speaker 2: The other thing that's interesting is like, you know, we
Speaker 2: say like direct TV is buying Dish, but like kind
Speaker 2: of what's happening here is TPG is buying both of them, right,
Speaker 2: Like DirecTV is like a AT and T obsidiary that
Speaker 2: like AT and T saw the writing on the wall
Speaker 2: and sold the part of it to TPG, the private
Speaker 2: equity firm, And now as part of this deal, TPG
Speaker 2: is buying the rest of it, and also putting in
Speaker 2: cash directly to finance Dish like before the deal closes,
Speaker 2: and also buying Dish. Right, So this is like going
Speaker 2: from being a big part of two public companies to being,
Speaker 2: you know, a private equity roll up that you know,
Speaker 2: it sort of sounds like that classic private equity playbook
Speaker 2: of like a declining business and like, you know, sort
Speaker 2: of extracting as much money as they can for as
Speaker 2: long as they can.
Speaker 1: Well, I was kind of wondering about the creditor dynamics here,
Speaker 1: and you wrote a bit about this. I was wondering
Speaker 1: if this is like a beautiful moment of like the
Speaker 1: creditors banding together to stop themselves from being screwed. But
Speaker 1: it seems like you're saying that things will get ugly
Speaker 1: between creditors.
Speaker 2: No, they're they're banding together. It's nice. It's like they're
Speaker 2: but like you can't just be like, oh, we want
Speaker 2: a hundred cents on the dog, because like there's some
Speaker 2: risk there. Right. The other thing that I wrote is
Speaker 2: that Charlie Erican clearly has some ability to to put
Speaker 2: it on past creditors, you know. But it is interesting
Speaker 2: to me that this is a private equity roll up.
Speaker 2: What I wrote was that you could have a model
Speaker 2: that is, like important skill set of private equity is
Speaker 2: extracting value from creditors, right like they're repeat players, are
Speaker 2: doing liability management transactions. And if you get good at that,
Speaker 2: then like you can make a troubled company worth more
Speaker 2: than anyone else could because you can, you know, make
Speaker 2: the creditors take back less money. And you know, if
Speaker 2: you own a troubled company, you might be like, well,
Speaker 2: I got to sell this to private equity because they're
Speaker 2: the only people who can kind of extract some value
Speaker 2: from it. Although here, you know, the equity owner got
Speaker 2: one dollar, so it's not that much value for him.
Speaker 1: Watch this space unless you have anything else like that.
Speaker 2: You end every segment with watch space.
Speaker 1: Let's talk about FanDuel and gambling addiction. I really enjoyed
Speaker 1: listening to this or reading the robot from the robot
Speaker 1: told me all about this.
Speaker 2: So there's this guy, I mean Patel. He worked for
Speaker 2: the Jacksonville Jaguars, which is a football team.
Speaker 1: Yeah you might know, uh I heard of.
Speaker 2: Him, and he stole twenty two million dollars from the
Speaker 2: Jaguars to do a bunch of things. He was arrested
Speaker 2: and died. He's in prison right now. He pleaded guilty.
Speaker 2: He did a bunch of things with the twenty two
Speaker 2: million dollars, and the prosecutors of course listed them all.
Speaker 2: He like bought some fancy watches, he like paid for
Speaker 2: trips on private chats with his friends, normal stuff. He
Speaker 2: put some of the money towards a retainer with a
Speaker 2: criminal defense layer, which is an amazing thing to do
Speaker 2: with money that you've stolen. Right, It's like, I know
Speaker 2: I'm gonna get caught. I'm going to hire my criminal
Speaker 2: defense layer in advance so that when I get caught,
Speaker 2: at least they'll have a you know, a well paid
Speaker 2: criminal defense layer.
Speaker 1: Yeah.
Speaker 2: Just amazing, like real indication of his state of mind.
Speaker 2: He was, I'm not like, oh great, I'm commnting the
Speaker 2: perfect crime. And he was like, oh my god, I
Speaker 2: am stealing all this money and.
Speaker 1: I'm going to our own time here.
