WEBVTT - Visionary Kibbitzer: TSLA, X, KKR

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to

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<v Speaker 1>The Money Stuff Podcast, your weekly podcast where we talk

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<v Speaker 1>about stuff related to money. I'm Matt Levine, and I

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<v Speaker 1>write the Money Stuff column for Bloomberg Opinion.

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<v Speaker 2>And I'm Katie Greifeld, a reporter for Bloomberg News and

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<v Speaker 2>an anchor for Bloomberg Television. Elon Musk, when was the

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<v Speaker 2>last time we talked about this man?

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

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<v Speaker 2>It's been a minute. It's been a minute. Let's talk

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<v Speaker 2>about him. We've talked about the Elon Musk premium before

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

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<v Speaker 2>the question, I mean, does Tesla still need Elon Musk?

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<v Speaker 2>It sounds like the board was, according to the Wall

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<v Speaker 2>Street Journal, was also asking that question.

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<v Speaker 1>There's two very distinct questions, which are like, does Tesla

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<v Speaker 1>the car company benefit from having Elon Musk a CEO?

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<v Speaker 1>There's the question of like does Tesla the multi hundred

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<v Speaker 1>billion dollar stock benefits from having Elon Musk a CEO?

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<v Speaker 1>I think those questions have very different answers, right, Like,

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

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<v Speaker 1>that's selling cars, and it's CEO is in the business

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<v Speaker 1>of like making the people who buy its cars hate

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<v Speaker 1>him and also not paying any attention to the company

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

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

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<v Speaker 1>like the stock and you think about what would happen

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<v Speaker 1>to the stock if Elon Musk wasn't the CEO, I

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<v Speaker 1>think it would go down.

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<v Speaker 2>Yeah, it's funny because if we were talking about a

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<v Speaker 2>normal company with a very distracted CEO, of course you

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<v Speaker 2>would expect that the board would be, you know, engaging

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<v Speaker 2>firms to help look for a new CEO. Tesla obviously

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<v Speaker 2>is not a normal company, and this is a special situation.

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<v Speaker 1>Right, And I should say that Tesla has denied reports

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<v Speaker 1>that it's looking for a new CEO. Right. The Also

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<v Speaker 1>Journal reported that some members of the board had reached

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<v Speaker 1>out to executive search forms. So you can sort of

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<v Speaker 1>square that circle by saying, yeah, some board members are

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<v Speaker 1>curious about the possibility of a new CEO, but there's

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<v Speaker 1>not a formal process by the board to engage a

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

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<v Speaker 1>even though it's not a normal company, you would think

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<v Speaker 1>that the board, when faced with this extremely distracted CEO,

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<v Speaker 1>would look into a new CEO, even if they don't

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<v Speaker 1>want a new CEO, just to be like, hey, buddy,

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<v Speaker 1>could you spend a little more time with Tesla? Like,

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<v Speaker 1>I think that it's very clear that the board would

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<v Speaker 1>like him to spend more time with Tesla, and the

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<v Speaker 1>shareholders would like to spend more time with Tesla, and

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<v Speaker 1>probably the customers and many voters in the United States

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<v Speaker 1>would all like them to spend more time with Tesla.

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<v Speaker 1>So as a way to put pressure on him to

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<v Speaker 1>spend more time with Tesla, like, does this work? Maybe?

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<v Speaker 2>I mean, we know that investors want him to spend

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<v Speaker 2>more time with Tesla because after the earnings call in

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

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<v Speaker 2>significantly more time starting in May, the stock popped. Yeah,

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

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<v Speaker 2>think about the timing of this Wall Street Journal report

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<v Speaker 2>when they were asking this question and potentially, you know,

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<v Speaker 2>talking with firms about initiating a search. It seems like

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

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<v Speaker 1>Mean there's been conversations with him about spending more time

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

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<v Speaker 1>an all or nothing decision, right. The model is kind

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<v Speaker 1>of Twitter, where Elon Musk bought Twitter. He installed himself

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<v Speaker 1>as the CEO for a minute, and then eventually, after

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<v Speaker 1>a flurry of activity, appointed Lindy Akarina as the CEO.

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<v Speaker 1>Now everyone kind of assumed that he was calling the

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<v Speaker 1>shots at X even though she was the CEO. But like,

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<v Speaker 1>you unload some of the responsibilities onto the CEO who

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<v Speaker 1>like runs the thing day to day, and then you're

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<v Speaker 1>like the visionary kibbitzer and like, you know, I wrote

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<v Speaker 1>this week that's not like already has that model where

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<v Speaker 1>Elon Musk's title at Tesla embarrassingly or technically techno King

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<v Speaker 1>and CEO he's the techno King.

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<v Speaker 2>Didn't realize that.

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<v Speaker 1>Oh yeah, it's happened a while. He's happened in like

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<v Speaker 1>twenty twenty one and he was named the Techno King

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<v Speaker 1>and the CFI was named the Master of Coin.

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<v Speaker 2>Now it's coming back to me.

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<v Speaker 1>Everyone blocks it out because it's really embarrassing, but it's

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<v Speaker 1>still you know, you still look at the filings it's

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<v Speaker 1>a techno king. Wow, And so you could split those rules.

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<v Speaker 1>He was once the chairman of the board as well

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<v Speaker 1>as the CEO, as many powerful CEOs are, and then

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<v Speaker 1>he had to stop being the chairman of the board

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<v Speaker 1>because he got in trouble with the SEC. But he's

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<v Speaker 1>now the techno king and CEO. So you can split

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<v Speaker 1>those roles too and leave him as the techno king,

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<v Speaker 1>make someone else the CEO. And like I think in

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<v Speaker 1>that split, like the CEO runs the car company and

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<v Speaker 1>the techno king is the guy who's like, we're gonna

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<v Speaker 1>build human eyed robots.

