Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm going to Utah for two days and then I'll
Speaker 2: be back on Friday. So I'm excited going to a
Speaker 2: corporate holiday party. That'll be fun.
Speaker 1: You're going to a corporate holiday party. Yes, I was
Speaker 1: going to say, what if some listeners with the corport
Speaker 1: holiday party, but of course we're going to air this
Speaker 1: on Friday after the party is over.
Speaker 2: Yeah, that's true. So and I'll be back by then.
Speaker 2: It's my husband's company's corporate holiday party, so I'm excited
Speaker 2: to go to it.
Speaker 1: That sounds grennod. It's a two day holiday party in Utah.
Speaker 2: It's on a Wednesday night, which is a little bit difficult,
Speaker 2: but that means I'm gonna fly out Tuesday night, come
Speaker 2: back Thursday night. And I would have taken Friday off
Speaker 2: except Invesco is holding a proxy vote for QQQ, and
Speaker 2: I want to cover it really bad. So you know,
Speaker 2: I was just love the game.
Speaker 1: You got to come back to that proxy yet.
Speaker 2: Yeah, I wish I was kidding. I Actually I am
Speaker 2: psyched for the proxy vote.
Speaker 1: Are they holding an in person meeting? Are you going
Speaker 1: to it?
Speaker 2: They are, but I'm not going to go to it,
Speaker 2: it would be a little intense.
Speaker 1: When I was a young m and I lawyer, I
Speaker 1: went to the shareholder vote for some merger that we did. Yeah,
Speaker 1: it was really sweet, like individual shareholders stood out to
Speaker 1: be like, I just want to thank management for all
Speaker 1: the work they've done and good jobs all in the company.
Speaker 1: It was like in Maine, like I flew to the
Speaker 1: shareholder meeting, not to do anything, just to watch a
Speaker 1: shareholder meeting. I'm really glad I did it. Now I've
Speaker 1: seen a shareholder meeting. You can't really appreciate a shareolder
Speaker 1: meeting until you've been to one.
Speaker 2: That's true. I would be so down, except you know,
Speaker 2: I have to cover for the prince side. I don't
Speaker 2: think that I could get a TV camera in there,
Speaker 2: which might justify me going there in person.
Speaker 1: But it's not a good television.
Speaker 2: It's not good television necessarily, especially.
Speaker 1: For the meeting. It's an exciting per se.
Speaker 2: If the meeting is adjourned, again, what are we going
Speaker 2: to do with the camera.
Speaker 1: I do think that it would be like it would
Speaker 1: be nice to just sort of have like five minutes, yes,
Speaker 1: to be like, well, this meeting was adjourned and it's
Speaker 1: like Sea Span or.
Speaker 2: Something famously good TV. Yeah, but it is easier to
Speaker 2: be at your setup when you're covering a live event.
Speaker 1: I would have been very surprised had you said you
Speaker 1: were going to the in person Sholder.
Speaker 2: God, maybe next time if the meeting it's adjourned again.
Speaker 1: Yeah, once in your life for Scharwolder, meaning it's fun. Hello,
Speaker 1: and welcome to the Money Stuff Podcast, your weekly podcast
Speaker 1: where we talk about stuff related to money. I'm Matt
Speaker 1: Levine and I write the Money Stuff column for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: I feel like we're here for like the early stages
Speaker 1: of the micro strategy trade, not the strategy trade, and
Speaker 1: now we're like kind of here for kind of kind
Speaker 1: of kind of the end of the micas oenity trade.
Speaker 2: Wow. I was going to say careful, careful.
Speaker 1: Calling the end the end, but like there's been a
Speaker 1: completion of the narrative arc in that strategy. It's called
Speaker 1: strategy officially, yes, thank strategy is now kind of trading
Speaker 1: it pretty close to its non asset value, and the
Speaker 1: whole strategy trade of being we will sell one dollar
Speaker 1: of bitcoin for two dollars on the stock exchange doesn't
Speaker 1: work anymore, and they're kind of trying to figure out
Speaker 1: what's next.
Speaker 2: Yeah, yeah, I mean we're not at one yet, and
Speaker 2: we're certainly not below one yet, but boy, what a
Speaker 2: collapse below one is.
