Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
Speaker 3: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
Speaker 3: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 4: We are going to continue to monitor markets throughout the
Speaker 4: day here, of course, but right now we have a
Speaker 4: very special guest with us here in New York City.
Speaker 4: We've got Kristin Olsen. She's a partner of Alternative capital
Speaker 4: Markets at Goldman Sachs. She's here to discuss investing strategies
Speaker 4: and give us her outlook for alternative markets. She was
Speaker 4: also in a great panel this morning that was far
Speaker 4: too short about positioning for a recession, so we're gonna
Speaker 4: get some more time with her. Thankfully, Kristen, thank you
Speaker 4: for being here with us in person. I imagine that all
Speaker 4: capital markets are very attractive right now as we're in
Speaker 4: this recessionary environment.
Speaker 5: Can you talk to me.
Speaker 4: About what business is looking like for you?
Speaker 6: Sure?
Speaker 7: Well, I would say clients are increasingly upping their allocations alternative.
Speaker 7: So we've always had a very big strategic weight towards
Speaker 7: alternative investments. And I think what our clients have seen
Speaker 7: over the past twenty five years is the private markets
Speaker 7: have generated real alpha versus the public markets, and they've
Speaker 7: seen it with less perceived volatility and correlation to traditional markets.
Speaker 7: And so obviously that's attractive right now. I think when
Speaker 7: people are looking under the hood at where an alternatives,
Speaker 7: they focused traditional private equity. In this market, secondary private
Speaker 7: equity is particularly compelling. Obviously, liquidity is at a premium,
Speaker 7: and so the opportunity to buy private equity at a
Speaker 7: discount is pretty compelling right now. And then in this
Speaker 7: environment private credit, the ability to be top of the
Speaker 7: capital structure and in this market yet double digit un
Speaker 7: levered returns is very very compelling.
Speaker 3: Christian, I'm down here in Orlando, Florida today at the
Speaker 3: B and Y Melon Persihing Insight Conference, and what we've
Speaker 3: heard of yours, retail investors really have an appetite for
Speaker 3: alternative investments.
Speaker 1: How do you view that source of wealth, that pool
Speaker 1: of capital.
Speaker 7: Certainly we see that as a very big growth opportunity.
Speaker 7: I think that market and those investors have not has
Speaker 7: had as many opportunities to get into alternatives. And what
Speaker 7: we're seeing over the last couple of years or some
Speaker 7: new opportunities in private credit, in particular with the advent
Speaker 7: of a number of these non traded BDCs that provide
Speaker 7: quarterly yield and access to this type of private credit market. Similarly,
Speaker 7: we've seen the private real estate side non traded wreaths,
Speaker 7: and both of those are structured to accommodate a broader
Speaker 7: universe of investors than traditional alternatives are available to. And
Speaker 7: then I think the next question will be how does
Speaker 7: that investor based access private equity and what structures will
Speaker 7: become available in that space.
Speaker 4: Within reads which is so interesting that you bring up
Speaker 4: Can you talk to me a little bit more about
Speaker 4: that and what clients are interested in.
Speaker 7: So from from my client base, they're looking more at
Speaker 7: the and this is on the private well side, ultrahigh
Speaker 7: net worth and if we even go down to kind
Speaker 7: of mass affluent, it's more of the private rate market
Speaker 7: as opposed to the public rate market. But you know,
Speaker 7: I think there's some hesitancy right now. You know, those
Speaker 7: investments have a fixed yield in an environment where private
Speaker 7: credit with floating rate, floating yields are probably a little
Speaker 7: bit more attractive, and I think there's a little bit
Speaker 7: of a wait and see as where do the real
Speaker 7: estate values for existing pools of assets shake out, and
Speaker 7: probably some concerns in the near term about where evaluations
Speaker 7: are going.
Speaker 3: So Christian, you mentioned earlier private credit, and that's a
Speaker 3: business that I think if I were to come back
Speaker 3: again and start my Wall Street career all over again,
Speaker 3: that would be an area that I would look really
Speaker 3: hard at. I'm just amazed at the amount of capital
Speaker 3: flowing to private credit.
Speaker 1: What's your view of that that market?
Speaker 7: We think right now it's quite compelling. Look, obviously, there's
Speaker 7: been a big pivot post the global financial crisis. Right
Speaker 7: banks pulled back significantly from this type of direct lending,
Speaker 7: and alternative credit providers stepped in. So I think you have,
Speaker 7: you know, five times the amount of capital in that
Speaker 7: space then you did back in two thousand and nine.
Speaker 7: And then if you sit here today and you look
Speaker 7: at you know, base rates up five hundred basis points,
Speaker 7: credit spreads widening. If you can pick the right managers
Speaker 7: that can select the right credits. Unlevered yields of ten
Speaker 7: plus percent and levered returns that are low teens, you're
Speaker 7: not that far off from the returns that investors might
Speaker 7: be thinking of for private equity. And so, you know,
Speaker 7: we think that risk return today is very attractive and
Speaker 7: hence you're seeing a lot of capital flow into that space,
Speaker 7: and particularly if we've been in a yield starb environment
Speaker 7: and that yield's pretty attractive today.
Speaker 4: Is that changing the calculation of the traditional sixty forty portfolio?
Speaker 4: Have we moved past that at this point?
Speaker 1: Well?
Speaker 7: Look, I mean I think underneath sixty forty there's always
Speaker 7: a lot of asset classes in there, and from my perspective,
Speaker 7: we have a big strategic weight to alternatives, and so
Speaker 7: private credit would be part of that, you know. And
Speaker 7: so for us, we think about a moderate client approaching
Speaker 7: twenty five percent, and alternatives and private credit would be
Speaker 7: a part of that twenty five percent.
Speaker 3: Christin, you know, I've done some work with some university
Speaker 3: endowments and I am just I'm not shocked, but I'm
Speaker 3: just really surprised at how much endowments have leaned into
Speaker 3: alternative investments, some of them at thirty to forty percent
Speaker 3: of their endowment in alternatives.
Speaker 1: How do you view that source of capital.
Speaker 7: Yeah, look, they've traditionally you know, I think they're leaning in.
Speaker 7: I would bet they're leaning in even more than that today.
Speaker 7: So they've always been one of the largest allocators allocators alternatives.
Speaker 7: I think what you're seeing is the individual investor kind
Speaker 7: of getting up closer to those levels. You know, we
Speaker 7: just did our Family office survey and you know, when
Speaker 7: we went out to that universe of investors, we saw
Speaker 7: that they were on average allocated forty four percent to alternatives,
Speaker 7: so even higher than where you see kind of the
Speaker 7: endowment community. And then further, they're actually mostly looking to
Speaker 7: actually increase that in the coming year. So you know,
Speaker 7: I think you're seeing a bit of a pivot. Obviously,
Speaker 7: we talk a lot about the institutional world having a
Speaker 7: bit of a denominator effect right where their alternatives have performed,
Speaker 7: their traditional assets values have you know, declined, and as
Speaker 7: a result, they're actually not able to keep adding as
Speaker 7: much as they have historically, whereas the individual community, the
Speaker 7: family office community, is actively adding to their alternatives allocations.
Speaker 4: When did this start? When did the interest start to
Speaker 4: really pick up?
Speaker 7: I would say for the ultra high net worth community,
Speaker 7: there's always been very meaningful interest, and the reason being
Speaker 7: that that investor base has the ability to endure the
Speaker 7: ill liquidity and thus benefit from the ill liquidity premium
Speaker 7: in those markets. But over the past several years, I
Speaker 7: think you've seen even more of a lean in to
Speaker 7: alternatives from that channel. And then I think you're seeing growth,
Speaker 7: you know, as we alluded to in the in the
Speaker 7: retail space and the ultra high net and the mass
Speaker 7: affluent space, as more and more people want to access
Speaker 7: the alpha that is generated in these markets.
Speaker 3: Kristin, what does the data show historically about how alternatives
Speaker 3: as an asset class perform in what could be a
Speaker 3: recessionary environment, however shallow it may prove to be.
Speaker 7: Yeah, Look, I think if we look at the past
Speaker 7: twenty five years private equity, the median private equity manager
Speaker 7: has generated positive returns, although they've varied every single year
Speaker 7: for the last twenty five years. And if you think
Speaker 7: about what the alpha, so the outperformance that they're generating
Speaker 7: relative to traditional markets, the median managers across buyot and
Speaker 7: growth have done three to five hundred points basis points
Speaker 7: a year better than their public market equivalent. And if
Speaker 7: you go to top quartel managers that our performance is
Speaker 7: going to be even higher. And so again, if you
Speaker 7: have the ability to endure the illiquidity in this asset class,
Speaker 7: you are getting rewarded even with the median manager, but
Speaker 7: obviously more important to pick top quartel managers in this space.