Speaker 2: So why did he steal all this money even though
Speaker 2: he knew it was a bad idea because he was
Speaker 2: a gambling at it. Because most of the money that
Speaker 2: he stole went not to his lawyers or to watch
Speaker 2: his but to FanDuel I read an article saying that
Speaker 2: he was known as the biggest loser ever on Fandel,
Speaker 2: like he lost the most money and so that was
Speaker 2: bad and he went to prison. And this week the
Speaker 2: news is that he is suing Fandel for letting him
Speaker 2: do that. And I have like a lot of sympathy
Speaker 2: to him. I have no way of handicapping like how
Speaker 2: this lawsuit will go. I think there's like a real
Speaker 2: common reaction of like, come on, man, you stole this money,
Speaker 2: you voluntarily bet it on FanDuel, and now you're suing
Speaker 2: FanDuel for letting you. But I kind of think he's
Speaker 2: got a point.
Speaker 1: What is he suing for? Does he want his stolen
Speaker 1: money back?
Speaker 2: He wants money? Does he want his stolen money back?
Speaker 2: He wants money for like fraud, damages and right and
Speaker 2: like his emotional distress he wants He's suing for more
Speaker 2: than the twenty two million dollars. Yeah, I think the
Speaker 2: number in the lawsuit is like two hundred and fifty millions,
Speaker 2: But like, you know, he's not going to get like
Speaker 2: I think he'd be happy with some money. But yeah,
Speaker 2: I mean there's a bunch of theories, but basically they're
Speaker 2: like you exploited my gambling addiction. And even though you
Speaker 2: had policies to not take money from addicted gamblers, you
Speaker 2: went around those policies. So there's things like you know,
Speaker 2: you had like a vip host, right, Like.
Speaker 1: That was the craziest part to me, the vip host
Speaker 1: that he was texting with. Oh yeah, one hundred texts
Speaker 1: a day.
Speaker 2: Yeah, any casino business, right, Like if you are a whale,
Speaker 2: if you're like gambling a lot of money, they will
Speaker 2: do nice things for you, like he got like tickets
Speaker 2: this morning events and things. But they also have like
Speaker 2: a customer service representative whose job is to make you
Speaker 2: feel special so that you gamble more with them.
Speaker 1: Just so many texts, Like even the height of my
Speaker 1: texting days in like high school, I don't think I
Speaker 1: was exchanging that many text messages.
Speaker 2: Well, I think that a lot of his texts were.
Speaker 1: Like gambling orders.
Speaker 2: At least give me more credit on fanduels so I
Speaker 2: can bet more.
Speaker 1: Just so much.
Speaker 2: Yeah, but like also like the texts were like they
Speaker 2: moved it from the guy's like work account to like
Speaker 2: his personal phone for like the reasons that you know,
Speaker 2: I talk about a lot when the sec goes after.
Speaker 2: You know, it's like easier to avoid compliance when you're
Speaker 2: texting from your personal phone, and like they were doing
Speaker 2: dummy texts, like they're making sure to text from the
Speaker 2: guy's work account like a few times a day, so
Speaker 2: that compliance wasn't like why did you stop texting with
Speaker 2: this guy? Because if compliant saw that, they would know
Speaker 2: he was texting somewhere else. But anyway, so like he
Speaker 2: had this vip host, and the vip host was like
Speaker 2: getting around all of you know, first of all, he
Speaker 2: was doing it from his personal phone, but secondly, he
Speaker 2: was allegedly getting around limitations on how much the credit
Speaker 2: the guy could get. And there's other claims like he
Speaker 2: was doing a lot of gambling with just his Jaguars
Speaker 2: corporate credit card. And fan Duel is sort of regulated
Speaker 2: like a financial stituition. It has anti money laundering requirements,
Speaker 2: and those requirements, you know, they're sort of geared towards
Speaker 2: you should not be taking stolen money. And because he
Speaker 2: was gambling with stolen money, he is now arguing you
Speaker 2: should have known and you probably did know that I
Speaker 2: was gambling with stolen money because I was, for instance,
Speaker 2: using my corporate card to make bets and you should
Speaker 2: have stopped me and I should get the money back
Speaker 2: because you didn't do the anti money laundering and know
Speaker 2: your customer checks. I think it's like a really interesting
Speaker 2: theory that like traditionally, when a bank fails to do
Speaker 2: it's money laundering checks, it will get in trouble with
Speaker 2: the government if it allows a terrorist or a drug
Speaker 2: trafficker to use the payment system. You never hear about
Speaker 2: like the drug trafficker saying, well, you should have to
Speaker 2: give me the money back because you didn't do your
Speaker 2: KYC checks. But here it's like I was doing crimes
Speaker 2: and you didn't check, so I should get the money back. Yeah,
Speaker 2: it's a good theory.