Speaker 1: You know, certainly where some of the strategy skeptics have
Speaker 1: seen it going. And I think we're a ways away
Speaker 1: from below one. They're like one point one five today,
Speaker 1: but you know, it's not you anymore. The bloom is
Speaker 1: a little off the rose. I don't know.
Speaker 2: Yeah, let's time sent this and say we're recording on
Speaker 2: a Tuesday, just in case it goes.
Speaker 1: To like whatever, all wrong. We haven't seen the end
Speaker 1: of that any never mind.
Speaker 2: It's interesting. So the CEO of Strategy fondly he made
Speaker 2: waves last week he said on a different podcast, not
Speaker 2: this one, that if the m NAP does go below one,
Speaker 2: that selling bitcoin is in outside of the realm of possibility.
Speaker 2: That was on Friday. On Monday of this week, I
Speaker 2: believe it was that they announced that they're building up
Speaker 2: a one point four billion dollar dollar reserve, which is amazing.
Speaker 1: Such it is, but.
Speaker 2: It's also amazing because you think about in the same
Speaker 2: way that we know started talking about the strategy trade
Speaker 2: early and now we're sort of seeing it full circle.
Speaker 2: You think back to when Michael Saylor first announced in
Speaker 2: twenty twenty that they were going to be buying bitcoin.
Speaker 2: It was all about the debasement of the dollar, and
Speaker 2: they were worried about their dollar reserves basically being a
Speaker 2: melting ice cube. Now you fast forward five years plus
Speaker 2: and they're back buying dollars.
Speaker 1: No, I completely disagree. I do not believe that when
Speaker 1: they announced the strategy it was about the debatement at
Speaker 1: the dollar, or that they were seriously sitting there thinking, oh, no,
Speaker 1: if we hold dollars in our corporate treasury, they'll become
Speaker 1: worthless and we won't be a real company. Like I
Speaker 1: don't believe that at all. I understand they said it.
Speaker 1: I just like, this is a capital market strategy where
Speaker 1: like people wanted bitcoin and they're like, we're gonna give
Speaker 1: the people what they want. I do not believe that
Speaker 1: they believed that the dollar was going to be worthless.
Speaker 1: But secondly, whatever they were doing five years ago, like
Speaker 1: you know, they needed cash for corporate purposes, blah, blah blah,
Speaker 1: whatever the dollaries are of today is a very different situation,
Speaker 1: which is that in the intervening five years, they've raised
Speaker 1: billions and billions of dollars of fixed income securities, some
Speaker 1: of it like very low coupon convertible bonds, but a
Speaker 1: lot of it very high coupon preferred stock. They've been
Speaker 1: doing a lot of like fixed income ten percent preferreds.
Speaker 1: There was this period where they were not trading a
Speaker 1: huge premium, so issuing stock to buy bitcoin is not
Speaker 1: super accreative. But bitcoin is still going up, and so
Speaker 1: if you issue a preferred stock at ten percent to
Speaker 1: buy bitcoin that's going up at like twenty percent a year,
Speaker 1: then that's in a creative trade. And so they did
Speaker 1: a lot of that trade. But when bitcoin is going down,
Speaker 1: that's not in a creative trade because you're still paying
Speaker 1: the ten percent interest in you're paying the ten percent
Speaker 1: interest forever. And the other thing that's happening is you
Speaker 1: have to pay the interest in cash. Yes, it's a
Speaker 1: preferred stock, so they can turn off the interest, but
Speaker 1: that's a bad look. But so basically they've incurred like
Speaker 1: hundreds of millions of dollars a quarter of they call
Speaker 1: it dividends, but essentially interesting expense on the money they
Speaker 1: borrowed to buy bitcoin. And where do you get the
Speaker 1: money to pay that? It's always been a concern, and
Speaker 1: the answer has been kind of If you sell a
Speaker 1: lot of stock every quarter and you use most of
Speaker 1: that stock to buy bitcoin in a creative way, and
Speaker 1: you use some of the stock to pay interest on
Speaker 1: your debt, I'm like, yeah, whatever, it's fine, right, But like,
Speaker 1: once that trade stops working and you still need to
Speaker 1: pay that interest, then you're kind of in a situation
Speaker 1: that strategy is in, which is you just sell a
Speaker 1: billion dollars worth of stock to pay the dividends on
Speaker 1: your preferred stock, which is not like a great situation. No,
Speaker 1: you don't love that, right, you don't love that.