Speaker 4: Looking a little bit more broadly, kristin, what's your outlook
Speaker 4: for the rest of the year. What are you most
Speaker 4: concerned about and what are you excited about? What's keeping
Speaker 4: you up at night and helping you go to sleep?
Speaker 7: Oh gosh, one of my most concerned about. Well, look,
Speaker 7: I mean I think everyone is concerned about, you know,
Speaker 7: the possibility of actually going into a recession, although it
Speaker 7: seems like some of those fears are abating a little bit.
Speaker 7: I think the beauty in the ASCID class I focus
Speaker 7: in though, is all of these things create different types
Speaker 7: of opportunity. So when you look at the hood under
Speaker 7: the hood, if we do go into a recession or
Speaker 7: hip bumps in the road, you know, we'll start looking
Speaker 7: at managers that can think about how to provide capital
Speaker 7: into those disruptions, right, whether it's a special situations manager,
Speaker 7: strategic lenders, distressed managers. So I think you know, the
Speaker 7: theme of this right as we think about a recession,
Speaker 7: we were there opportunities. I think in alternatives you will
Speaker 7: see opportunities. They'll just be different than the opportunities that
Speaker 7: we were excited about maybe three or four years ago,
Speaker 7: which happened to lean a lot into growth and tech
Speaker 7: and venture. That being said, you know, with valuations down
Speaker 7: a lot, there's going to be opportunity in that space
Speaker 7: as well going forward.
Speaker 3: Kristin, thank you so much for joining us. Really appreciate
Speaker 3: getting some of your time. Christin Olsen, she's a partner
Speaker 3: Alternative Capital Markets at Goldman Sachs, so getting some good
Speaker 3: thoughts there on the alternatives market.
Speaker 6: You're listening to the team. Ken's her live program, Bloomberg Markets,
Speaker 6: weekdays at ten am Eastern on Bloomberg dot Com, the
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Speaker 1: Madison Mills in New York.
Speaker 3: I'm down here in Orlando, Florida at the BNY Melon
Speaker 3: Pershing Insight Conference. Having a great time down here, but
Speaker 3: unfortunately I miss hanging out with my buddy and Maletti.
Speaker 3: She's Offsprings, head of Active Equity. She's in New York
Speaker 3: with Madison and great to talk to you as always.
Speaker 3: I'm seeing a market here in where I've got seven
Speaker 3: stocks basically driving the entire bu for the S and
Speaker 3: P five hundred. Is it time to look for some
Speaker 3: names that might be getting lost here?
Speaker 8: I think it is, Paul, and I'm sorry I'm missing
Speaker 8: you here in person, but good for you to be
Speaker 8: in Florida. It is the interesting thing, though, is if
Speaker 8: you do look underneath and find time to dig around,
Speaker 8: there are some really interesting stocks and more dispersion when
Speaker 8: you look down cap, when you look in the mid
Speaker 8: cap space, and when you look in the small cap space,
Speaker 8: there's a lot more dispersion. And believe it or not,
Speaker 8: companies are really moving on fundamentals.
Speaker 4: What are the fundamentals that you feel are most important
Speaker 4: to you when sussing out these quality companies?
Speaker 8: Yeah, you know, Madisine, I'm glad you said it, because
Speaker 8: the key really is quality, and I know people are
Speaker 8: tired of hearing it. But when you have uncertain futures
Speaker 8: like we do now, an uncertain future and so many
Speaker 8: macro things that are quite honestly just nobody really knows
Speaker 8: what's going to come next, you have to look at quality.
Speaker 8: For us, that's really balance sheets. It's do they have
Speaker 8: free cash flow? Can they support and direct their own future?
Speaker 8: And clearly, and Paul, you know this probably better than
Speaker 8: I do. Management teams that have had experience dealing with
Speaker 8: difficult times too really helps.
Speaker 3: Sounds that sounds a lot like active management. And so
Speaker 3: I mean, I mean, how do you think about it?
Speaker 3: I mean, one of the things I'm concerned about is
Speaker 3: there's still maybe some earnings risk in this market here.
Speaker 1: How do you think about that issue, that potential headwind?
Speaker 8: Yeah, you know, Paul, we've been in an earnings recession
Speaker 8: and I think that is something also that gets lost.
Speaker 8: Up until this last quarter, you know, we have seen
Speaker 8: earnings declines almost across the board, except for again a
Speaker 8: few names here and there. Even this quarter we had
Speaker 8: very little earnings growth. In fact, I think it only
Speaker 8: came from two sectors, technology and industrials. But we are
Speaker 8: seeing companies that are being able to hold margins pretty well,
Speaker 8: being able to hold arnians pretty well. Those are the
Speaker 8: type of companies that we're looking for. We do think
Speaker 8: the future is going to continue to be uncertain, but
Speaker 8: wouldn't exit the equity markets because we still even if
Speaker 8: there is a downturn, think there's going to be opportunity
Speaker 8: and companies that can adapt and do well, and so
Speaker 8: still kind of bullish on the unique opportunities, not the
Speaker 8: overall opportunity.
Speaker 4: And as Paul mentioned, it's these seven names driving a
Speaker 4: lot of the rally that we've been seeing. When you
Speaker 4: look further down the pipeline, what are some of the
Speaker 4: names or themes if you don't want to talk about
Speaker 4: names that are that investors are missing out on right now?
Speaker 8: You know, the small and mid cap space I think
Speaker 8: has almost been left for dead. They've underperformed. The Russell
Speaker 8: two thousand has underperformed the Russell three thousand five of
Speaker 8: the last consecutive years and nine the last eleven years.
Speaker 8: History would suggest that can't go on for much longer.
Speaker 8: So whether or not we're going to see the larger
Speaker 8: cap names start to sell off or the smaller cap
Speaker 8: names start to outperform, I'm not sure what's going to
Speaker 8: close the gap, but something has to give there, and
Speaker 8: so I think the smaller and mid cap space has
Speaker 8: a lot of opportunity. And what I'm hearing from our
Speaker 8: investment teams is they're seeing it and they're finding it there. Also,
Speaker 8: when the economy slows and we've gone from six percent
Speaker 8: growth down to one, those smaller cap companies tend to
Speaker 8: have faster growth. The only thing I would caution is
Speaker 8: if we do head into a recession, you could see
Speaker 8: a little bit of pause before you see that acceleration.
Speaker 3: Hey, and in a world where an investor can get
Speaker 3: four and a half percent into two year treasury, you
Speaker 3: know how important now are dividends to you and your
Speaker 3: teams here. We had a guest on a few months
Speaker 3: ago that said, you know, this is going to be
Speaker 3: the decade of the dividend.
Speaker 1: How do you guys think about that?
Speaker 8: I do think it's really and Paul, I mean, if
Speaker 8: you can get dividends on top of an equity return,
Speaker 8: that's going to be much more attractive than it was before.
Speaker 8: I think investors, you know, in a double digit teen
Speaker 8: high teen twenty percent return market, people don't really care
Speaker 8: about the dividend. But if we are now in a
Speaker 8: lower return environment where equities return you know, high single digit,
Speaker 8: if we're lucky, that's going to be the return. A
Speaker 8: company that can produce a dividend on top of that,
Speaker 8: that's going to be pretty interesting. And by the way,
Speaker 8: it's also a sign of quality that a company has
Speaker 8: the ability to pay the dividend and maybe increase the
Speaker 8: dividend over time.
Speaker 4: Quality always makes me think about Apple. Uh what do
Speaker 4: you think about the Apple? I mean, is it just
Speaker 4: way overplayed at this point?
Speaker 8: You know, it's interesting because I don't think I mentioned
Speaker 8: the stat but you know, the entire market cap of
Speaker 8: Apple near three trillion dollars. You know, it might be
Speaker 8: well deserved. I'm not going to sit in the seat
Speaker 8: and say that it's not. We probably won't know that
Speaker 8: for the next.
Speaker 5: Year or two.
Speaker 8: But the entire market cap of Apple is bigger than
Speaker 8: the entire market cap of the Russell two thousand. So
Speaker 8: do you want to own some of those two thousand
Speaker 8: companies or one individual company? And I just think the
Speaker 8: risk reward is a little bit less certain with Apple
Speaker 8: at these prices.
Speaker 3: And you know it just you know, a month or
Speaker 3: two ago, all we were talking about was the health
Speaker 3: or the potential headwindow of the US banking system, and
Speaker 3: you know, a handful of names really had had some trouble.
Speaker 1: There is it time to look at some of those regional.
Speaker 3: Banks because it seems to have, you know, kind of
Speaker 3: those concerns seem to have been laid a little bit.