Speaker 1: Okay, so he stole the money from the Jaguars, but
Speaker 1: he was using his Jaguars corporate card.
Speaker 2: That was the theft, Like he would just play plays
Speaker 2: bets with his corporate card.
Speaker 1: I feel like that in and of itself should.
Speaker 2: Be a no no, Like that's what he's saying.
Speaker 1: No, I know, but like the fact that it's a
Speaker 1: sports organization, you know, like it's a.
Speaker 2: Supports right, I believe from it being stolen, I agree
Speaker 2: with that too.
Speaker 1: But like, oh my god, why are we getting millions
Speaker 1: of dollars from a sports place.
Speaker 2: Yeah, yeah, you're right, You're right, that's also bad.
Speaker 1: That's bananas.
Speaker 2: I agree with you.
Speaker 1: Yeah, I do. Wonder so as you write about, of
Speaker 1: course this is good business for FanDuel.
Speaker 2: I mean, the biggest ever loser on Fendel is you know, yeah,
Speaker 2: like twenty million dollars to Fendel.
Speaker 1: But like, how many of him are there? I'm wondering.
Speaker 1: I wonder how many cases like this this man there are,
Speaker 1: maybe to lesser extent.
Speaker 2: But I think it's a really it's a really dicey business,
Speaker 2: right because like there are clearly people who are billionaires
Speaker 2: who like a gamble, who will lose a million dollars
Speaker 2: in a week and be like, yeah, that was fun
Speaker 2: and it's fine, And like those are the best customers, right, Like,
Speaker 2: those are the customers who can lose a lot of
Speaker 2: money and not feel it are great. There's not that
Speaker 2: many of them. Then they're the customers who lose a
Speaker 2: lot of money and can't really afford to lose a
Speaker 2: lot of money. And like, you know, all these sports
Speaker 2: books have policies about safe gambling, and you know, they're
Speaker 2: regulated business, and they don't want to look like they
Speaker 2: are exploiting addicted gamblers, but clearly they make money by
Speaker 2: people losing money, and the more money people lose, the
Speaker 2: more money they make. And not all of those people
Speaker 2: can afford to lose the money that they lose. And
Speaker 2: I've written about there's a subset of sports gamblers who
Speaker 2: are advantage gamblers, who win right, who can identify exploitable
Speaker 2: bets and make money at the expense of sports books,
Speaker 2: and those people their problem is that sportsbooks don't like
Speaker 2: them and won't let them bet very much. And so
Speaker 2: a lot of the business of being a professional sports
Speaker 2: gambler is not knowing who will win, but it's knowing
Speaker 2: how to bet a lot of money at a sports book.
Speaker 2: And there are stories about how people do it, and
Speaker 2: one thing they do is they try to look like
Speaker 2: addicted gamblers because that's what the sportsbook wants. So there's
Speaker 2: a story of like a guy who has a bot
Speaker 2: log into his sportsbook account every night between two and
Speaker 2: four am, because that just looks desperate. If you look desperate,
Speaker 2: they're like, oh, this guy's an addict, so we'll give
Speaker 2: him more credit. And like he seems to think that
Speaker 2: that works, right, so there's like this real tension where
Speaker 2: these companies really do not want to look like they're
Speaker 2: exploiting addicted gamblers, but like that is where the money is.
Speaker 1: Reading this and thinking about it kind of made me
Speaker 1: think about, you know, the conversations around robin Hood when
Speaker 1: the memestock era was really in full swing. Of course,
Speaker 1: like yeah, like what is the responsibility of like Robinhood
Speaker 1: to make sure people aren't trading more than they can
Speaker 1: afford to lose? And there, of course are tragic stories
Speaker 1: about that.
Speaker 2: Yeah, and robin Hood will tell you that they are,
Speaker 2: and I think there's a lot of truth to this,
Speaker 2: that they are sort of a gateway drug to sensible
Speaker 2: four O and K investing, Right, Like, you come to
Speaker 2: Robinhood because it's fun, and then like it's not being
Speaker 2: that fun, and like I'll just put it in like
Speaker 2: an SMP.
