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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to

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Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk

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Speaker 1: about stuff related to money. I'm Matt Levine, and I

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Speaker 1: write the Money Stuff column for Bloomberg Opinion.

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Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and

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Speaker 2: an anchor for Bloomberg Television. Elon Musk, when was the

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Speaker 2: last time we talked about this man?

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Speaker 1: More than a week ago? Yes, I think I'm probably lying.

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Speaker 2: It's been a minute. It's been a minute. Let's talk

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Speaker 2: about him. We've talked about the Elon Musk premium before

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Speaker 2: that's been built into the stock of Tesla. I've asked

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Speaker 2: the question, I mean, does Tesla still need Elon Musk?

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Speaker 2: It sounds like the board was, according to the Wall

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Speaker 2: Street Journal, was also asking that question.

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Speaker 1: There's two very distinct questions, which are like, does Tesla

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Speaker 1: the car company benefit from having Elon Musk a CEO?

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Speaker 1: There's the question of like does Tesla the multi hundred

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Speaker 1: billion dollar stock benefits from having Elon Musk a CEO?

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Speaker 1: I think those questions have very different answers, right, Like,

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Speaker 1: I think that if you were like, hey, here's this company,

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Speaker 1: that's selling cars, and it's CEO is in the business

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Speaker 1: of like making the people who buy its cars hate

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Speaker 1: him and also not paying any attention to the company

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Speaker 1: because he's doing ten different other things. You might be like, hey,

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Speaker 1: let's get a new CEO. But like, then, if you

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Speaker 1: like the stock and you think about what would happen

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Speaker 1: to the stock if Elon Musk wasn't the CEO, I

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Speaker 1: think it would go down.

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Speaker 2: Yeah, it's funny because if we were talking about a

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Speaker 2: normal company with a very distracted CEO, of course you

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Speaker 2: would expect that the board would be, you know, engaging

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Speaker 2: firms to help look for a new CEO. Tesla obviously

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Speaker 2: is not a normal company, and this is a special situation.

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Speaker 1: Right, And I should say that Tesla has denied reports

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Speaker 1: that it's looking for a new CEO. Right. The Also

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Speaker 1: Journal reported that some members of the board had reached

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Speaker 1: out to executive search forms. So you can sort of

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Speaker 1: square that circle by saying, yeah, some board members are

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Speaker 1: curious about the possibility of a new CEO, but there's

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Speaker 1: not a formal process by the board to engage a

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Speaker 1: search farm. Right, It's like somewhere in between. But right,

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Speaker 1: even though it's not a normal company, you would think

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Speaker 1: that the board, when faced with this extremely distracted CEO,

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Speaker 1: would look into a new CEO, even if they don't

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Speaker 1: want a new CEO, just to be like, hey, buddy,

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Speaker 1: could you spend a little more time with Tesla? Like,

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Speaker 1: I think that it's very clear that the board would

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Speaker 1: like him to spend more time with Tesla, and the

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Speaker 1: shareholders would like to spend more time with Tesla, and

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Speaker 1: probably the customers and many voters in the United States

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Speaker 1: would all like them to spend more time with Tesla.

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Speaker 1: So as a way to put pressure on him to

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Speaker 1: spend more time with Tesla, like, does this work? Maybe?

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Speaker 2: I mean, we know that investors want him to spend

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Speaker 2: more time with Tesla because after the earnings call in

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Speaker 2: which he said I'm going to spend more time with Tesla,

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Speaker 2: significantly more time starting in May, the stock popped. Yeah,

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Speaker 2: so the reaction was clear. But I don't know, you

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Speaker 2: think about the timing of this Wall Street Journal report

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Speaker 2: when they were asking this question and potentially, you know,

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Speaker 2: talking with firms about initiating a search. It seems like

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Speaker 2: that happened before that Erness call where Elon Musk said that, So, yeah, I.

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Speaker 1: Mean there's been conversations with him about spending more time

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Speaker 1: with Tesla. Yeah, I think he's like, this is not

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Speaker 1: an all or nothing decision, right. The model is kind

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Speaker 1: of Twitter, where Elon Musk bought Twitter. He installed himself

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Speaker 1: as the CEO for a minute, and then eventually, after

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Speaker 1: a flurry of activity, appointed Lindy Akarina as the CEO.

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Speaker 1: Now everyone kind of assumed that he was calling the

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Speaker 1: shots at X even though she was the CEO. But like,

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Speaker 1: you unload some of the responsibilities onto the CEO who

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Speaker 1: like runs the thing day to day, and then you're

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Speaker 1: like the visionary kibbitzer and like, you know, I wrote

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Speaker 1: this week that's not like already has that model where

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Speaker 1: Elon Musk's title at Tesla embarrassingly or technically techno King

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Speaker 1: and CEO he's the techno King.

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Speaker 2: Didn't realize that.

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Speaker 1: Oh yeah, it's happened a while. He's happened in like

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Speaker 1: twenty twenty one and he was named the Techno King

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Speaker 1: and the CFI was named the Master of Coin.