Speaker 8: Yeah, Paul, what I'm hearing from our investment teams on
Speaker 8: the banks, you know, there are probably some opportunities, but
Speaker 8: I think there is also, you know, a real, a
Speaker 8: real thoughtful approach that our teams are taking because they
Speaker 8: know that more change is coming. We're seeing regulators suggests
Speaker 8: that more capital is needed at the big banks. Clearly
Speaker 8: that's coming down to the smaller banks as well. I
Speaker 8: don't know that we've seen the last shoe to drop
Speaker 8: on the smaller regional banks from everything that I'm hearing
Speaker 8: from our investment teams, So I you know, I'm not
Speaker 8: sure that it's time to run and grab all you
Speaker 8: can get in that space.
Speaker 4: We have like thirty seconds left here. What does that
Speaker 4: shoe drop look like?
Speaker 8: You know, That's that's the million dollar questions, And I
Speaker 8: wish I could answer that. I think, you know, we're
Speaker 8: all trying to figure out. You know, there's there's always
Speaker 8: cracks that you see in the market, and you're always
Speaker 8: trying to figure out. I'm certainly a big warrior. I
Speaker 8: would I would say that the likely next shoot to
Speaker 8: drop is the economy is going to see, you know,
Speaker 8: more pressure, the credit tightening that's likely to come from
Speaker 8: these This bank weakness could create pressure across the board,
Speaker 8: and that's that's probably the most likely scenario with Aunay Blackslaw, Yeah.
Speaker 1: And great stuff.
Speaker 3: As always, I always appreciated getting a few minutes of
Speaker 3: your time, particularly when you are in the big town.
Speaker 3: And Maletti, she's all Springs, head of Active Equity and
Speaker 3: as I say, time and time again, pound for pound,
Speaker 3: I think some of the smartest investors are from Milwaukee, Wisconsin.
Speaker 1: And I don't know why, but there's a lot of
Speaker 1: good folks out there doing a lot of good work.
Speaker 6: You're listening to the tape. Catch are live program Bloomberg
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Speaker 3: Now we're going to go to an interview with coinbased
Speaker 3: CEO and co founder Brian Armstrong. He sits down with
Speaker 3: Bloomberg shanale Bassic after the sec suit Coin base for
Speaker 3: a range of alleged violations.
Speaker 1: Let's go to the conversation right now.
Speaker 9: Do you think you're going to have to go here?
Speaker 10: Yeah, Well, this was not unexpected. You know, we've been
Speaker 10: in discussion with the SEC for a long long time,
Speaker 10: even going back to before we were a public company.
Speaker 11: We started sharing with them how we.
Speaker 10: Operate our business, how we list assets on the platform,
Speaker 10: how we think about our staking program, and through a
Speaker 10: large number of dialogues back and forth, they allowed us
Speaker 10: to become a public company. You know, we had many
Speaker 10: discussions with them in the last year when their tones
Speaker 10: started to change and they started to come to us
Speaker 10: with more questions about the business.
Speaker 11: So we were very forthcoming.
Speaker 10: We met with them probably thirty times over the last year,
Speaker 10: and we started to kind of ask them for feedback,
Speaker 10: and we said, you know, we would like there to
Speaker 10: be a robust market in the US to trade crypto securities.
Speaker 10: Of the thousand plus assets we've reviewed today, we've rejected
Speaker 10: ninety percent of them, the ones we we believe our commodities.
Speaker 10: What feedback do you have for this for us? How
Speaker 10: can we come in and register, how can we work together?
Speaker 10: And unfortunately we were met with silence. We really got
Speaker 10: no feedback in those thirty meetings. The first meeting where
Speaker 10: they were scheduled to come and give us feedback, they
Speaker 10: canceled it a few days before that, and then we
Speaker 10: got a wells notice a few days after that. So
Speaker 10: it's really unfortunate. We work with regulators all over the world,
Speaker 10: other regulators here in the US. I think I'm a
Speaker 10: reasonable person to get along with, but unfortunately the SEC
Speaker 10: under this chair has taken a regulation by enforcement approach
Speaker 10: instead of creating a clear rule book in the US
Speaker 10: that can allow this industry to be built in a
Speaker 10: safe and trusted way.
Speaker 9: You know, when was the last time you personally met
Speaker 9: with Gary Gensler and what did you say?
Speaker 11: Right?
Speaker 10: So, when he first came in as the chair, I
Speaker 10: flew out to New York. I reached out to him.
Speaker 10: Our team has reached out. I tried to make an
Speaker 10: effort to connect with him in person, because that's what
Speaker 10: I try to do whenever a new regulator kind of
Speaker 10: comes in. Unfortunately, we were not able to connect at
Speaker 10: that time. I'm not sure why we couldn't get on
Speaker 10: his calendar, and we followed up a few times in
Speaker 10: the in the year after that, we eventually got a
Speaker 10: meeting that was virtual. You know, it may have been
Speaker 10: COVID related or something like that, but we were able
Speaker 10: to get a virtual meeting. But unfortunately, it was frankly
Speaker 10: like a pretty icy reception. I would say, you know,
Speaker 10: we sort of came in hat in hand and said, hey, chere, Gensler.
Speaker 10: You know you've asked people to come in and register respectfully,
Speaker 10: We're here to register. What would you like us to do?
Speaker 10: What process would you like us to go through? And
Speaker 10: his response was, you know, talk to your lawyer. I'm
Speaker 10: not here to advise you. And that was kind of
Speaker 10: how the conversation started. And so and at that point,
Speaker 10: you know, we realized there was a gap. You know,
Speaker 10: we felt like this was an important technology that we
Speaker 10: felt needed to be built in a safe and trusted
Speaker 10: way here in the US, in a way that consumers
Speaker 10: were protected. And I don't know what his motivations or person,
Speaker 10: you know, his personal views were, but it didn't seem
Speaker 10: like he was on the same page.
Speaker 9: So what does this mean for you? If the government
Speaker 9: cracks down so hard on crypto on coinbase sec? Does
Speaker 9: coinbase exist in five years?
Speaker 11: Absolutely?
Speaker 10: We do, And I want to make an important point,
Speaker 10: which is that the SEC chair may have a certain
Speaker 10: point of view, but that's not representative of the whole
Speaker 10: US government. In fact, quite the opposite. I would say
Speaker 10: the SEC Chair as a bit of a really an
Speaker 10: outlier here kind of in the US government. So when
Speaker 10: I meet with members of Congress, I think the broad
Speaker 10: consensus probably amongst eighty percent of people I talk to
Speaker 10: both sides of the aisle, it's a pretty it's a
Speaker 10: pretty reasonable view they have, which is, we don't know
Speaker 10: exactly what this technology is going to become, but we're
Speaker 10: seeing every other major financial hub in the world move
Speaker 10: towards clear legislation. We need to make sure that this
Speaker 10: innovation happens in the US in a way that again,
Speaker 10: let's just protect consumers. Let's supply some basic good ideas
Speaker 10: around a mlky C and audited financial statements and make
Speaker 10: sure there's no wash trading. Let's create a clear market
Speaker 10: structure where you know, businesses cannerstand, which is CFTC, SEC,
Speaker 10: who should who should they talk to about which types
Speaker 10: of assets? So Congress is recognizing this, and the White
Speaker 10: House is as well. Actually, the Biden administration put out
Speaker 10: in an executive order about a year ago, kind of
Speaker 10: asking all the branches of government to sort of say,
Speaker 10: get your act together on crypto. We don't there's some risks,
Speaker 10: but there's some real important opportunities with this technology.
Speaker 11: Let's create a clear regulatory framework.
Speaker 9: Will you fight this all the way to the Supreme Court?
Speaker 9: Do you think you'll have to? And do you have
Speaker 9: the financial resources to do that?
Speaker 11: Yeah?
Speaker 10: So even if this takes some time, you know, that's okay.
Speaker 10: We've so in Q one we were adjusted a bit
Speaker 10: a positive as a company, even in the depths of
Speaker 10: this crypto bear market, if you want to call it that.
Speaker 11: We have over five billion dollars a balance on the balance.
Speaker 10: Sheet, right, So, and frankly, even though that this complaint
Speaker 10: came in from the SEC, it's really business as usual today, right.
Speaker 10: We're continuing to trade the assets that we have on
Speaker 10: our platform. You know, we trade over two hundred assets
Speaker 10: on our platform. The SEC complaint mentioned just thirteen of them,
Speaker 10: so a relatively small percentage of the assets we trade.
Speaker 10: We also have business overseas and other countries.
Speaker 11: We arrive a lot of.
Speaker 10: Revenue from other sources that are not related to trading fees.