Speaker 2: No, for reasons.
Speaker 1: One reason is people use the P word when you
Speaker 1: do that. Oh, I would not personally.
Speaker 2: Use the P word here.
Speaker 1: You know, there's something ponzi like about selling stock to
Speaker 1: raise money to pay the ten percent return that you
Speaker 1: promised previous investors. Right, I don't think that I would
Speaker 1: not personally use the Ponzi word about this trade, because
Speaker 1: there's a lot going on here it's all pretty transparent.
Speaker 1: It's fine, but you know, some people email me maybe
Speaker 1: you know it's not the same.
Speaker 2: Yeah, great, No, it doesn't feel good to raise money
Speaker 2: from new investors to pay off your existing investors. We
Speaker 2: actually spoke to the CEO of Strategy on Tuesday on
Speaker 2: Bloomberg Television fondly, and we did ask, I mean, would
Speaker 2: you ever suspend the dividends? And he basically said, what
Speaker 2: you said, that that would create a lot of fear,
Speaker 2: a lot of uncertainty, a lot of doubt, fud perhaps,
Speaker 2: But he did also say, I mean, I asked him,
Speaker 2: you know, how would you prioritize suspending the dividend versus
Speaker 2: selling bitcoin? And he said that basically, the idea is
Speaker 2: that they're creating this reserve, and they're going to build
Speaker 2: this reserve and perpetuity. Maybe they'll revisit it in a
Speaker 2: decade or so in hopes of pushing out building a yeah,
Speaker 2: building a buffer so that they'll have enough to cover
Speaker 2: their interest in dividend payments until twenty twenty eight. And
Speaker 2: then I guess we'll see you know where we are
Speaker 2: actually in twenty twenty eight, which will be interesting.
Speaker 1: Right, I mean, like to me their calculation is fairly straightforward. Right,
Speaker 1: If they trade at like a premium, even a small
Speaker 1: premium to their net asset value, then they should sell
Speaker 1: stock at a premium to net asset value to handle
Speaker 1: all of their problems, including paying dividends on the preferred. Right,
Speaker 1: cutting off dividends on the preferred is a terrible situation.
Speaker 1: It kind of ends the trade. It like makes you
Speaker 1: no longer able to access capital markets in the way
Speaker 1: they want to hear it. That's your last choice, right,
Speaker 1: but your first choice is like, if the stock is
Speaker 1: trading at a premium, you sell stock. If the stock
Speaker 1: is trading at a discount, you sell bitcoin. You know,
Speaker 1: you sell bitcoin. You don't love it. You were planning
Speaker 1: to hold the bitcoin forever, but you did a great
Speaker 1: trade selling all the stock at a premium, and now
Speaker 1: you get to do the reverse trade, which is buying
Speaker 1: the stock at a discount by selling bitcoin. I don't know. Yeah,
Speaker 1: they might take a different view from me, but like,
Speaker 1: if it were me and my stock was trading at
Speaker 1: a discount to net asset value, I'd be selling bitcoin
Speaker 1: and bond stock.
Speaker 2: Yeah, I mean, we'll see how this evolves. I do
Speaker 2: think it's an interesting moment where you're really reminded that
Speaker 2: Michael Saylor is not the CEO. He hasn't been the
Speaker 2: CEO for several years now.
Speaker 1: He's because you booked the CEO on TV.
Speaker 2: I know. But also, I mean, listen all the articles.
Speaker 2: Can you imagine Michael Saylor saying we might have to
Speaker 2: sell bitcoin? I cannot, I cannot. I guess you're right,
Speaker 2: Thank you. I think I am right in this situation.
Speaker 1: Right, Like, if you're a true believer, then you're like,
Speaker 1: I'm in the business of buying bitcoin. I never saw it.
Speaker 1: If you're just like the other two hundred digital asset
Speaker 1: treasury companies, you're like, I'm in the business of doing
Speaker 1: a lucrative arbitrage trade. And if he's not trading at
Speaker 1: twice the value of my bitcoin, I'm selling stock. And
Speaker 1: if it's trading at half the value of my bedcoin,
Speaker 1: I'm selling bitcoin. Should we talk about.