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Speaker 2: Now it's coming back to me.

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Speaker 1: Everyone blocks it out because it's really embarrassing, but it's

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Speaker 1: still you know, you still look at the filings it's

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Speaker 1: a techno king. Wow, And so you could split those rules.

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Speaker 1: He was once the chairman of the board as well

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Speaker 1: as the CEO, as many powerful CEOs are, and then

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Speaker 1: he had to stop being the chairman of the board

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Speaker 1: because he got in trouble with the SEC. But he's

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Speaker 1: now the techno king and CEO. So you can split

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Speaker 1: those roles too and leave him as the techno king,

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Speaker 1: make someone else the CEO. And like I think in

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Speaker 1: that split, like the CEO runs the car company and

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Speaker 1: the techno king is the guy who's like, we're gonna

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Speaker 1: build human eyed robots.

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Speaker 2: We're doing the AI stuff, doing the AI stuff. Yeah.

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Speaker 2: Another suggestion that I've seen in terms of how you know,

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Speaker 2: the structure could work at Tesla. I forget who exactly

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Speaker 2: suggested this, but someone from the cell side, so that

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Speaker 2: maybe he could become chairman again and just be chairman.

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Speaker 1: Yeah, But like in the traditional division of public company responsibility,

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Speaker 1: as the chairman who is in charge of the board

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Speaker 1: as a fiducia responsibility and overseas management is not quite

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Speaker 1: what he wants, and the CEO who runs the company

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Speaker 1: as a full time job is not quite what I

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Speaker 1: think techner king is a good description of what he

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Speaker 1: wants to be, which is he wants that absolute power,

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Speaker 1: be like focused on tech stuff and not have the

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Speaker 1: sort of full time day to day responsibilities of either

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Speaker 1: a CEO or a chairman.

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Speaker 2: That's true. I will say it kind of reminds me

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Speaker 2: of micro Strategy to an extent, because Michael Saylor founded

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Speaker 2: micro Strategy, who is the CEO for a long long time.

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Speaker 2: He stepped down from being CEO and now I believe

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Speaker 2: he's just chairman.

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Speaker 1: So that's a common thing. But I do think that

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Speaker 1: I do think that micro Strategy and Tesla are sort

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Speaker 1: of at opposite ends of like business complexity, like Mega

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Speaker 1: Strategy in the business of buying bitcoin and putting them

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Speaker 1: in a pub.

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Speaker 2: Hear me out they actually have thousands of employees, because.

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Speaker 1: That's not all I understand.

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Speaker 2: That they're somewhat similar in that, Okay, Tesla is a

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Speaker 2: car company that also has this like AI stuff happening

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Speaker 2: with it. Micro Strategy is nominally a software company. Couldn't

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Speaker 2: tell you more than that, but then they have this

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Speaker 2: whole other thing on top of it, which is just

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Speaker 2: buying bitcoin and bitcoin. I think that micro Strategy is

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Speaker 2: known for the thing on top of it, whereas Tesla

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Speaker 2: is still known for primarily being a car company.

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Speaker 1: Yeah. See, that's where I'm not sure. Like, like I

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Speaker 1: think that a lot of people would say that the

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Speaker 1: thing that Tesla does day to day is a car company.

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Speaker 1: It makes cars and sells cars, but the thing that

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Speaker 1: it is known for is being an MS company, and

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Speaker 1: particularly the thing that like drives its stock market evaluation

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Speaker 1: is not the current cash list from cars, but like

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Speaker 1: the future projections of We're going to build humanoid robots

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Speaker 1: and like be like the world's leading robotics and a company,

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Speaker 1: and like be like pioneers and some driving cars and

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Speaker 1: like all this stuff that Elon mus promises, and like

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Speaker 1: the journal story about the board looking Elsewhere also mentioned

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Speaker 1: some texts that Musk sent to someone close to him

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Speaker 1: saying that he no longer wanted to be CEO of Tesla,

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Speaker 1: but he was worried that no one could replace him

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Speaker 1: atop the company and sell the vision that Tesla isn't

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Speaker 1: just an automaker, but the future of robotics and automation

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Speaker 1: as well. I think that's right, right, Like, if you

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Speaker 1: got like a car person in to run it as

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Speaker 1: a car company, it's much harder to sell that vision.

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Speaker 1: The problem is not just that Elon Musk is a

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Speaker 1: good salesman for that vision, and if you put someone

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Speaker 1: else in charge, you wouldn't have that good salesmanship. There's

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Speaker 1: also the problem that, like Elon Musk does a lot

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Speaker 1: of stuff, and if someone else was running Tesla, then

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Speaker 1: when he wakes up in the morning and has an

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Speaker 1: idea for robotics stuff, he is more likely to do

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Speaker 1: it somewhere else. Right, he owns like six companies, He

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Speaker 1: can always start more companies. If he wants to do

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Speaker 1: the future of robotics somewhere else, he kind of just can.