Speaker 10: So you know, Coinbase is well capitalized and adjusted a
Speaker 10: bit A positive and key one. I think we're going
Speaker 10: to be fine going to court. In fact, it's a
Speaker 10: relatively small portion of our company that you know, we
Speaker 10: have a great legal team, policy team, et cetera that's
Speaker 10: working on this, and what I really want, you know,
Speaker 10: ninety ninety five percent of the company to be focused
Speaker 10: on is just building great products for our customers and
Speaker 10: making sure we don't lose sight of that. And so
Speaker 10: this is a very serious matter that I'm going to
Speaker 10: work on with a couple of our executives, but really
Speaker 10: the vast majority of the company needs to keep building
Speaker 10: because that's how this technology is going to ultimately benefit
Speaker 10: a billion people hopefully.
Speaker 9: How long does the regulatory overhang last? The reality is
Speaker 9: this could take many, many months. And do you think
Speaker 9: that your investors might lose some faith or even your
Speaker 9: customers while you go through this?
Speaker 11: Yeah?
Speaker 10: Well, I mean, look, this is not a new concept, right,
Speaker 10: There's been lots of discussion. The SEC has had rhetoric
Speaker 10: around this for several years that I think has influenced
Speaker 10: the market. And so the investors in coinbase, are you know,
Speaker 10: comfortable with that if they're because there. It's all public, right,
Speaker 10: and it's not like some secret thing that's being revealed.
Speaker 10: And I think they're taking a long term view that
Speaker 10: Coinbase is a very different company. We're kind of in
Speaker 10: an end of one right, We're we're really the only
Speaker 10: company that was based here in the US that went
Speaker 10: public that has audited financial statements that's taken a compliance
Speaker 10: first approach.
Speaker 11: You know, even in this.
Speaker 10: Recent sec complaint by the way that came out yesterday,
Speaker 10: it was unfortunate they sort of did it back to
Speaker 10: back with other another complaint that went out there. You know,
Speaker 10: that may have been intentional to try to conflate the two,
Speaker 10: but I think people are smarter than that, and they
Speaker 10: recognize that. You know, this complaint against Coinbase, there were
Speaker 10: no allegations, no allegations of misappropriation of customer funds, there
Speaker 10: was no allegations of wash trading. You know, myself and
Speaker 10: the executive team were not named person only. It's really
Speaker 10: debating this more technical legal question of are some of
Speaker 10: these assets commodities or are these securities?
Speaker 11: And I think that's.
Speaker 10: Something the court will have to decide to sort of
Speaker 10: get some legal pres some case law out there, which
Speaker 10: will ultimately benefit us, because that's what we've been asking
Speaker 10: the sec for for a long time, is how do
Speaker 10: we get more clarity? So if we need to go
Speaker 10: to the courts to do it, it's not our first choice.
Speaker 10: We'd rather the regular had just published a clear rule book.
Speaker 10: But if they're not going to do that, the courts
Speaker 10: are there in the US to avail ourselves up.
Speaker 9: So part of this was about securities being registered or
Speaker 9: not in terms of how they're listed on your exchange,
Speaker 9: But part of this was about staking also, So staking
Speaker 9: obviously is becoming a more important part of the crypto ecosystem.
Speaker 9: Do you plan based on how the regulators are treating
Speaker 9: staking to wind down your staking service?
Speaker 10: No, we're not going to wind down our staking service.
Speaker 10: Again as these court cases play out, it's really business
Speaker 10: as usual. We're going to continue to operate.
Speaker 12: That.
Speaker 10: You know, snake staking only represents about three percent of
Speaker 10: our net revenue, but it is a it's a very
Speaker 10: important function in the crypto community, and it serves an
Speaker 10: important part of these decentralized blockchains. And I guess I
Speaker 10: should mention also that you know, Coinbas's staking product is
Speaker 10: architected and built in a way to be compliant, and
Speaker 10: we've actually think it's materially different than some of the
Speaker 10: other ones out there which have been called staking, and
Speaker 10: so yeah, we're going to continue to operate our staking business.
Speaker 9: So if users wanted their funds back in the staking
Speaker 9: service at this point in time, does Coinbase have the
Speaker 9: ability to service that at scale in case that there
Speaker 9: is a larger run on the staking business.
Speaker 10: Yeah, So you know, staking is really something that's a
Speaker 10: decentralized part of part of these decentralized protocols. So Coinbase
Speaker 10: is really just you know, it's a pass through mechanism.
Speaker 10: We're helping people access these decentralized protocols. So some of
Speaker 10: the decentralized protocols have, for instance, like a lock up
Speaker 10: period of you know, some number of days when you
Speaker 10: initiate the withdrawal request, and so we're just making that
Speaker 10: kind of information available to the customer. But it's yeah,
Speaker 10: you know, all the the funds are there backed one
Speaker 10: to one that when you're when you're staking something, it's
Speaker 10: being pledged into these these decentralized protocols, and we actually
Speaker 10: don't even have the ability to you know, move it
Speaker 10: somewhere else at that point it's we're just giving people
Speaker 10: access to these centralized protocols.
Speaker 9: So the business face withdrawals, does that have a material
Speaker 9: impact on Ethereum's price? And how does claimities prepare for
Speaker 9: something like that? What do you mean is there kind
Speaker 9: of a broader run that you have to be prepared for?
Speaker 10: Oh well, okay, so in in our business, we're not
Speaker 10: We're not a bank, right, we don't do fraction reserve,
Speaker 10: and so there's not really this concept of a run. Right,
Speaker 10: all the all the funds are there, backed one to
Speaker 10: one and you don't have to take our word for it.
Speaker 10: You know, are as a public company, we have auditors
Speaker 10: Deloitte in this case, who's gone in and verified all
Speaker 10: of that. You can kind of confirm it in our
Speaker 10: financial statements. So you know, if people want to withdraw funds,
Speaker 10: they one hundred percent of it is there.
Speaker 11: There's no such thing as a run really.
Speaker 9: So how do you answer the question of you know,
Speaker 9: on one hand, there is sec that is, you know,
Speaker 9: causing a big overhand in terms of both you guys
Speaker 9: and the industry. On the other hand, just financially, you know,
Speaker 9: rates are higher in the United States, people are more
Speaker 9: inclined to keep their money in a bank.
Speaker 11: Why should they keep their.
Speaker 10: Money with you? Well, what's interesting in crypto, there's been
Speaker 10: the evolution of something called stable coins, right, and so
Speaker 10: we're actually in consort with another company Circle in the space.
Speaker 10: We've created a USD coin, which is the second largest
Speaker 10: stable coin out there. And as you've mentioned, interest rates
Speaker 10: in this environment, that's been both a good source of
Speaker 10: revenue for US, but it's also something that we've passed
Speaker 10: along to customers, so customers can actually earn rewards on
Speaker 10: USDC and get access to some of these higher interestate environments.
Speaker 9: Brought our question not just about coinbase, but about the industry.
Speaker 9: As you know, more regulatory enforcement actions come to the forefront,
Speaker 9: how much of an over do you think that will
Speaker 9: have on crypto pricing?
Speaker 11: You know, it's hard for me to say.
Speaker 10: It was actually kind of surprising yesterday with this complaint
Speaker 10: that came out, crypto was up, which I would not
Speaker 10: have expected.
Speaker 11: So I don't know what to make of that.
Speaker 10: I don't know if it means that people knew something
Speaker 10: was coming but they expected it to be worse.
Speaker 11: Than it actually was, or.
Speaker 10: If they just felt that, you know, they're still a
Speaker 10: believer in it or something. But you know, I don't
Speaker 10: try to predict what's going to happen in these markets.
Speaker 10: You know, we don't operate a hedge fund or anything
Speaker 10: like that. We just want to provide a good service
Speaker 10: to our customers around the exchange and all the products
Speaker 10: we offer.
Speaker 9: Before I let you go, I want to ask about
Speaker 9: not crypto. I want to ask about artificial intelligence. Even
Speaker 9: talking about it all day as a crypto entrepreneur, how.
Speaker 11: Do you see AI?
Speaker 9: Do you see it as a competing factor in terms
Speaker 9: of dollars going towards technology? Do you see dovetailing with
Speaker 9: your industry at all?
Speaker 10: Well, AI is certainly one of those couple really important
Speaker 10: technology trends the US needs to get right, along with crypto,
Speaker 10: and I think we're seeing a similar question start to
Speaker 10: happen in Congress along with crypto, is like, hey, how
Speaker 10: should this be.
Speaker 11: Regulated so it can be done in a safe, trusted way.
Speaker 10: I do think there's a couple interesting intersections between AI
Speaker 10: and crypto. One of them is that you know, in
Speaker 10: the world of AI, there you know it's so easy
Speaker 10: to mass generate things, whether it's a news article or images,
Speaker 10: and so the provenance of those and the authenticity of
Speaker 10: it can be a little bit hard to figure out.
Speaker 11: And in a world of crypto.
Speaker 10: One of the great things about crypto, you know, with
Speaker 10: NFTs and whatnot, you can actually have a.