Speaker 2: Ms C I, Oh, yeah, we should. I asked him
Speaker 2: about that. So ms C I I wrote a newsletter
Speaker 2: on this because I also have a newsletterletter. Yes you
Speaker 2: did in your newsletter or aboris of newsletters. But MSc
Speaker 2: I in mid October for contacts, I guess no one
Speaker 2: really noticed it until JP Morgan pointed it out in
Speaker 2: a research note, But MSCI said that it was looking
Speaker 2: at whether or not digital asset treasury companies dats, if
Speaker 2: you will, look more like investment funds than traditional companies,
Speaker 2: and they propose have.
Speaker 1: An answer to that question.
Speaker 2: Basically, they proposed excluding dats from their indices. The decision
Speaker 2: is coming in January, I believe, But obviously that would
Speaker 2: be bad news bearers for strategy and all these dats.
Speaker 1: Yeah, right, there are various rationales for a DAT, but
Speaker 1: surely one of them is like, there is some audience
Speaker 1: of stock investors who can buy corporate stocks but can't
Speaker 1: buy cryptodirectly or even crypto ETFs, and so one thing
Speaker 1: you are doing is appealing to that audience. And who
Speaker 1: is that audience? I mean it is to some extent
Speaker 1: boomer retail investors who like don't want to open a
Speaker 1: crypto account or even deal with ets, right. It is
Speaker 1: to some extent like fundamental lung on the equity investors
Speaker 1: like Capital Group, which is a big sharldeer of strategy,
Speaker 1: who like the trade and would feel weird buying a
Speaker 1: bitcoin ETF, but like getting crypto exposure through Strategy, and
Speaker 1: then it is a very large extent passive equity investors
Speaker 1: who will buy the index. And if you cut out that,
Speaker 1: then you lose a lot of demand for digital acid
Speaker 1: treasury stock. And maybe you take that last leg down
Speaker 1: from a small premium to the net asset value to
Speaker 1: you know, a small discount. Maybe.
Speaker 2: Yeah. Well, the fun thing is that you know this
Speaker 2: decision point is coming up in January. I'm curious to
Speaker 2: see a situation where MSCI says that, okay, Strategy is
Speaker 2: an investment fund, we can't have it in our index.
Speaker 2: But then you think about the NASAQ one hundred. They
Speaker 2: went through this whole thing when they added Strategy to
Speaker 2: the Nasdaq one hundred, and they landed on the side
Speaker 2: of this is a company, this is an operating company.
Speaker 2: So you could have a situation where MSCI is treating
Speaker 2: Strategy one way and NASTAC is treating it another.
Speaker 1: Yeah. A couple of points there. One like there's like
Speaker 1: ten thousand dats and like, yes, they're all investment funds,
Speaker 1: and maybe Strategy is the biggest exception. Maybe like Strategy
Speaker 1: has a real business, like a software business that is
Speaker 1: at this point a teeny tiny fraction of the size
Speaker 1: if it's pot of bitcoin. But like, yeah, it's a business.
Speaker 1: You know, you get to eat, like you know, and
Speaker 1: every dat has some fig leaf like that, but strategy
Speaker 1: is probably bigger than most. The other thing I'll say
Speaker 1: is like when NASDAG made this decision, it was trading
Speaker 1: at a premium and bitcoin is going up, right, and
Speaker 1: so like these are sort of like decisions influenced by
Speaker 1: real world politics, right, where like if you are an
Speaker 1: index provider, one thing that happens is like there are
Speaker 1: index funds and just other like you know, benchmarked investors
Speaker 1: who go to you own are like, I want to
Speaker 1: own strategy. It keeps going up, and so then you
Speaker 1: put it in your index, right whereas MSCI is looking
Speaker 1: at it in a different context where it's been going
Speaker 1: down and they're like, wow, yeah, get it out of
Speaker 1: the index. Which is you know, it's badly cyclical and
Speaker 1: that you know, you make the index ones by it
Speaker 1: when it's going up, and then you make them sell
Speaker 1: it when it's calmed down. But you know, it's still
Speaker 1: there's there's some of that that element to it. All.