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Speaker 1: Leaving him as the CEO of Tesla ties him a

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Speaker 1: little bit more closely to Tesla and makes and more

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Speaker 1: likely to do futuristic stuff within Tesla as opposed to

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Speaker 1: at SpaceX of the boring company or in a new

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Speaker 1: company or XII or XAI. And if there were just

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Speaker 1: like a coup, if the board was like, we're sick

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Speaker 1: of you, you're fired, We're getting a new CEO, that

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Speaker 1: would be really bad for Tesla. You know, he has

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Speaker 1: like a million things that he's doing, he'd do all

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Speaker 1: of them elsewhere. Is he sort of threatened to do

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Speaker 1: if he didn't get paid enough from Tesla. Right, Like,

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Speaker 1: one aspect of this is like, you know, we've talked

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Speaker 1: a lot about Delaware courts clying back. His compensation still

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Speaker 1: kind of being litigated, and you know he sort of said,

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Speaker 1: you know that if I had an extra fifty billion

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Speaker 1: dollars a Tesla stuck, I'd be more motivated to do

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Speaker 1: stuff within Tesla. But if he gets fired, less motivated,

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Speaker 1: you quin.

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Speaker 2: To phreeze for this. What was it? Was it like

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Speaker 2: the Elon attention auction?

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Speaker 1: Yeah? Right, Like if you are an investor or a

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Speaker 1: director at one of Elon's companies, the more of his

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Speaker 1: attention you get, the more valuable the company is, right,

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Speaker 1: And like you see that particularly with Tesla now or

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Speaker 1: like they get less of his attention, thought goes down

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Speaker 1: a lot, and like partly because they want more of

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Speaker 1: his attention and partly because when he directs his attention elsewhere,

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Speaker 1: it's like bad for pr But how do you get

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Speaker 1: that attention? The normal way is to give him stuff

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Speaker 1: like a big pay package, but some amount of threatening

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Speaker 1: it's also possibility. I know that it's threatening exactly, but

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Speaker 1: you had as a board have some amount of independence

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Speaker 1: and maturity where you can say to the CEO, Hey,

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Speaker 1: it would be nice if you shut up to work.

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Speaker 2: Yeah, maybe swipe your badge now, and then should we

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Speaker 2: talk about some debt?

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Speaker 1: Yeah about x X.

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Speaker 2: Finally sold.

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Speaker 1: Yeah. Like a lot of people probably including me, in

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Speaker 1: like twenty twenty three, like this is like one of

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Speaker 1: the worst leverage biots ever. In like early twenty twenty three,

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Speaker 1: you look at this and you're like, okay, Like Elon

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Speaker 1: Musk overpaid for a company. Twitter was not a traditional

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Speaker 1: leverage biot company because it didn't have great cash flow.

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Speaker 1: It wasn't like a you know, money spinner. It was

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Speaker 1: a you know, social media company that didn't make a

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Speaker 1: lot of money. And so Elon mus decided to buy

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Speaker 1: it and the leveraged buyout and he got thirteen billion

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Speaker 1: dollars over of the DIT, which is a lot of

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Speaker 1: debt for Twitter. And then after he gret to buy it,

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Speaker 1: everyone agreed, including him, that he was overpaying for it,

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Speaker 1: and he tried to get out of it by saying

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Speaker 1: Twitter is a big fraud. And by the time the

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Speaker 1: deal closed, it looked like a very unpleasant deal to

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Speaker 1: finance and the banks that finance that couldn't sell or

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Speaker 1: didn't selve the dietage presumaly because there's not much market

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Speaker 1: for it. And I don't think they ever marked it

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Speaker 1: down formally, but like the equity investors marked down their

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Speaker 1: equity a lot, and there were you know, news stories

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Speaker 1: saying that, like the banks were getting offers like fifty

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Speaker 1: cents on the dollar, so it looks like they'd lost

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Speaker 1: billions of dollars underwriting the Twitter deal and three years later,

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Speaker 1: two years later, they've sold held the data like you

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Speaker 1: know around bar Like the most reason slug was like

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Speaker 1: ninety eighth on's on the dollar. They got paid big

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Speaker 1: interest payments over that time period because like there was

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Speaker 1: you know, expensive debts, So they've made an accounting profit

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Speaker 1: on the deal. I made an economic profit on the deal,

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Speaker 1: and they also like coz it up with Elon Musk

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Speaker 1: and now probably get financing work for Xai, which is

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Speaker 1: a giant company.

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Speaker 2: I love it because if you just held onto this

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Speaker 2: debt and kind of ignored it for three years, you

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Speaker 2: made out fine, but it came with a lot of

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Speaker 2: emotional turmoil.

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Speaker 1: It's something I think about a lot, right, like the

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Speaker 1: you know, the pitch for private markets is you don't

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Speaker 1: have so much emotional turmoil, right, And the individuals who

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Speaker 1: like underwrote the X debt, they did a great decision

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Speaker 1: for their banks. They made a lot of money, but

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Speaker 1: like some of them got fired in the interim because

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Speaker 1: it looked like a terrible decision. And the journal story

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Speaker 1: about that selling the last slug of the ex debt

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Speaker 1: says the lega the hung debt might have longer term implications.