Speaker 11: Digital signature that proves, you know, this.
Speaker 10: Was issued by Bloomberg or by Brian Armstrong or whoever.
Speaker 10: So I think it could be useful to track the
Speaker 10: provenance of creative works, whether that's text, audio, video, et cetera.
Speaker 10: The other thing that might be interesting is that a
Speaker 10: lot of these these you know, bots or autonomous agents
Speaker 10: in the AI sphere, they're going to need to go
Speaker 10: get things done in the world. Right people are already
Speaker 10: using them to sort of say, hey, order my groceries
Speaker 10: or you know, maybe build this website and spin up
Speaker 10: this server. And so they're gonna need financial money. They're
Speaker 10: gonna need money to go do things in the world,
Speaker 10: these these AI agents, and so I think that actually
Speaker 10: in the future you're probably gonna see a lot of
Speaker 10: crypto transaction happening between AI agents or AI and various
Speaker 10: businesses around the world because crypto is kind of the
Speaker 10: native money of the Internet.
Speaker 11: The Internet. Internet is global, it's decentralized.
Speaker 10: Every country everybody in the world can participate in it,
Speaker 10: and so it wouldn't really make sense to use you know,
Speaker 10: the dollar, the euro in a truly global context. If
Speaker 10: you you know what you want to be country agnostics.
Speaker 10: I think AI will use crypto more.
Speaker 9: How much are you actually working on that future?
Speaker 10: So our we're not trying to build something that is
Speaker 10: allowing bots to like transact.
Speaker 11: In crypto at the moment. But what we are doing
Speaker 11: is we're building.
Speaker 10: Good infrastructure, you know, picks and shovels, if you will.
Speaker 10: So with coinbas Cloud, for instance, we're making our APIs
Speaker 10: around how crypto is stored and transacted and commerce happens,
Speaker 10: and we're just exposing those kind of like Amazon Web services,
Speaker 10: but to any business that.
Speaker 11: Wants to integrate it.
Speaker 10: So I suspect more businesses will integrate that over time,
Speaker 10: and some of those may use AI. We're also using
Speaker 10: AI in our business in a few other ways. I mean,
Speaker 10: we use it a lot for fraud prevention, you know,
Speaker 10: and unfortunately we get people signing up putting in stolen
Speaker 10: credentials and things like that, and so we've developed a
Speaker 10: lot of really good machine learning to detect that, and
Speaker 10: you know, we're occasionally we're testling it in a few
Speaker 10: other areas too, just like around Actually, like you know,
Speaker 10: our design teams, they'll sometimes look at mid Journey or
Speaker 10: DOLLI and sort of generate an interface using ANI at least,
Speaker 10: like you know, show me five ideas for what an
Speaker 10: interface might look like to do remittances in crypto or
Speaker 10: for content creators to have a direct relationship with their audience,
Speaker 10: and what with the interface for that? And AI is
Speaker 10: just like a great assistant, you know, it doesn't. I
Speaker 10: don't think AI really is taking people's jobs. It's taking
Speaker 10: tasks off their plates, largely to make their jobs more efficient.
Speaker 10: And so having like a you know, a research assistant
Speaker 10: or someone like that, you know, a tutor or a
Speaker 10: mentor or a therapist whatever. Everybody can have one of
Speaker 10: these paired with them, and I think it'll just make
Speaker 10: humans more productive.
Speaker 9: Ran we're out of time, but thank you so much
Speaker 9: for your time as for taking our questions.
Speaker 11: Thank you.
Speaker 6: You're listening to the team Ken's are Live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,
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Speaker 6: on demand wherever you get your podcasts.
Speaker 3: Bn Y Melan Pershing, it's a conference boy. The story
Speaker 3: for me over the last twenty four hours as an
Speaker 3: avid golfer, an avid watcher of the world of the
Speaker 3: business of golf, is the merger between the PGA Tour
Speaker 3: and the Live Golf.
Speaker 1: No, what's all that coming? Including me? Leanna Baker joins us.
Speaker 3: She's a US deal's team managing director with Bloomberg News.
Speaker 1: Leanna, what what happened?
Speaker 3: Because this is one hundred and eighty degree return for
Speaker 3: the PGA who said they would never merge with Live.
Speaker 12: You mentioned that you're still shocked by this news. I
Speaker 12: am too. But from what we understand, over the past
Speaker 12: seven weeks, both sides had been talking. It had very secretive,
Speaker 12: very few bankers or wars involved. It seems like meetings
Speaker 12: happened all over the world. We heard in Venus, Italy,
Speaker 12: there was a meeting they closed the deal. In San Francisco.
Speaker 12: There's also meetings in London, and they really kept us
Speaker 12: close to the best and they didn't want it leaking
Speaker 12: out to anyone because they knew how controversial and explosive
Speaker 12: this merger would be.
Speaker 4: And now we're hearing about potential antitrust scrutiny. What's the
Speaker 4: likelihood of that becoming a big issue for both sides here.
Speaker 12: This is something the government will definitely review. They look
Speaker 12: at most mergers. You might recall that LIVE PGA had
Speaker 12: been suing each other over things related to anti trust,
Speaker 12: so it had already been kind of kicked up as
Speaker 12: an issue. Live had been accusing PGA of, you know,
Speaker 12: blo walking them out and being a monopoly. So this
Speaker 12: is something that you know, they've dropped all litigation. So
Speaker 12: the question is who will really oppose this deal, Who
Speaker 12: would really complain to the government. The Saudi's clearly of
Speaker 12: very deep pockets. There's probably going to be a lot
Speaker 12: of lobbying happening. So at this point it's too early
Speaker 12: to know if this is something that'll be blocked because
Speaker 12: it seems like both sides really wanted to happen.
Speaker 3: Lean The timing here seems really odd that, like they
Speaker 3: announced this yesterday, nobody knew, including you know, presumably Jack Nicholas,
Speaker 3: Tiger Woods, Rory McElroy, those types of people nobody really knew.
Speaker 3: Agents didn't know. They had little to no information to
Speaker 3: disclose so far about the details here, does it feel
Speaker 3: kind of half baked here that maybe they were their
Speaker 3: hand was forced to disclose something.
Speaker 12: So I'm the managing editor of the deal's team of
Speaker 12: Bloomberg and we follow mergers all the time. It's really
Speaker 12: common for only a small group of people to know
Speaker 12: about a really important merger because leaks could kill a deal.
Speaker 12: Let's say uh Yasir el Rumayan, the Saudi executive charge
Speaker 12: was seen with the commissioner of PGA like that could
Speaker 12: have blown the cover. So it's not that unique that
Speaker 12: these people weren't involved. What's unique is that there were
Speaker 12: so many high profile people who maybe could have known
Speaker 12: and didn't. What does still have baked is that there's
Speaker 12: no value on any of this. If you look at
Speaker 12: the statement yesterday, there's nothing mentioned. L Raumayan said that
Speaker 12: Saudi Pis is prepared for the best billions in the entity,
Speaker 12: but we don't have the details. That's something we're really
Speaker 12: trying to dig into. What is this merger work, What
Speaker 12: is the value of PGA, What is the value of
Speaker 12: live We here it'll be sorted out over the summer.
Speaker 12: That's what's strange though, that we don't have any information
Speaker 12: at this point.
Speaker 4: Is there any chance of this relationship alienating some fans
Speaker 4: or is that is that a concern for either side
Speaker 4: here or is it just you know, money wins.
Speaker 12: Money definitely wins. That seems to be the lesson here.
Speaker 12: The question is, well the fans when I saw that,
Speaker 12: Rory mackelroy came out with a statement saying that this
Speaker 12: is going to be good for the sport. But long term,
Speaker 12: you know, Saudi has a history of human rights violations,
Speaker 12: and the question will be will fans be able to
Speaker 12: look past that when they're rooting for you know, another
Speaker 12: Tiger Woods comeback. So it's a great question. But the
Speaker 12: PGA must have decided that for the long term health
Speaker 12: of the sport they were going to make more money
Speaker 12: with the Saudis than not.
Speaker 3: So Leandy is getting you covered deals for a living here.
Speaker 3: What's the I mean, what's the next step here?
Speaker 11: I mean?
Speaker 3: Are are they going to try to release more information?
Speaker 3: What do you what do you expect to see?
Speaker 12: So sources tell us that over the course of the
Speaker 12: summer more information will come out around the value of
Speaker 12: the deal. We've heard the Saudis are going to study
Speaker 12: the valuation of what each party brings to the table.
Speaker 12: In terms of assets. There could be an investment bank
Speaker 12: that's brought on. There already were bankers involved, but there
Speaker 12: could be another one brought on. So I think the
Speaker 12: financial details will leak out over the summer, and this
Speaker 12: is a framework agreement, so we can see something more
Speaker 12: official tied up over the next few months.