Speaker 2: Right, let's try to say it. So we're going to
Speaker 2: talk about We're gonna talk about Bill Lackman, the Man.
Speaker 2: We need to talk about Bill Lackman the Bird a
Speaker 2: little bit. Unfortunately, my good friend Bi Lackman the Bird
Speaker 2: passed away in the last couple of months. I haven't
Speaker 2: been telling you, our dear podcast audience, because it's been
Speaker 2: very difficult for me. I knew that when we took
Speaker 2: in friend of the Show, Bill Ackman, that it was
Speaker 2: going to be touch and go, and unfortunately he did pass.
Speaker 2: But I'm really happy for the time that we spent
Speaker 2: with him. I think that, you know, the months that
Speaker 2: he did spend with me and my parents. You know,
Speaker 2: he was on this earth for a little bit longer
Speaker 2: than he would have been, and it's very painful, but
Speaker 2: you know, it was a beautiful couple of months. And
Speaker 2: he came to us right after my pony Batman had passed,
Speaker 2: and certainly he was a wonderful bit of joy. So
Speaker 2: that's why we've been a little bit mum on mister Bird.
Speaker 2: But he is flying high in bird Heaven.
Speaker 1: I'm sorry for very well thanks. I do worry that
Speaker 1: someone who hasn't listened to previous episodes will be very
Speaker 1: confused about how Bill Blackman came into your and your
Speaker 1: family's life for a few months. And I want to
Speaker 1: be clear, Katie rescued a bird and on the podcast
Speaker 1: we jokingly named the bird friend of the show Bill Ackmam,
Speaker 1: but it was not the actual hedgehong manager black When
Speaker 1: it's just the bird.
Speaker 2: I really didn't want to talk about it. But like
Speaker 2: even last week, I was interviewing this guy from Vanguard
Speaker 2: and he said, there's three guys on my desk who
Speaker 2: want me to ask you about Friend of the Show
Speaker 2: Bill Ackman. And I was like, oh, yeah, he's a bird.
Speaker 2: So people are like reach out to me and ask
Speaker 2: about him. So, yeah, that's weird to talk about the
Speaker 2: man without talking about the all right, So Bill Ackman,
Speaker 2: Bill Ackman, the hedge fund manager, He's at it again.
Speaker 1: He's really like, he really has got it in his
Speaker 1: head that he wants to do a closed end fund
Speaker 1: in the US that tradesit a premium. And he doesn't
Speaker 1: correct that nut yet, but he keeps work.
Speaker 2: Come on, yeah he does. So. Bloomberg News reported that
Speaker 2: he's aiming to raise five billion dollars for his US
Speaker 2: listed closed end funds. Listeners of this podcast will remember
Speaker 2: that he tried this a few months ago, maybe a
Speaker 2: year ago, over a year ago at this point actually,
Speaker 2: and initially I think his target was as much as
Speaker 2: twenty five billion dollars, so, you know, the valuation a
Speaker 2: little bit less ambitious this time around. And he's also
Speaker 2: trying to sweeten it a bit by giving investors in
Speaker 2: the funds some shares in Pershing Square Capital, the hedge
Speaker 2: fund that he's also trying to IPO.
Speaker 1: Yeah, the problem that he ran into is that it's
Speaker 1: really important that you sell shares of a closed end
Speaker 1: fund at a premium to net asset value of a
Speaker 1: new one, because that's how you raise the net asset value. Rightly,
Speaker 1: you can'not sell them at a premium to net asset value.