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Speaker 1: X and other hung loans prompted pay cuts and an

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Speaker 1: exodus of bankers. They also forced some banks to pull

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Speaker 1: back on lending, which gave room for competitors and the

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Speaker 1: booming private credit space to muscle it. So it's like,

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Speaker 1: did Elon Musk invent private credit?

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Speaker 2: Not really, but like kind of like perhaps you did.

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Speaker 1: Will the story of private credit be like yeah, and

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Speaker 1: then Elon Musk hung a debt deal and so everyone

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Speaker 1: had to you know, the banks had to stop lending,

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Speaker 1: and so private credit got to get into the game.

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Speaker 1: Because it's true, like there was a big uptick in

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Speaker 1: private credit because banks did pull back because there's a

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Speaker 1: string of hung loans. Yeah, and this was the big one.

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Speaker 2: I kind of traced a lot of the boom that

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Speaker 2: we saw in private credit to the collapse of Silicon

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Speaker 2: Valley Bank, but MOBE the whole time it was just xtet,

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Speaker 2: you know, in like the.

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Speaker 1: LBO space, like the banks that did LBO lending, you

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Speaker 1: have like a small balance sheet for LBO lending, and

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Speaker 1: you have to turn it over a lot by selling

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Speaker 1: all your loans. And if you stick thirteen billion dollars

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Speaker 1: of loans on your LBO balance sheet, you can't do

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Speaker 1: any more loans, and so you know, you have to

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Speaker 1: let private credit do it.

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Speaker 2: Yeah, So you wrote that perhaps Elon Musk created private credit,

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Speaker 2: and perhaps he did. But when I read that, my

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Speaker 2: initial thought was to think about the psyche. You know

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Speaker 2: what we're talking about the private markets. Investing in private markets,

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Speaker 2: it's supposed to take out the emotional turmoil. Because I

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Speaker 2: was thinking about the past month and the equity markets,

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Speaker 2: and the S and P five hundred in April actually

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Speaker 2: amazingly was only down about seven eight tenths of a percent,

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Speaker 2: which is nothing. That's like the smallest move on a

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Speaker 2: monthly basis that we've seen a long time. But that

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Speaker 2: came with so much handwringing. It came with so much

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Speaker 2: volatility that you could watch second to second that you

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Speaker 2: asked someone how they felt at the end of April,

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Speaker 2: they would probably say that was crazy. But that mentality

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Speaker 2: of you know, if you just close your eyes for

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Speaker 2: three years, you made out great on this XTT. You

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Speaker 2: didn't have to think about it. But obviously it wasn't

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Speaker 2: actually private credit, so those banks probably thought about it

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Speaker 2: a lot.

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Speaker 1: One selling point of private assets is that they have

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Speaker 1: lower volatility, and if you think about that for a second,

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Speaker 1: it can't really be true. But what is true is

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Speaker 1: that you don't mark them to market its frequently, and

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Speaker 1: so you can't know how volatile they are, unlike a

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Speaker 1: sort of like theoretical value. And so it is true

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Speaker 1: that because you don't mark them to market it is frequently,

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Speaker 1: you don't have to be as emotionally upset about them.

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Speaker 1: And so friend of the Pod Cliff as This has

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Speaker 1: written about this that like there is an actual value

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Speaker 1: from having private assets because if you are if you're

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Speaker 1: a human who might be prone to panic and sell

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Speaker 1: when things are low, or if you're like an institutional

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Speaker 1: allocator who has like some rule where you know, if

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Speaker 1: you have a big draw down you have to sell,

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Speaker 1: or something like that, you know like some of the

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Speaker 1: institutional structures of investing can like replicate irrational panic reader,

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Speaker 1: email me about this, Like to the extent that the

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Speaker 1: public markets are dominated by like multi strategy hedge funds,

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Speaker 1: who's like one of their salient features is that if

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Speaker 1: you have a ten percent drat on, you're fired. Like

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Speaker 1: that like creates potential bad incentives where you have months

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Speaker 1: like this where you have five percent drite out every

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Speaker 1: other day but nothing happens, right, Like you could have

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Speaker 1: like selling it the worst times because you are exposed

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Speaker 1: to volatility that you can see, whereas if you had

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Speaker 1: assets that you can't see the volatility of, you can

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Speaker 1: just like, yeah, that's great. And if like the volatility

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Speaker 1: is mostly you know, washed out, then yeah, that works

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Speaker 1: out better for you in the long run.

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Speaker 2: I wonder how you quantify human emotion, though.

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Speaker 1: Intuitively, one way you quantify it is that you think, well,

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Speaker 1: in the long run, private assets and public assets should

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Speaker 1: have like the same returns arguably, and if like ninety

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Speaker 1: percent of the volatility in public markets washes out, then

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Speaker 1: like that was all emotional volatility rather than real volatility.

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Speaker 1: That's really not quite right. But like, yeah, this is

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Speaker 1: the first.