Speaker 1: Index fund you like graduate up, you just like get.
Speaker 2: Bored of like day trading GameStop and you put it
Speaker 2: money into an SMP fun That seems plausible to me.
Speaker 1: You're like, man, why does this stock keep beating me?
Speaker 2: Right? So, like I think there's some plausibility of that.
Speaker 2: At the same time, like you look at how robin
Speaker 2: Hood makes money. They make a lot of money on options, right, Yeah,
Speaker 2: like a lot of money on options. It's hard to
Speaker 2: argue that like a lot of retail traders are responsibly
Speaker 2: saving for retirement by day trading options. But that's where
Speaker 2: the money is for these firms. I will say I
Speaker 2: wrote about like there's a move to make more single
Speaker 2: stock daily expery options, which I don't want to say
Speaker 2: is a pure gambling product, because I think you could
Speaker 2: imagine a hedging use for it for somebody, but it's
Speaker 2: like it's it's pretty much a gambling product. And the
Speaker 2: articles I read about it, you know, there's a lot
Speaker 2: of push from from some like market makers to do
Speaker 2: that because like a gusher of money. But Robinhood has
Speaker 2: pushed back on it. Because you know, single stock zero
Speaker 2: day x pery options become a big thing. Robin Hood
Speaker 2: will offer them, and Robinhood's customers will use them, and
Speaker 2: there will be terrible stories like rebin Hood doesn't want
Speaker 2: that headache, right, They're like, we would make a lot
Speaker 2: of money doing this, but we don't want that that
Speaker 2: looks like catering to gamblers, and and they have, they have,
Speaker 2: they don't want it you know.
Speaker 1: Yeah, well it would give us something to talk about
Speaker 1: on the Money SOFF podcast.
Speaker 2: Zero day single slock options, Yeah, we just talked about them,
Speaker 2: I know. I mean yeah, it's again, it's like they
Speaker 2: expire at four and so like if you're heading earnings
Speaker 2: and earnings come at four fifteen, you're like exercising at
Speaker 2: a stale price. It's it's crazy product.
Speaker 1: I'm really glad that that's a sandbox I can't play
Speaker 1: in because that sounds fun.
Speaker 2: What zero day single slack options.
Speaker 1: If I wasn't there, I would be the most degenerate
Speaker 1: day trader. I would have a great time.
Speaker 2: Really. Yeah, I didn't know this about you.
Speaker 1: I love a drenaline you can't tell, okay, but like
Speaker 1: that particular form of I would not be a day
Speaker 1: trader and scared. Well, there's two sides sides to the
Speaker 1: trade or something. Let's talk about Apollo. A lot of
Speaker 1: Apollo headlines recently.
Speaker 2: Instay doing some stuff. Tell me about it.
Speaker 1: Well, I was gonna turn it over to you. Apollo's
Speaker 1: Investor Day. They came out with a big projection ten
Speaker 1: billion dollars of annual earnings in five years. Before that,
Speaker 1: they joined forces with City Group, for this twenty five
Speaker 1: billion dollar private credit push. It just feels like Apollo
Speaker 1: has been particularly in the news lately.
Speaker 2: Their investor Day, they sort of positioned themselves as everyone's
Speaker 2: retirement fund.
Speaker 1: Yep, they certainly did. CEO Mark Rowan, he said that
Speaker 1: privates can produce fifty to sixty percent better outcomes for
Speaker 1: for one case, and would expect him to say that,
Speaker 1: I don't know's well, of course, I mean that's the thing, Like,
Speaker 1: of course he would say that do we need privates
Speaker 1: in four one ks? I don't know.
Speaker 2: I don't know. I just think about this kitty. You
Speaker 2: are ETF build, You're a sure big believer in.
Speaker 1: Can't even get an ETF and a four oh one K.
Speaker 2: You're a big believer in daily liquidity.
Speaker 1: Sure am, I'm sorry. I just value transparency and interry
Speaker 1: day liquidity.