Speaker 1: And he thought that he would solve that problem by
Speaker 1: just telling everyone that he was amazing and therefore they
Speaker 1: should buy shares at a premiums and net asset value
Speaker 1: because he would compound their money much faster than other
Speaker 1: alternatives would. And that didn't work. So he's trying something else,
Speaker 1: which is, you know, the obvious solution is like you
Speaker 1: give people a sweetener. Basically, like Bill Ackman has to
Speaker 1: kick in some value to make the shares worth more
Speaker 1: than what people pay for them, but like still, you know,
Speaker 1: people pay more than what goes into the pot. And
Speaker 1: so that's the plan, which is basically like if you
Speaker 1: do the IPO of the clothes then fund at the
Speaker 1: same time you do the IPO of the management company,
Speaker 1: which seems to be kind of the plan, then you
Speaker 1: have a managing company which is worth ten billion dollars
Speaker 1: was a number of that, and then their last round
Speaker 1: and you give you know, ten percent of the managing
Speaker 1: company to the investors in the clothes Unfund like ooh,
Speaker 1: they got a nice like billion dollar sweetener, and then
Speaker 1: they're willing to buy shares in the clothes end fund
Speaker 1: and the math all works right, and then you know,
Speaker 1: the next day, like you separate the sweetener and maybe
Speaker 1: the clothes un Fund trades it a discount the NASSA value,
Speaker 1: but yeah, that's a problem for another day. Yeah, or
Speaker 1: maybe it trades at a premium, right, maybe, like it
Speaker 1: was hard to bootstrap this, but once it gets going,
Speaker 1: everyone will be like, oh, wow, he really is good
Speaker 1: at managing money, and the thing will trade it a premium.
Speaker 1: Doesn't happen a lot?
Speaker 2: Yeah, And I mean he has the hard fact that
Speaker 2: you think about his European listed closed end funds.
Speaker 1: Sure, there's not a ton of precedent.
Speaker 2: Yeah, it's trading at a twenty five percent discount right now, and.
Speaker 1: There are reasons there are distinctions.
Speaker 2: But yeah, yeah, it's a similar idea. So I was
Speaker 2: going to say, I thought you were going to say,
Speaker 2: the obvious solution here is to just launch this in
Speaker 2: an et That seems no wrong. My mind wants to
Speaker 2: go tell me why that doesn't make sense.
Speaker 1: Bill Eman is a good investing track record, but like
Speaker 1: the best thing he did was he was early to
Speaker 1: permanent capital for Hedgehong managers. I have written a lot
Speaker 1: that like the important job of Hedgehong manager is not
Speaker 1: to pick the stocks they go up, but to continue
Speaker 1: managing a hedge fund. And Bill Ackman, by launching a
Speaker 1: closed un fund in Europe, has given himself permanent capital
Speaker 1: in a way that like allows him to be patient
Speaker 1: and not worry about making You know, it's the best
Speaker 1: possible set up for hedgeloont manager. First, Yeah, it is
Speaker 1: just not that this is not permanent capital, Like it
Speaker 1: doesn't solve any of the problems he wants to address.
Speaker 2: Yeah, I hear what you're saying. Can I say one
Speaker 2: more thing about ETF's ok I'm just going to borrow
Speaker 2: some logic from Bloomberg Intelligence. They wrote a note about
Speaker 2: this saying Acman tries again at a closed end fund.
Speaker 2: I hear your point on permanent capital. They make the
Speaker 2: point that, Okay, you raise capital once at IPO, and
Speaker 2: then you typically struggle to grow beyond that initial capital,
Speaker 2: Whereas there's plenty of examples at this point of like
Speaker 2: big names coming into the ETF rapper and raising billions
Speaker 2: of dollars. And if you're so confident that you are
Speaker 2: such a good hedge fund manager, why not launch in
Speaker 2: the ETF and just hope that that capital doesn't leave
Speaker 2: because they're so satisfied with your performance.
Speaker 1: I just think that if you plan to do long
Speaker 1: term investing that requires you to commit the whole stakes
Speaker 1: for a long time, or like buy private companies, you
Speaker 1: can't do concentrated long term. I'm investing in the form
Speaker 1: of an ETF. I understand people do some of it,
Speaker 1: but it's not it's not the right vehicle.
Speaker 2: I think I disagree on that point, but it's okay.
Speaker 1: I do love an ETF. I do we are we
Speaker 1: talking about Howard Hughes, which is that when the Clothes
Speaker 1: then Fund didn't work, when he couldn't launch this twenty
Speaker 1: five billion dollar clothing fund, he was like, we're gonna
Speaker 1: team up with Howard Hughes. Howard Hughes is already public company.