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Speaker 2: Cat like can design a factor around that and then

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Speaker 2: somehow launching EUTF.

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Speaker 1: Let's see, there's also a Bloomberg report that XAI isn't

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Speaker 1: talks to raise twenty billion dollars of equity, which would

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Speaker 1: be like the second biggest startup fundraise.

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Speaker 2: Ever, second only to Open Eye.

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Speaker 1: One of the uses of proceeds might be to pay

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Speaker 1: down the debt. It's a little unclear how much money

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Speaker 1: Twitter is making. I mean x like the ex portion

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Speaker 1: of XII the social media company. But it's not like

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Speaker 1: a great business style, and businesses are still like pretty speculative,

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Speaker 1: hugely capital and tons of businesses, So you don't really

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Speaker 1: want to spend a billion dollars a year on debt

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Speaker 1: service if you're a company like that. And so it

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Speaker 1: looks like they can get rid of the debt by

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Speaker 1: raising twenty billion dollars of equity. Not only did this

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Speaker 1: that all get sold, but also it might get like

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Speaker 1: paid back at par early, and like I think that,

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Speaker 1: Like the message is that it's fairly expensive to raise

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Speaker 1: debt for a social media company and like incredibly cheap

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Speaker 1: to raise equity for a AI company, right, Like you

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Speaker 1: can raise billions of dollars of equity at one hundred

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Speaker 1: billion dollar valuations if you're a cool AI company, and so, like,

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Speaker 1: you know, they're correcting the capital structure. Speaking of the

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Speaker 1: appeal of private markets, go.

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Speaker 2: On Group and KKR.

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Speaker 1: Well everyone, I mean right, so there there's a story

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Speaker 1: this speak about Capital Group and KKR teaming up to

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Speaker 1: launch mixed public private debt funds, which is like a

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Speaker 1: fund that's like sixty percent public bonds and loans and

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Speaker 1: forty percent drag lending and other private credit stuff. So

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Speaker 1: it's a public private credit fund. And you know, Capital

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Speaker 1: is a big mutual fund manager that I believe sells

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Speaker 1: through financial advisors, and so like you know, if you

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Speaker 1: have a financial advisor, they might be like, oh, you

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Speaker 1: should put your money in this Capital mutual fund. And

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Speaker 1: now the financial advisor can say, oh, you should put

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Speaker 1: your money in this Capital slash KKR public private fund,

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Speaker 1: and yeah, that's like the way of the near future.

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Speaker 1: I think. Bloomberg reported yesterday that State Street and Carlisle

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Speaker 1: are in similar.

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Speaker 2: Talks, which is interesting because State Street, you know, has

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Speaker 2: this partnership with Apollo as well.

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Speaker 1: Yeah, but like the private managers are kind of they're

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Speaker 1: providing paper and then like these big asset managers are yeah,

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Speaker 1: we'll sell lots of that paper. I think I agree

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Speaker 1: that it's a little weird because they are like partnerships

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Speaker 1: rather than like, yeah, pure like issuers. But yeah, Capital

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Speaker 1: and KKR, State Street and everybody.

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Speaker 2: That's just this week you also had Blackstone, Vanguard and

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Speaker 2: Wellington team up and some jv to launch these sort

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Speaker 2: of products.

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Speaker 1: And the other thing that there is is Morgan Stanley

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Speaker 1: this week in Goldman a couple of weeks ago, launched

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Speaker 1: private wealth thingies where it's like their own alts businesses,

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Speaker 1: their own private credit businesses or private aquity businesses. I'm

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Speaker 1: going to sell some paper to like they're not like

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Speaker 1: pure retail, but like they're you know, High night Worth

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Speaker 1: retail ish private health clients. And so there's a lot

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Speaker 1: of emphasis everywhere in private credit and private equity managers. Yeah,

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Speaker 1: to sell to individuals, right, because like historically this has

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Speaker 1: been a business where they raise money from institutional allocators

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Speaker 1: and now they're like so big that they need to

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Speaker 1: tap trillions of dollars of individual wealth. And so there's

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Speaker 1: just a lot of talk about like putting private credit

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Speaker 1: and private equity into for one ks, and like target

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Speaker 1: date funds and ETFs and retail financial advisors and so

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Speaker 1: this is like the big push.

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Speaker 2: So when you and I were discussing what to talk

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Speaker 2: about today, I call this sort of like the evergreen

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Speaker 2: story because we're talking about Capitol Group and KKR this

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Speaker 2: tie up. But it just feels like we're going to

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Speaker 2: see more of these And you talk about that push

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Speaker 2: because they want to open up and raise trillions of

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Speaker 2: dollars from retail investors. I mean, it just seems that

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Speaker 2: this is like the inevitable march forward. We could talk

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Speaker 2: about this story every single week.