Speaker 1: Leanna, thanks so much for joining us.
Speaker 3: Really appreciate getting the update, and you raise a fantastic
Speaker 3: point which I hadn't even thought about, which is no
Speaker 3: valuations were assigned here, and you just kind of get
Speaker 3: a sense like who can see upper handers from an
Speaker 3: economic perspective in terms of valuation. So we really appreciate
Speaker 3: Leanna Baker us Deal's team at Managing director with Bloomberg News.
Speaker 1: Give I guess the latest.
Speaker 3: Here on the PGA and the live tour coming together,
Speaker 3: a huge, huge develop in the world.
Speaker 1: Of professional golfers. We're gonna have more coming up. This
Speaker 1: is Bloomberg.
Speaker 6: You're listening to the tape. Can's a our live program
Speaker 6: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
Speaker 6: the tune in app, Bloomberg dot Com, and the Bloomberg
Speaker 6: Business app. Also listen live on Amazon Alexa from our
Speaker 6: flagship New York station. Just say Alexa playing Bloomberg eleven thirty.
Speaker 1: Marty, thanks so much for joining us in New York.
Speaker 3: We're all over the place here on a remote broadcast,
Speaker 3: and thanks so much for joining us. You know, I
Speaker 3: want to start with the issue that has been on
Speaker 3: every CEO's mind. I don't care if they're in the
Speaker 3: dog food business or in the technology business, they have
Speaker 3: to lead with AI, which back in the day we
Speaker 3: called it artificial intelligence. Marty, you sit on the board
Speaker 3: of Alphabet aka Google. One could argue that that is
Speaker 3: an existential threat to Google and a search business.
Speaker 1: How do you guys think about AI?
Speaker 13: Well, I think about AIS something that's the natural evolution
Speaker 13: of software. And it's amazing what's been going on in
Speaker 13: this latest evolution. And Google has been for some time
Speaker 13: an AI first company. It's been at least a decade
Speaker 13: since Sundar CEO made that declaration and and specifically bold
Speaker 13: and responsible AI. I think it's an incredible opportunity space
Speaker 13: for Google, and few institutions on the planet have the
Speaker 13: kind of the kind of human capital and other capital
Speaker 13: resources dedicated to AI like Google does. It's an incredibly.
Speaker 4: Exciting time, and you were just saying, the question is
Speaker 4: is it going to be five AI or is it
Speaker 4: going to be five billion?
Speaker 1: Right?
Speaker 4: If you had to bet, which of the two would.
Speaker 5: You bet on?
Speaker 13: Yeah, that's a great question. I really don't know the answer.
Speaker 13: It's these ais take incredible amounts of resources to train them, right,
Speaker 13: hundreds of millions of dollars, And so right now it
Speaker 13: looks like there's going to only be a few of
Speaker 13: these frontier models that have been heavily trained because they
Speaker 13: cost hundreds of millions of dollars to train. There could
Speaker 13: always be some kind of breakthrough. The transformer paper that
Speaker 13: Google published in twenty seventeen, well that's the e in
Speaker 13: chat GPT that lopped off at least three orders of
Speaker 13: magnitude and the cost of training these models, maybe somebody
Speaker 13: will think of another one. There is a model that
Speaker 13: started with Meta that's out in the open right now
Speaker 13: and a lot of people are experimenting with that. To
Speaker 13: get to answer your question, if I have to call,
Speaker 13: I would say it's probably gonna be a lot. Like
Speaker 13: cloud services generally, there's a lot of reasons why you
Speaker 13: want the compute to be in the cloud, and you're
Speaker 13: probably gonna want one of those lms that's been trained
Speaker 13: up on so much information, and you're definitely going to
Speaker 13: want data privacy and security and enterprise grade around it.
Speaker 13: And so I don't know how many of those they're
Speaker 13: going to be. And then I think open source AIS
Speaker 13: will be great for certain very specific vertical applications.
Speaker 1: Marty. That's kind of where I wanted to go here.
Speaker 3: I mean, you think about some of the applications of AI,
Speaker 3: and it gets very scary very quickly.
Speaker 1: Is this thing? Is it even able to be regulated?
Speaker 1: If so, how do you think it might develop? Sure?
Speaker 13: So I am for years a proponent of regulation. Of course,
Speaker 13: the right regulation, and that's the hard part.
Speaker 1: Usually we need.
Speaker 13: Some kind of crisis or calamity, and then the regulation
Speaker 13: happens after that. The financial crisis is a pretty good example.
Speaker 13: And then in the regulation you get ten thousand different things,
Speaker 13: most of which are probably not that necessarily or useful.
Speaker 13: But for instance the financial regulation, there was something that
Speaker 13: was incredibly useful, which was the capital adequacy tasks. Right,
Speaker 13: so we got something powerful and necessary out of it.
Speaker 13: And so here I would like to get in front
Speaker 13: of it but still have a light touch right, So
Speaker 13: maybe there will be a thousand, or a million, or
Speaker 13: a billion flowers blooming with all of these With all
Speaker 13: of these AIS, I think we can take some pages
Speaker 13: from things that we have already learned about. So, for instance,
Speaker 13: electronic trading, there was a time when you could just
Speaker 13: a lot of orders into the exchange and maybe if
Speaker 13: your algo had a mistake in it, you had runaway
Speaker 13: orders and you lost a lot of money, and that
Speaker 13: was really bad and it could destabilize markets. And so
Speaker 13: you ad you add some throttles, you add some checkpoints,
Speaker 13: you make sure that every so often you've once again
Speaker 13: demonstrated that you've got adequate capital to put those trades in.
Speaker 13: So we got to be extremely careful about the interface
Speaker 13: points between the AIS and the APIs into the banking system,
Speaker 13: the stock trading system, the air traffic control system, the
Speaker 13: electricity grid, all of those points. We need to have
Speaker 13: a lot of belts and suspenders and controls around. We
Speaker 13: know how to do this. Actually we've been doing it
Speaker 13: since the railroad, so we've been doing this for hundreds
Speaker 13: of years, and so I might need some regulatory help
Speaker 13: to galvanize attention. A pattern might be something that happened
Speaker 13: with gene editing. I'm old enough to remember back in
Speaker 13: the seventies when gene editing first came up as a possibility,
Speaker 13: there was a famous conference in a silomar where all
Speaker 13: the scientists and US, Chinese, everybody got together and said,
Speaker 13: let's put down some guardrails. So one of the things
Speaker 13: that came out of there is we can do gene
Speaker 13: editing in an organism, but not in the germ line,
Speaker 13: not the osites, not what could go on and permanently
Speaker 13: alter the human race. We're not going to touch that.
Speaker 13: And those guardrails have served us reasonably well. They've been imperfect.
Speaker 13: There was a scientist in China, as it turned out,
Speaker 13: who went and edited the germ line, and the Chinese
Speaker 13: came down really hard on them. And I think this
Speaker 13: is something that we can share with China, is that
Speaker 13: nobody wants this to end up in a bad place
Speaker 13: for human civilization. Generally we have that alignment.
Speaker 4: Are we already late on getting that for AI?
Speaker 13: No, No, there's time, but time's a wasting and so
Speaker 13: in the short term, like this year, we need to
Speaker 13: start having the discussions, and they need to be done
Speaker 13: at an Internet national framework and there may be needs
Speaker 13: to be an international agency along the lines of the
Speaker 13: Atomic Energy Agency that sets standards on these controls, and
Speaker 13: then people can attest that their AI meets these standards
Speaker 13: and do it in a way. I think this is
Speaker 13: also important where a lot of flowers can bloom, right,
Speaker 13: we want to do this in a careful way. But
Speaker 13: this kind of regulation does need to happen, and it
Speaker 13: needs to happen promptly. I'm not one of those alarmists.
Speaker 13: I do not see AI ending in the extinction of
Speaker 13: the human race. It is fascinating. If anything I see
Speaker 13: parallels to the dot com boom. Right, It's wonderful to
Speaker 13: see all this hype and then all the CEOs are
Speaker 13: talking about it, and out of the dot com boom,
Speaker 13: we got pets dot Com, and we also got Amazon
Speaker 13: and Google.
Speaker 3: Right, yep, Marty, you know it feels like we're at
Speaker 3: the let's call it the top of the first inning,
Speaker 3: if you will, of this AI game year, and I
Speaker 3: think investors are struggling to maybe try to get some
Speaker 3: exposure to the opportunity here in for better or worse,
Speaker 3: in Vidia has I think kind of become that name
Speaker 3: where sure, if I got to own AI, I have.
Speaker 1: To own in VideA.
Speaker 3: But where else do you think investors should be thinking
Speaker 3: about investing in in what is you know, kind of
Speaker 3: an application or that we don't really know how it's
Speaker 3: going to evolve.