Speaker 2: But it is possible, Like a four one K is
Speaker 2: really a perfect place to not have those things. I know,
Speaker 2: like it is, And it isn't right because like you,
Speaker 2: because it's for small investors. You do want like transparency
Speaker 2: and low fees and not like you don't want people
Speaker 2: to like lock their money away for thirty years and
Speaker 2: forget about it and have someone stealing it, you know. No, definitely,
Speaker 2: it is a place where you can lock your money
Speaker 2: away for thirty years, and that does suggest that you
Speaker 2: don't need daily liquidity. Yeah, and if it is the
Speaker 2: case that I liquid things pay premium, and like you know,
Speaker 2: Apollo sort of looks around and it's like, we are
Speaker 2: in the business investing in liquid things, right, and so
Speaker 2: who do we find on the other side, Like who
Speaker 2: will give us the money to invest in liquid things?
Speaker 2: It's like, well, you know, it's pensions and endowments, and like, oh,
Speaker 2: let's have a you know, a THEENE is like I
Speaker 2: always out of Athene is sort of like a life
Speaker 2: insurance company, but it's not really it's like an annuities company, right,
Speaker 2: It's like a or like those are kind of two
Speaker 2: sides of the same thing, but like it's you know,
Speaker 2: they position in the investor day as a as a
Speaker 2: retirement services company, which is what it is, right, And
Speaker 2: so eventually you sort of get to the point of saying,
Speaker 2: you know, we need all the money and the place
Speaker 2: where people have long time horizons and so some ability
Speaker 2: to take your liquidity is like in their retirement accounts. Yeah,
Speaker 2: it makes a lot of sense to me when I
Speaker 2: think of it that way. It's like a little weird
Speaker 2: that retel products and like mutual funds have liquidity requirements
Speaker 2: because it's not exactly addressing the problem of retirement savings,
Speaker 2: which is why people have annuities and stuff, right, I mean,
Speaker 2: that's like the classic way to do this is like
Speaker 2: Athene sells people an annuity and then apollos and charge
Speaker 2: it figuring out how to invest their money for the
Speaker 2: next forty years or whatever.
Speaker 1: Yeah, No, I hear what you're saying, and it doesn't
Speaker 1: make sense. Like, again, you're locking away your money for
Speaker 1: thirty years. You don't need that intry day liquidity. I
Speaker 1: guess it's just what I like about public markets and
Speaker 1: public assets is just knowing the performance.
Speaker 2: So Cliff Assess has this great blog posts from a
Speaker 2: couple of years ago. Cliff Asseness is like a public
Speaker 2: markets value investor, right. One thing he doesn't like is
Speaker 2: that private equity, which is kind of like you know,
Speaker 2: value investing in companies. Private equity has what appears to
Speaker 2: be a much better sharp ratio because it has much
Speaker 2: better risk adjusted performance because it has high performance or
Speaker 2: you know, it has sort of vaguely SMP like performance,
Speaker 2: but it has much less volatility. And the reason has
Speaker 2: much less volatilities because it doesn't report with market prices
Speaker 2: every day. Right, Like a lot of what happens in
Speaker 2: the public market, sprices go up and down without that
Speaker 2: much change in fundamental value, and so it looks like
Speaker 2: your stocks are very valatile. Private equity doesn't look vital
Speaker 2: because they report marks once a year or whatever, and
Speaker 2: like they have, you know, have some flexibility to say
Speaker 2: out nothing's changed. And he is like kind of mad
Speaker 2: about that, but he's also saying, he says in this piece,
Speaker 2: you can see why that's actually good because, like what
Speaker 2: happens is if your stocks move around every day, you'll
Speaker 2: be tempted to sell them at the worst time. You'll panic. Right,
Speaker 2: Buying private equity is a way to like discipline yourself
Speaker 2: and prevent yourself from panicking when market prices move around.
Speaker 2: And that story that private equity is traditionally a story
Speaker 2: about pensions and endowments, right, who you know are maybe
Speaker 2: prey to like political factors and will take their money
Speaker 2: out if prices go down, and can stop that by
Speaker 2: investing in things that don't report prices. But it's like
Speaker 2: also equally true of retirement savers, right like if you
Speaker 2: if you're looking at your furrow and k every day
Speaker 2: and saying, oh, no, stocks went down and take my
Speaker 2: money out, Like maybe it's better to be locked up
Speaker 2: in something that doesn't have price transparency.
Speaker 1: That's a fair point. I do find it fund that.