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Speaker 1: Yeah, oh we will. And it's interesting, you know, you say,

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Speaker 1: like March forward. Like my like cynical take on this

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Speaker 1: is that people solve the problem of investors, right, Like

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Speaker 1: it's a dispariting solution, right, But it's like you buy

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Speaker 1: all the companies and like black Rock or Vanguard will

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Speaker 1: do that for you because it's a useful service for

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Speaker 1: them to provide and they will charge you three basis points. Right,

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Speaker 1: buy all the companies and then you own the market

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Speaker 1: and no one's going to beat the market for you.

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Speaker 1: And getting the market return with lofis is the right

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Speaker 1: way to do it. And like there's lots of reasons subjective,

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Speaker 1: but it's like it kind of is a first cut,

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Speaker 1: like the solution, and a lot of people believe that

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Speaker 1: for plausible reasons. And so like a lot of people,

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Speaker 1: you know, put their money in intoex ETFs. And if

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Speaker 1: you are Wellington or Capital and you're in the business

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Speaker 1: of long only public equity management, you've had a good

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Speaker 1: fifty one hundred year run. But like that business is

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Speaker 1: really hard right now. It's really hard to sell an

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Speaker 1: actively managed mutual fund through financial advisors because people are, yeah,

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Speaker 1: there's self tright to you know, account buy s and

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Speaker 1: p five hundred etf right and pay three basis points.

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Speaker 2: Instead of several dozens.

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Speaker 1: You know, you used to pay like two percent for

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Speaker 1: a mutual fund for like that those days are long

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Speaker 1: dat and so how do you address that? The universal

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Speaker 1: answer is private markets? Yeah, and like what does that mean?

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Speaker 1: What it means? It's like you see like kind of

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Speaker 1: medium sized companies, youngish medium sized companies would go public

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Speaker 1: and now like companies stay private longer and grow bigger

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Speaker 1: in private markets, and and like why is that? Like

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Speaker 1: there are a lot of good reasons for it, right,

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Speaker 1: There's a lot of capital in private markets, it's much less.

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Speaker 1: It's mcual. We're convenient to be private than to have

436
00:21:27,840 --> 00:21:31,360
Speaker 1: to deal with earnings calls and SEC report and share

437
00:21:31,480 --> 00:21:33,040
Speaker 1: their lawsuits and.

438
00:21:32,119 --> 00:21:34,360
Speaker 2: All the boring staff.

439
00:21:34,440 --> 00:21:36,199
Speaker 1: Like short sell. There's a lot of stuff that companies

440
00:21:36,240 --> 00:21:38,520
Speaker 1: don't like about being public. But I also do think

441
00:21:38,560 --> 00:21:40,800
Speaker 1: that like if you're like, yeah, if you're like a

442
00:21:40,800 --> 00:21:43,960
Speaker 1: big private company, you go talk to like investors or

443
00:21:44,840 --> 00:21:48,280
Speaker 1: banks and you're like, hey, should I go public? They're like, no,

444
00:21:48,560 --> 00:21:51,000
Speaker 1: stay private, and like why well, this, like the financially

445
00:21:51,000 --> 00:21:53,480
Speaker 1: intermediates makes so much more money in private markets than

446
00:21:53,520 --> 00:21:55,960
Speaker 1: in public markets. In some ways, it feels like a

447
00:21:56,240 --> 00:21:58,520
Speaker 1: step backward in progress, right, Like, in some ways it

448
00:21:58,560 --> 00:22:02,440
Speaker 1: feels like what's happening here is that public markets are

449
00:22:02,880 --> 00:22:07,399
Speaker 1: so cheap and efficient for some definition of efficient that

450
00:22:07,600 --> 00:22:09,320
Speaker 1: it is kind of no fun to be an investor

451
00:22:09,359 --> 00:22:12,359
Speaker 1: in the public markets. And so all these investment firms

452
00:22:12,400 --> 00:22:15,800
Speaker 1: are like, how do we get more stuff that isn't

453
00:22:16,040 --> 00:22:19,680
Speaker 1: just like ruthlessly indexed and charges three asis plants, and

454
00:22:19,840 --> 00:22:21,760
Speaker 1: like the answers like more private stuff.

455
00:22:21,920 --> 00:22:23,840
Speaker 2: Yeah, I'm trying to just said what is the chicken

456
00:22:23,920 --> 00:22:26,160
Speaker 2: and what is the egg? Because like there's two things happening.

457
00:22:26,200 --> 00:22:29,080
Speaker 1: I mean, you're all self reinforcing. Just one thing started.

458
00:22:29,200 --> 00:22:30,720
Speaker 2: But yeah, what do you call when the snake is

459
00:22:30,760 --> 00:22:31,840
Speaker 2: eating itself.

460
00:22:31,880 --> 00:22:36,480
Speaker 1: Robbers roborusus roboris. Yeah, that sounds good.

461
00:22:36,640 --> 00:22:39,440
Speaker 2: Well, what I'm trying to say, you have you know,

462
00:22:39,560 --> 00:22:41,600
Speaker 2: the capitol groups and the Wellingtons of the world. They

463
00:22:41,680 --> 00:22:44,600
Speaker 2: want to tap into retail investors because we've solved the

464
00:22:44,640 --> 00:22:47,000
Speaker 2: problem of investing and here's a new thing you can do.