Speaker 1: Sure?
Speaker 13: Well, I'm a big believer that history doesn't necessarily repeat,
Speaker 13: but it does rhyme. And so if you look at
Speaker 13: past past booms, you see that there's this migration up
Speaker 13: the stack, up the logical stack of abstraction. Right so,
Speaker 13: right now in video is absolutely an obvious place to go.
Speaker 13: You can't get h one hundreds for lover money. They
Speaker 13: cost forty thousand dollars a pop and they've all been
Speaker 13: ordered years in advance, right, so that's great. What is
Speaker 13: a higher level abstraction than video? Will You could look
Speaker 13: back at previous booms and you could say, well, and
Speaker 13: the next level of abstraction past the chips, was the phones,
Speaker 13: the smartphones, and those are pretty good investments. And then
Speaker 13: that would lead you, of course to Apple among the others,
Speaker 13: and then you got into the provider of software services
Speaker 13: around that mobile ecosystem, and that included many other companies Google,
Speaker 13: Amazon and so on. So I would look for the
Speaker 13: same thing here, I would just see who's going to
Speaker 13: be building the software applications on top of the cheps
Speaker 13: yea and those would.
Speaker 7: Be places to look looking kind of further down.
Speaker 13: The line that yes, absolutely the next few years. And
Speaker 13: Nvidia is an amazing company. I had the opportunity to
Speaker 13: be there in twenty seventeen early, kind of a long
Speaker 13: time ago, and they had this unbelievable demo that kind
Speaker 13: of clued me into what was coming. They had this
Speaker 13: monitor with beautiful, a beautiful person on it, and the
Speaker 13: picture changed every thirty seconds, another beautiful person, different ethnicity,
Speaker 13: different gender, different height, different everything. And then after an
Speaker 13: hour of this, they said, oh, by the way, none
Speaker 13: of those people has actually existed. We trained an AI
Speaker 13: model on people that were thought to be beautiful, and
Speaker 13: then we ran it in reverse and asked it to
Speaker 13: generate beautiful people. And so this is seventeen, so they've
Speaker 13: been on it. So I would look for all of
Speaker 13: the companies that are building these incredible applications and those
Speaker 13: would be places to invest.
Speaker 11: Great.
Speaker 4: Well, yeah, Paul, Paul, all right, we've got thirty seconds
Speaker 4: left here. Do you see this as a bubble similar
Speaker 4: to the dot com era or it sounds like you're
Speaker 4: too optimistic for that.
Speaker 13: I look, I have been working in AI for a
Speaker 13: long long time, back back since the eighties, and and
Speaker 13: what is happening is truly exciting, right And what has
Speaker 13: happened is we've gotten to the second half of the chessboard,
Speaker 13: the proverbial chessboard, where you're doubling the grains of rice
Speaker 13: at every square. And it's not that interesting for the
Speaker 13: first thirty two squares, but right right around forty or so,
Speaker 13: it gets incredibly interesting. And we are we're in that
Speaker 13: spot right now. So as it is the bubble, there
Speaker 13: are going to be some companies that are pure hype
Speaker 13: and they don't bound to anything, and there's a lot
Speaker 13: of crazy capital going in and there's going to be
Speaker 13: some amazing things coming out of this. You want to
Speaker 13: own those.
Speaker 3: Marty, thanks so much for joining us. Really really appreciate
Speaker 3: getting some of your time. Marty Schabas, Vice chairman of
Speaker 3: partner at six Street Partners.
Speaker 6: You're listening to the tape cats our live program Bloomberg
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Speaker 4: All right, I'm sitting here in New York with Mark Blasri.
Speaker 4: He's co founder and CEO of Avenue Capital Group and
Speaker 4: the former owner of the NBA's Milwaukee Bucks. He is
Speaker 4: here with us to discuss a lot of money and
Speaker 4: sports topics. But I want to start on pickleball because
Speaker 4: I love it and I'm excited to get your thoughts
Speaker 4: on it. Mark, talk to me about why pickleball has
Speaker 4: more growth potential than the NBA or than any other
Speaker 4: spot in your eyes.
Speaker 5: Right now, I don't know if it has more growth potential.
Speaker 5: I think what it has is massive potential, and it's
Speaker 5: I think it's fastest growing sport today. And part of
Speaker 5: that is just that everybody from all different walks of
Speaker 5: life are able to play it. Right. So, before we
Speaker 5: got on, you told me you love to play it.
Speaker 5: When I was talking to somebody here earlier, they were
Speaker 5: explaining to me how they love pick a ball, And
Speaker 5: what you find is it's just a wide mixture of
Speaker 5: different people who want to play it. Whether you're super athletic.
Speaker 5: Whether you're not right basketball, you've got to be somewhat athletic, yes, right,
Speaker 5: and pick a ball. It's you can get very good
Speaker 5: at it, very quickly, and I think that's why people
Speaker 5: love playing it, and so I think it's got massive potential.
Speaker 5: When you try to look around the United States, every
Speaker 5: time I turn. You know you mentioned it earlier. Think
Speaker 5: of Central Park. You know here in New York. The
Speaker 5: last thing we would have thought five years ago was
Speaker 5: that you would have sixteen pickleball courts, right all of
Speaker 5: a sudden, Now you have it here in the middle
Speaker 5: of the most populous city in the United States, and
Speaker 5: they're turning a part of Central Park in there where
Speaker 5: you've got pickleball courts. Why because there's this demand and
Speaker 5: so all that is just going to keep on growing.
Speaker 5: And it's not that they put on sixteen basketball courts.
Speaker 5: They've already got basketball courts in Central Park. So I
Speaker 5: think you're gonna have You just have a sport that
Speaker 5: is growing by leaps and bounds, and I hope it continues.
Speaker 3: Hey, Mark, getting back to the basketball, you sold your
Speaker 3: stake in the Milwaukee Bucks for at evaluation, about three
Speaker 3: and a half billion dollars, So nice trade there. But
Speaker 3: I have to ask you about one of the pillars
Speaker 3: evaluation in the NBA, in Major League Baseball, in the
Speaker 3: NHL is the regional sports network and that industry is
Speaker 3: in complete disarray. The leading player out there back by
Speaker 3: a Sinkler Broadcast group filing for bankruptcy.
Speaker 1: How do you see that playing out?
Speaker 5: Well, I think it's a great question. I think the
Speaker 5: regional players have had issues. I think what has not
Speaker 5: had an issue is obviously on the national level. So
Speaker 5: when you take a look at sort of media rights nationally,
Speaker 5: those have continued to grow. You saw that with the NFL,
Speaker 5: You're going to see it with the NBA, You're seeing
Speaker 5: it with baseball. You'll see it. I think you'll see
Speaker 5: that everywhere. So I think nationally those rights are going
Speaker 5: to keep on growing, Whereas I think on the regional
Speaker 5: side that's had more issues. And you know, I think
Speaker 5: obviously it's always Sinclair with about you know, sixteen at
Speaker 5: least in the NBA, you've got sixteen teams that were
Speaker 5: affected by that when you had the bankruptcy. So I
Speaker 5: would be positive on the national side, and obviously I'm
Speaker 5: negative on the regional side.
Speaker 4: Going into streaming though and circling a little bit back
Speaker 4: to the pickuball conversation, and are you concerned at all
Speaker 4: that people don't necessarily want to watch pickleball at that
Speaker 4: big of a scale, that an Apple TV is not
Speaker 4: necessarily going to be streaming pickleball tournaments anytime soon?
Speaker 5: I actually am not. Hopefully I'll try to prove it
Speaker 5: to you right now. So would you say you're a
Speaker 5: big sports fan?
Speaker 1: Mark?
Speaker 7: You know the answer?
Speaker 5: Okay, so you're you're Medza Medza happen right, You'll watch
Speaker 5: it a little bit, not a good all?
Speaker 11: Right?
Speaker 5: Have you ever watched the Olympics? Have you watched curling
Speaker 5: on the Olympics?
Speaker 4: Happened before?
Speaker 5: Okay? So if you have, that means you will watch
Speaker 5: anything on sports. Just think of it that way, because
Speaker 5: if you're watching curling and you just admitted that you are,
Speaker 5: and you're not even a sports fan and you're watching curling,
Speaker 5: I mean, have I been in the room while curlings?
Speaker 5: On the fact that people will watch curling. So here's
Speaker 5: the reason why the reason why people watch curling, and
Speaker 5: the reason why people will watch pick a ball, and
Speaker 5: the reason why they will watch darts or anything is.
Speaker 5: People love watching the best in the world compete, and
Speaker 5: that's really what it is. So you're gonna love watching
Speaker 5: pick a ball because when you're watching the best people
Speaker 5: in the world compete at something, average people love that.