Speaker 1: Of course, Apollo is public, locally traded, and it's interesting
Speaker 1: to consider it's its market cap. It's something like seventy
Speaker 1: four billion dollars. Their AUM is like six hundred sixty
Speaker 1: two billion dollars somewhere around there. It's a fun thought
Speaker 1: exercise to compare that to black Rock, which has ten
Speaker 1: trillion dollars in AUM and their market cap is like
Speaker 1: one hundred and forty billion dollars. And this is something
Speaker 1: that we've talked about a little bit before, like Square, Yeah, exactly,
Speaker 1: Like how the stock market values these different asset managers.
Speaker 2: I think it is pretty straightforward, right crudely, if you
Speaker 2: put it ten times multiple on earnings, right, like Apollo
Speaker 2: can kind of extract kind of one percent in fees.
Speaker 1: I have some numbers right here. Yeah, I printed I'm
Speaker 1: reading this right. So if you take a look at
Speaker 1: Apollos AUM, this cent earned per one dollars of AUM
Speaker 1: is point eighty.
Speaker 2: Nine yeah, so close to one percent.
Speaker 1: Yeah, and then you compare that to black Rock and
Speaker 1: it's like point oh six sense well.
Speaker 2: Like sixplasive points. I think like there's two kinds of
Speaker 2: asset managers. There's like expensive asset managers who charge one percent,
Speaker 2: and there's cheap asset managers who charge like one basis
Speaker 2: point right, right, and then you put it ten times
Speaker 2: multiple on them, and like black Rock should trade it
Speaker 2: like one percent of AUM, and Apollo should trade it
Speaker 2: a ten percent of AUM, right, yeah, because like they're
Speaker 2: charging one percent of AUM versus charging ten basis points
Speaker 2: of AUM. And I wrote about this in the context
Speaker 2: of Brushing Square, where they raised money at a valuation
Speaker 2: for the management company of something like fifty percent of AUM,
Speaker 2: which implies quite insane things about the fees they can
Speaker 2: charge or about their expected growth. But that's neither here
Speaker 2: nor there. What is Yeah, Like Apollo is in the
Speaker 2: business of being an expensive asset manager, and one thing
Speaker 2: that might happen, one that you could imagine is like
Speaker 2: if all of their pushes to be like mass market
Speaker 2: and retirement savings and all these things all come true,
Speaker 2: and like possibly there will be some fee compression, right,
Speaker 2: possibly you can't charge the same fees for everyone's retirement
Speaker 2: account that you can charge for like private equity.
Speaker 1: I would imagine. So Also John Farrell and BTV interviewed
Speaker 1: marcro In the day after the investor Day, and he
Speaker 1: asked the good question, which is that you have rates
Speaker 1: coming down. The economy is looking pretty good right now,
Speaker 1: financial conditions are easy. Why would people keep going to
Speaker 1: the private credit markets versus issuing in the public markets,
Speaker 1: which I think is a fair question. Marcro And said
Speaker 1: something like, you know, we're doing things that the public
Speaker 1: markets wouldn't allow, and then he talked about infrastructure for
Speaker 1: a while. But there was also an interesting story on
Speaker 1: the terminal from Ellen Schneider and Michael Toblin, quoting Bank
Speaker 1: of America research that said almost thirty billion dollars of
Speaker 1: private debt has been refinanced through broadly syndicated loans across
Speaker 1: more than seventy deals so far this year. So banks
Speaker 1: reclaiming some ground there from private credit.
Speaker 2: Yeah, that makes sense. As you said, they just a
Speaker 2: a big, you know, partnership with the city, right, So
Speaker 2: I think there's a real view that private credit is
Speaker 2: going to stick around. You can imagine a story of,
Speaker 2: like a lot of private credit funds raised a lot
Speaker 2: of money because it's very hot, and then like in
Speaker 2: a year, they need to deploy that money, and they
Speaker 2: are possibly giving better terms than the public markets. Right.
Speaker 2: I think a lot of the story of private credit
Speaker 2: in recent years has been like when public markets seized up,
Speaker 2: private credit seized a lot of share. But you can
Speaker 2: imagine a story of just like there's so much money
Speaker 2: in private credit, it's going to be cheap, and watch
Speaker 2: the space comebye.
Speaker 1: Watch the space bye bye.
Speaker 2: And that was the Money Stuff Podcast.
Speaker 1: I'm Matt Levian and I'm Katie Greifeld.
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