465
00:22:47,119 --> 00:22:49,639
Speaker 2: And then here's the other force, is that you have

466
00:22:49,720 --> 00:22:52,919
Speaker 2: all these cool, interesting companies that are small that are

467
00:22:52,960 --> 00:22:55,960
Speaker 2: staying private for longer, partly because the funding is there.

468
00:22:56,000 --> 00:22:58,320
Speaker 2: You mentioned all the annoying things, but there's also like

469
00:22:58,400 --> 00:23:00,560
Speaker 2: there's ways to access funding. You don't need to go

470
00:23:00,640 --> 00:23:02,879
Speaker 2: public anymore. And I guess that's the snake.

471
00:23:03,160 --> 00:23:05,440
Speaker 1: Oh yeah, absolutely. And also the other thing is there

472
00:23:05,560 --> 00:23:08,119
Speaker 1: is retail demand for this, like yeah, it's not just

473
00:23:08,200 --> 00:23:10,840
Speaker 1: like the issues like it and the intermediaries like the

474
00:23:11,040 --> 00:23:13,720
Speaker 1: retail coastors. Yeah, I get to own cool private companies, right. Yeah.

475
00:23:13,760 --> 00:23:17,399
Speaker 1: There is this perception based in fact that the highest

476
00:23:17,480 --> 00:23:20,360
Speaker 1: growing companies are in the private.

477
00:23:20,119 --> 00:23:22,440
Speaker 2: Markets Stripe, SpaceX. Yeah.

478
00:23:22,480 --> 00:23:24,560
Speaker 1: And then also on the credit side, because a company

479
00:23:24,680 --> 00:23:27,520
Speaker 1: what you're getting in private credit is like a certain

480
00:23:27,520 --> 00:23:30,280
Speaker 1: amount of like flexibility and structuring and a certain amount

481
00:23:30,280 --> 00:23:32,680
Speaker 1: of certainty, and you're paying for that with higher interest rates.

482
00:23:32,720 --> 00:23:34,240
Speaker 1: And so if you're a retail client and you're like,

483
00:23:34,520 --> 00:23:35,879
Speaker 1: I can have a bond fund, or I can have

484
00:23:35,960 --> 00:23:38,040
Speaker 1: a private credit fund that pays ANXT one hundred and

485
00:23:38,040 --> 00:23:39,960
Speaker 1: fifty basis plant, it's like, why not do the private credit.

486
00:23:40,440 --> 00:23:43,119
Speaker 1: So there's some reality to the idea that private markets

487
00:23:43,160 --> 00:23:45,600
Speaker 1: have higher returns, and so you should invest in private markets.

488
00:23:45,880 --> 00:23:48,440
Speaker 2: God, I had something to say and it just flirted away,

489
00:23:48,960 --> 00:23:51,040
Speaker 2: it went private. Yeah, I can't access it.

490
00:23:51,280 --> 00:23:52,920
Speaker 1: Did I tell you that at Disney World I saw

491
00:23:53,359 --> 00:23:53,720
Speaker 1: a snake?

492
00:23:53,840 --> 00:23:56,120
Speaker 2: We haven't talked at all about your trip to Disney World? Yeah,

493
00:23:56,160 --> 00:23:56,560
Speaker 2: how was it?

494
00:23:57,280 --> 00:23:57,440
Speaker 1: Oh?

495
00:23:57,520 --> 00:23:59,520
Speaker 2: I remember what I wanted to say? Should I say it?

496
00:23:59,680 --> 00:23:59,880
Speaker 1: Yeah?

497
00:24:00,240 --> 00:24:03,359
Speaker 2: A mailbag question we got about adverse selection. Yeah, this

498
00:24:03,560 --> 00:24:06,560
Speaker 2: was in relation to private credit euts. But you know,

499
00:24:06,720 --> 00:24:10,359
Speaker 2: the cynical suspicion that the private manager was just going

500
00:24:10,400 --> 00:24:12,920
Speaker 2: to dump all their not so great stuff into these

501
00:24:13,040 --> 00:24:13,800
Speaker 2: retail funds.

502
00:24:14,320 --> 00:24:17,480
Speaker 1: Yeah, there's always like some hierarchy of like if you

503
00:24:17,560 --> 00:24:20,200
Speaker 1: are a private investment manager running a bunch of different

504
00:24:20,240 --> 00:24:24,240
Speaker 1: things like you'll have a natural inclination to allocate the

505
00:24:24,359 --> 00:24:27,680
Speaker 1: very best things to your personal account, the next best

506
00:24:27,720 --> 00:24:30,239
Speaker 1: things to the accounts of the important clients to pay

507
00:24:30,240 --> 00:24:32,560
Speaker 1: you the highest fees, and like the worst things you know,

508
00:24:32,960 --> 00:24:35,119
Speaker 1: to the retail clients to pay your eighty basis funds. Right,

509
00:24:35,560 --> 00:24:37,800
Speaker 1: But there are a lot of like things to counteract

510
00:24:37,840 --> 00:24:41,920
Speaker 1: that tendency, like regulation and like you know, the conflict

511
00:24:41,960 --> 00:24:44,199
Speaker 1: committees of these firms, and like, you know, a lot

512
00:24:44,280 --> 00:24:47,000
Speaker 1: of the stuff is like sort of vertical slices of everything.