Speaker 5: They want to aspire to something, they want to see, Hey,
Speaker 5: what is it that the best we're able to do?
Speaker 5: That I'm not right, And that's what you're gonna find.
Speaker 5: So there's this massive demand for sports because people and
Speaker 5: you're seeing it, whether it's on streaming, that it's not
Speaker 5: gonna be how you and I grew up watching sports,
Speaker 5: which was sitting in the living room watching a game
Speaker 5: on a TV. It's gonna be streaming. When I look
Speaker 5: at my kids or I look at any young person,
Speaker 5: it's much more on their phone. It's much more on
Speaker 5: a tablet. The other thing that's going on and you're
Speaker 5: seeing it is the gambling aspect of it. People love
Speaker 5: gambling on it. It's not where you went to your bookiet,
Speaker 5: it's betting a dollar here, a dollar there, and so
Speaker 5: sports and gambling have become very interrelated. So I think
Speaker 5: you're going to find that going forward. You've got these
Speaker 5: massive opportunities and all these different sports teams and sports leagues.
Speaker 3: Hey, Mark, how about some of the big technology companies,
Speaker 3: whether it's an Apple or an Amazon, do you expect
Speaker 3: them at any time to really jump into the deep
Speaker 3: end of the pool and you know, get into the
Speaker 3: sports business, whether it's you know, taking an NFL uh
Speaker 3: TV package and really make the big the big dive.
Speaker 1: Do you expect that to happen?
Speaker 5: Well, let's put it this way. It should if you
Speaker 5: are Apple at any of these other companies, what do
Speaker 5: you want? You want people watching your product? So what's
Speaker 5: the problem with Apple or what's the problem with Netflix?
Speaker 5: You can record and you'll end up watching something you don't.
Speaker 5: You never watch it live. You watch it a week later,
Speaker 5: a month later. You know, some of us only want
Speaker 5: to watch these shows after the all sixteen episodes have
Speaker 5: come in. Right, So I love watching ted Lasso, but
Speaker 5: I want to watch it all at once. I don't
Speaker 5: want to wait once a week, so I'll wait till
Speaker 5: the whole season's over. You can't do that with sports,
Speaker 5: You really can't. You can't say, well, I'm gonna record
Speaker 5: the Super Bowl and I'm gonna watch it six months later.
Speaker 5: I'm recording the NBA Finals and I'll watch it in
Speaker 5: three months, You've got to watch it live. So for Apple,
Speaker 5: for Netflix, for any of these companies, for Meta, if
Speaker 5: what you want is more young people, if what you
Speaker 5: want is more consumers, you're gonna want consumers who are
Speaker 5: able to see something watching it live, and that will
Speaker 5: go on to your other products. So that's actually why
Speaker 5: I think they'll get into it.
Speaker 4: But the youngest consumers are watching their content on TikTok,
Speaker 4: they're not even on Netflix. How are you thinking about
Speaker 4: positioning content for that type of platform?
Speaker 5: Oh, that's easy. All you have to do is just
Speaker 5: make an NBA game one minute long, and I think,
Speaker 5: and I think you're fine, give me a high. That's
Speaker 5: all it is. You know, if you can make baseball
Speaker 5: one minute long, if you can do all these sports.
Speaker 5: If so, I think I think I've solved the dilemma
Speaker 5: for you. Okay, you know, now you've just got to
Speaker 5: go convince the NBA, Major League Baseball, and everybody else
Speaker 5: to have their games on TikTok and have them no
Speaker 5: more than one minute.
Speaker 4: But but my broader question is, you know, sure we're
Speaker 4: all in on Netflix and streaming, but is there any
Speaker 4: downside to that?
Speaker 11: Thinking?
Speaker 4: Is there a miss on the social media play that
Speaker 4: could be the next generation's only way of watching.
Speaker 5: Yeah, but look, if the next generation is only going
Speaker 5: to want to focus on things over a minute, you know,
Speaker 5: that are under a minute, then they're going to miss
Speaker 5: out on sports. That's you know, you've got to sort
Speaker 5: of just say there are things in life that are
Speaker 5: going to take longer than a minute, right, So that's
Speaker 5: what's going to happen. And whether it's baseball, basketball, hockey,
Speaker 5: no matter what sport it is, it's going to take longer.
Speaker 5: And if you want to watch it, here's what's going
Speaker 5: to happen. And if you want things that are going
Speaker 5: to only be you know, in thirty second increments, you're
Speaker 5: going to miss out on a lot of things in life.
Speaker 3: Hey, Mark, you know, probably the biggest story in sports
Speaker 3: over the last twenty four hours has been the merger
Speaker 3: of the PGA Tour and Live Golf. I'm not sure
Speaker 3: if you're a golf industry enthusiast, but was that just
Speaker 3: a case of just you gotta go where the money is.
Speaker 5: Like, I don't know, I mean, I'm reading the same
Speaker 5: things you are. It seems a bit odd as to
Speaker 5: what's happened. I probably will refrain from talking about it
Speaker 5: until I've read more or understood more. But you never
Speaker 5: would have thought that was going to happen, And the
Speaker 5: fact that it happened overnight, there's got to be a
Speaker 5: lot of other reasons for it. So I'll wait until
Speaker 5: you can figure out and tell me why something where
Speaker 5: two people were so against each other all of a sudden,
Speaker 5: now are the best of partners.
Speaker 1: Yeah, just kind of goes I guess Mark too.
Speaker 3: You know, you got to think about the valuation here,
Speaker 3: and you know our our deals reporter Bloomberg News was
Speaker 3: she pointed out something very interesting in the whatever it
Speaker 3: was at least yesterday, which was very very little. There
Speaker 3: was no value, no mention of valuation. What's the PGA
Speaker 3: tour work, what's livedtour worth? And that's typically what you
Speaker 3: would get in an Emerger announcement and we don't have
Speaker 3: any of that. So this just seems so I don't know,
Speaker 3: a little half baked, I guess, But as you say,
Speaker 3: we'll have to see how the the more details come out.
Speaker 5: Now you could it on the head. I mean, it's
Speaker 5: what are the valuations? I don't even know what the
Speaker 5: PGA tour was worth before, right, right, So it'll be
Speaker 5: interesting to see where these values are and I think
Speaker 5: all that will come out in the next couple of weeks.
Speaker 5: But yeah, it's been it's been very surprising.
Speaker 4: There's a portion of the audience too here and we
Speaker 4: saw this in the Netflix show about the PGA tour
Speaker 4: and their relationship with Saudi that is not going to
Speaker 4: watch because of that relationship. Is that something that you
Speaker 4: would have thought about if you were at the helm
Speaker 4: of this deal or is it just the idea that
Speaker 4: and I keep stealing this from Paul that money wins
Speaker 4: in the end regardless of any loss of audience.
Speaker 5: I don't know. I think part of it is their
Speaker 5: job will be to get back people who are not
Speaker 5: going to be happy about that, right, And that's the
Speaker 5: challenge with anything. I think it's you know, the challenge
Speaker 5: the NBA had was during COVID getting people to come
Speaker 5: back and watch games, and I think you've seen that
Speaker 5: not only have they been able to do that, it's
Speaker 5: actually been record ratings, all right. It was the same
Speaker 5: thing if you think about Baseball when they had their strike, right,
Speaker 5: So there's always an issue. I think the challenge is
Speaker 5: going to be for the sport, to get those customers
Speaker 5: back or get those fans back. Yeah, and if they're
Speaker 5: able to, then it'll be fine. If they're not able to,
Speaker 5: then it's gonna have been a big miss.
Speaker 3: Hey, Mark, just about thirty seconds left here, we got
Speaker 3: the Heat and the Nuggets in the NBA Finals.
Speaker 1: What's your take.
Speaker 5: I think it's great. I mean, uh, you know what
Speaker 5: I love about it is the fact that the Heat
Speaker 5: in every series have been the massive underdogs and sort
Speaker 5: of proved everybody wrong. They were the undogs against the Bucks,
Speaker 5: they were the undogs against the Knicks, against the Celtics.
Speaker 5: All those teams were supposedly better, and yet the Heat
Speaker 5: went out they were supposed to get swept. I think
Speaker 5: they're doing great. I'm I'm just a big fan of
Speaker 5: watching people compete. So when you get to see the
Speaker 5: best in the world compete, it's it's fabulous. So I
Speaker 5: hope it goes to seven games.
Speaker 1: Yeah.
Speaker 3: It's just been an amazing season so far, an amazing
Speaker 3: run for the Heat. So we'll see how that plays out.
Speaker 3: Mark Laswi, thank you so much for giving us some
Speaker 3: of your time here. Thank Mark Lazary, co founder and
Speaker 3: CEO of Avenue Capital Group.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm Fall Sweeney. I'm on Twitter at pt Sweeney.
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