Speaker 1: He was a big shareholder, he bought more shares. He's
Speaker 1: the chairman now of Howard Hughes. And he was like,
Speaker 1: in his mind, like he had clothes un Fund is
Speaker 1: like it's gonna be Berkshire Hathaway. Right, It's not gonna
Speaker 1: be a fund. It's going to be a company that
Speaker 1: buys companies, or buys stakes and companies, or invests, and
Speaker 1: he is going to invest people's money much like Warren
Speaker 1: Buffett does in the form of a public company. And
Speaker 1: he realized after the Clothes Unfund didn't work that like
Speaker 1: he should just do it in the form of an
Speaker 1: existing public company.
Speaker 2: Yeah.
Speaker 1: One of my readers suggested herbal Life, which is a
Speaker 1: great suggestion, a little deep cut blackman joke. But he's like, oh, no,
Speaker 1: I have Howard Hughes right here. Howard Hughes like a
Speaker 1: real estate company. You can pivot that to being a
Speaker 1: general purpose investment company, and so he was like, you know,
Speaker 1: pershings like forty percent of it. He's the chairman, it
Speaker 1: still says, and it's ten Q. You know, we're gonna
Speaker 1: we have a strategy of becoming a diversified holding company.
Speaker 1: I don't really understand what the distinction is between Howard
Speaker 1: Hughes and the new clothes down Fund. Right, you will
Speaker 1: now have let's say three publicly traded permanent capital vehicles
Speaker 1: where he can put investments, you know, the European Fund,
Speaker 1: the Close Up Fund, and Howard Hughes and I don't know,
Speaker 1: pick one.
Speaker 2: You know, and Howard Hughes. I was reading their most
Speaker 2: recent earnings called just for Fun. They're getting close to
Speaker 2: announcing their next acquisition, you know, with Bill Ackman at
Speaker 2: the helm. So we'll see.
Speaker 1: I hope it's scanning man.
Speaker 2: Oh, that would be great.
Speaker 1: Sea of ETFs.
Speaker 2: Yes, thank you. Speaking of ETFs, Goldman Sacks I helped
Speaker 2: break the news this week. But Goldman Sacks is going
Speaker 2: to pay two billion dollars for ETF issue or Innovator Capital,
Speaker 2: one of the first movers in buffer ETFs, an area
Speaker 2: that you know and.
Speaker 1: Love, Matt, I do love a buffer Etfhh. Yeah, I've
Speaker 1: written about buffer ETFs, like the buffer ETF, which is
Speaker 1: where effectively you like take people's money, you buy like
Speaker 1: a treasury strip, and then you have like a little
Speaker 1: extra money and you use that to buy call options
Speaker 1: on a on a stock index, and so then you've
Speaker 1: given people upside in the stock indecks with no downside.
Speaker 1: And you're like, ooh, it's a magic trick. That's like
Speaker 1: a classic piece of derivative structuring, you know, magic. It's
Speaker 1: a classic building block of like the structured notes business
Speaker 1: at an investment bank, and it is now you know,
Speaker 1: Innovator and others have etfized it where now like if
Speaker 1: instead of buying a structured note from a bank or
Speaker 1: like building your own options product, you can buy an ETF.
Speaker 1: And Goldban looked at that and said, we want to
Speaker 1: be in the business of providing those ETFs, which is
Speaker 1: like you can obviously great business for Golden in a
Speaker 1: couple of ways. One, like the structure note business is
Speaker 1: like great, you know, and like there are people in
Speaker 1: the lab cooking up structured notes to make a lot
Speaker 1: of money, and like you can scale it more with
Speaker 1: an ETF than you could with the structured notes. Yeah,
Speaker 1: and then also, like I wrote this, I don't know
Speaker 1: how true this is in the case of the buffer ETF,
Speaker 1: but in general, structured notes are a place for a
Speaker 1: bank's volatility desk to lay off some volatility. If all
Speaker 1: of your hedge fund clients are buying like Korean stock
Speaker 1: call options, then you might like package a structured note
Speaker 1: that allows your retail clients to sell you Korean stock
Speaker 1: call options, because then you can like offset some of
Speaker 1: that risk. And stereotypically, the audiences for structured notes are
Speaker 1: like willing to listen to the story that the bank tells.