513
00:24:47,080 --> 00:24:50,640
Speaker 1: So it's like, I wouldn't you know, like you can't

514
00:24:50,680 --> 00:24:52,840
Speaker 1: really have this business where like you take the best

515
00:24:52,920 --> 00:24:54,520
Speaker 1: loans and you put them in your private credit fund,

516
00:24:54,520 --> 00:24:56,280
Speaker 1: and you take the worst loans and you stuff them

517
00:24:56,320 --> 00:24:59,280
Speaker 1: into the public private fund for retail. And also the

518
00:24:59,359 --> 00:25:02,159
Speaker 1: partnerships guard against that a little bit, where like the

519
00:25:02,200 --> 00:25:04,920
Speaker 1: straight streets and capitals of the world have incentives to

520
00:25:05,200 --> 00:25:07,040
Speaker 1: negotiate to get the good loans rather than just the

521
00:25:07,080 --> 00:25:07,520
Speaker 1: bad ones.

522
00:25:07,720 --> 00:25:10,560
Speaker 2: Yeah, they're doing due diligence and the like, But I

523
00:25:10,600 --> 00:25:10,840
Speaker 2: don't know.

524
00:25:10,880 --> 00:25:12,840
Speaker 1: I mean, if you're like a private credit manager, like

525
00:25:12,880 --> 00:25:15,879
Speaker 1: your job is to like make good loans and then

526
00:25:16,040 --> 00:25:19,640
Speaker 1: like you fund them with like a sort of undifferentiated

527
00:25:19,720 --> 00:25:21,800
Speaker 1: pool of like the money that you get from, you know,

528
00:25:21,840 --> 00:25:22,800
Speaker 1: wherever you get it from.

529
00:25:23,000 --> 00:25:25,000
Speaker 2: Cool, So maybe we shouldn't worry.

530
00:25:25,080 --> 00:25:26,920
Speaker 1: It's not highest on my list of worries. Are we

531
00:25:27,000 --> 00:25:29,679
Speaker 1: gonna like talk about an sec in force for nationalting

532
00:25:29,720 --> 00:25:32,439
Speaker 1: at someone who, like, you know, adversely selected their retail

533
00:25:32,480 --> 00:25:33,760
Speaker 1: fun maybe one day.

534
00:25:34,160 --> 00:25:36,440
Speaker 2: Six or twelve months perhaps the sort of thing.

535
00:25:36,760 --> 00:25:39,040
Speaker 1: We're not we're talking about it not in sixty twelve,

536
00:25:40,480 --> 00:25:40,879
Speaker 1: three and a.

537
00:25:40,880 --> 00:25:44,280
Speaker 2: Half years, three and a half years, you know, when

538
00:25:44,320 --> 00:25:46,840
Speaker 2: we're on episode whatever, Yeah, we're.

539
00:25:46,680 --> 00:25:52,840
Speaker 1: Sorry, we're not talking. Sorry, And that was The Money

540
00:25:52,880 --> 00:25:53,600
Speaker 1: Stuff Podcast.

541
00:25:53,800 --> 00:25:55,800
Speaker 2: I'm Matt Levi and I'm Katie Gal.

542
00:25:56,160 --> 00:25:58,200
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543
00:25:58,200 --> 00:25:59,880
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544
00:25:59,840 --> 00:26:02,720
Speaker 2: Com, and you can find me on Bloomberg TV every

545
00:26:02,800 --> 00:26:06,159
Speaker 2: day on Open Interest between nine to eleven am Eastern.

546
00:26:06,520 --> 00:26:08,239
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00:26:08,240 --> 00:26:11,440
Speaker 1: email to Moneypod at Bloomberg dot now, ask us a

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00:26:11,560 --> 00:26:12,879
Speaker 1: question and we might answer it on air.

549
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550
00:26:15,520 --> 00:26:17,520
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551
00:26:17,560 --> 00:26:18,400
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552
00:26:19,040 --> 00:26:21,679
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553
00:26:21,720 --> 00:26:23,159
Speaker 1: and Moses onm Our.

554
00:26:23,240 --> 00:26:25,480
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555
00:26:25,320 --> 00:26:27,960
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556
00:26:27,920 --> 00:26:30,040
Speaker 2: And Stage Bauman is Bloomberg's Head of Podcasts.

557
00:26:30,160 --> 00:26:33,359
Speaker 1: Special thanks this week to Dash Bennett. Thanks for listening

558
00:26:33,440 --> 00:26:35,760
Speaker 1: to the Money Stuff Podcast. We'll be back next week

559
00:26:35,840 --> 00:26:36,520
Speaker 1: with more stuff