Speaker 1: Then like you know, the hedge funds who come to
Speaker 1: the bank fro a trade. And so the structure notes
Speaker 1: was this is a nice like risk sync and doing
Speaker 1: that in an ETF maybe also right, Like if you're Golden,
Speaker 1: you're constantly coming up with and I should say disclosure,
Speaker 1: I was an equity derivative structure.
Speaker 2: At goldbvin I had no idea.
Speaker 1: Golden, You're constantly coming up with ideas for like how
Speaker 1: to you know, sell weird volatility products to people, And
Speaker 1: with an ETF business, you've like massively increased the audience
Speaker 1: of people you can sell weird volatility products too.
Speaker 2: Yeah, so a couple of notes here. Buffer ETFs obviously
Speaker 2: have some vocal critics. Friend of the show, Cliff Fastness,
Speaker 2: for example, has been very.
Speaker 1: Like as a former derivative structure, like he's just right, Like,
Speaker 1: instead of like buying some weird buffers around your stock exposure,
Speaker 1: just buy less stock. It's a better trade. It doesn't
Speaker 1: involve paying huge fees to gold This is a standard
Speaker 1: critique of structured notes. It's frankly a standard critique of
Speaker 1: like all equity to rods, and it's a perfectly valid
Speaker 1: critique of ETFs. But buffery tis I.
Speaker 2: Do find it interesting from an ETF angle that Goldman
Speaker 2: has its own buffer ETFs. This is a product that
Speaker 2: they've already launched. They launched three earlier this year received
Speaker 2: really little traction. The fact that they went out and
Speaker 2: decided to buy an entire other firm for two billion
Speaker 2: dollars versus trying to, you know, really put the Goldman
Speaker 2: muscle and distribution might behind their own products is super interesting.
Speaker 2: Another detail I also love him here is that the
Speaker 2: folks who founded Innovator, Bruce Bond and John Southern. This
Speaker 2: is the second time that they've founded an ETF company
Speaker 2: and then sold it. Their first experience was with power
Speaker 2: shares twenty hours ago. At this point, they sold it
Speaker 2: to Investco. Bonds tried to retire for a little bit.
Speaker 2: It didn't work. He came back and founded Innovator. They're
Speaker 2: pulling him back in well him and is his palentimetfs
Speaker 2: you can't walk away from I get it hearing him
Speaker 2: tell it. It was John Southard who came across the
Speaker 2: idea of you know, structured products are huge, we should
Speaker 2: put them in ETFs. And that's what they did. They
Speaker 2: found an Innovator in twenty seventeen, they launched their first
Speaker 2: buffered products in twenty eighteen, and now they're selling to
Speaker 2: Goldman for two billion dollars. Bruce Bond has at least
Speaker 2: fifty percent steak in innovators. So you now have a
Speaker 2: new ETF billionaire, which is super cool. It's a great story,
Speaker 2: heartwarming story search products.
Speaker 1: And I mean, right, I can't felt that. That's like
Speaker 1: the thought I wish I would have.
Speaker 2: I know, I know that's the thing. You think about
Speaker 2: all the upstarts that are in the ETF industry right now.
Speaker 2: It's so easy to launch an ETF. And it feels
Speaker 2: like everyone INDs this is the blueprint I have to
Speaker 2: imagine for a lot of them. This is like the
Speaker 2: lottery ticket that they're hoping to find.
Speaker 1: Good for them. And that was The Money Stuff Podcast.
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.
Speaker 1: You can find my work by subscribing to The Money
Speaker 1: Stuff newsletter on Bloomberg.
Speaker 2: Dot com, and you can find me on Bloomberg TV
Speaker 2: every day on the close between three and five pm Eastern.
Speaker 1: We'd love to hear from you. You can send an
Speaker 1: email to Moneypod at Bloomberg dot net, ask us a
Speaker 1: question and we might answer it on the air.
Speaker 2: You can also subscribe to our show wherever you're listening
Speaker 2: right now and leave us a review. It helps more
Speaker 2: people find the show.
Speaker 1: The Money Stuff Podcast is produced by annam Aserakis and
Speaker 1: Moses ONEm Our.
Speaker 2: Theme music was composed by Blake Maples.
Speaker 1: Amy Keen is our executive.
Speaker 2: Producer, and Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be
Speaker 1: back next week with more stuff