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<v Speaker 2>We're doing the AI stuff, doing the AI stuff. Yeah.

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

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<v Speaker 2>the structure could work at Tesla. I forget who exactly

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<v Speaker 2>suggested this, but someone from the cell side, so that

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<v Speaker 2>maybe he could become chairman again and just be chairman.

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<v Speaker 1>Yeah, But like in the traditional division of public company responsibility,

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<v Speaker 1>as the chairman who is in charge of the board

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<v Speaker 1>as a fiducia responsibility and overseas management is not quite

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<v Speaker 1>what he wants, and the CEO who runs the company

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<v Speaker 1>as a full time job is not quite what I

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<v Speaker 1>think techner king is a good description of what he

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<v Speaker 1>wants to be, which is he wants that absolute power,

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<v Speaker 1>be like focused on tech stuff and not have the

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<v Speaker 1>sort of full time day to day responsibilities of either

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<v Speaker 1>a CEO or a chairman.

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<v Speaker 2>That's true. I will say it kind of reminds me

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<v Speaker 2>of micro Strategy to an extent, because Michael Saylor founded

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<v Speaker 2>micro Strategy, who is the CEO for a long long time.

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<v Speaker 2>He stepped down from being CEO and now I believe

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<v Speaker 2>he's just chairman.

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<v Speaker 1>So that's a common thing. But I do think that

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<v Speaker 1>I do think that micro Strategy and Tesla are sort

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<v Speaker 1>of at opposite ends of like business complexity, like Mega

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<v Speaker 1>Strategy in the business of buying bitcoin and putting them

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<v Speaker 1>in a pub.

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<v Speaker 2>Hear me out they actually have thousands of employees, because.

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<v Speaker 1>That's not all I understand.

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<v Speaker 2>That they're somewhat similar in that, Okay, Tesla is a

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<v Speaker 2>car company that also has this like AI stuff happening

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<v Speaker 2>with it. Micro Strategy is nominally a software company. Couldn't

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<v Speaker 2>tell you more than that, but then they have this

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<v Speaker 2>whole other thing on top of it, which is just

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<v Speaker 2>buying bitcoin and bitcoin. I think that micro Strategy is

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<v Speaker 2>known for the thing on top of it, whereas Tesla

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<v Speaker 2>is still known for primarily being a car company.

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

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<v Speaker 1>think that a lot of people would say that the

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<v Speaker 1>thing that Tesla does day to day is a car company.

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<v Speaker 1>It makes cars and sells cars, but the thing that

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<v Speaker 1>it is known for is being an MS company, and

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<v Speaker 1>particularly the thing that like drives its stock market evaluation

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<v Speaker 1>is not the current cash list from cars, but like

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<v Speaker 1>the future projections of We're going to build humanoid robots

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<v Speaker 1>and like be like the world's leading robotics and a company,

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<v Speaker 1>and like be like pioneers and some driving cars and

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<v Speaker 1>like all this stuff that Elon mus promises, and like

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<v Speaker 1>the journal story about the board looking Elsewhere also mentioned

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<v Speaker 1>some texts that Musk sent to someone close to him

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<v Speaker 1>saying that he no longer wanted to be CEO of Tesla,

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<v Speaker 1>but he was worried that no one could replace him

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<v Speaker 1>atop the company and sell the vision that Tesla isn't

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<v Speaker 1>just an automaker, but the future of robotics and automation

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<v Speaker 1>as well. I think that's right, right, Like, if you

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<v Speaker 1>got like a car person in to run it as

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

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<v Speaker 1>The problem is not just that Elon Musk is a

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<v Speaker 1>good salesman for that vision, and if you put someone

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

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<v Speaker 1>also the problem that, like Elon Musk does a lot

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<v Speaker 1>of stuff, and if someone else was running Tesla, then

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<v Speaker 1>when he wakes up in the morning and has an

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<v Speaker 1>idea for robotics stuff, he is more likely to do

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<v Speaker 1>it somewhere else. Right, he owns like six companies, He

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<v Speaker 1>can always start more companies. If he wants to do

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<v Speaker 1>the future of robotics somewhere else, he kind of just can.

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<v Speaker 1>Leaving him as the CEO of Tesla ties him a

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<v Speaker 1>little bit more closely to Tesla and makes and more

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<v Speaker 1>likely to do futuristic stuff within Tesla as opposed to

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<v Speaker 1>at SpaceX of the boring company or in a new

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<v Speaker 1>company or XII or XAI. And if there were just

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<v Speaker 1>like a coup, if the board was like, we're sick

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<v Speaker 1>of you, you're fired, We're getting a new CEO, that

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<v Speaker 1>would be really bad for Tesla. You know, he has

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<v Speaker 1>like a million things that he's doing, he'd do all

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<v Speaker 1>of them elsewhere. Is he sort of threatened to do

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

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<v Speaker 1>one aspect of this is like, you know, we've talked

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<v Speaker 1>a lot about Delaware courts clying back. His compensation still

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<v Speaker 1>kind of being litigated, and you know he sort of said,

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<v Speaker 1>you know that if I had an extra fifty billion

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<v Speaker 1>dollars a Tesla stuck, I'd be more motivated to do

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<v Speaker 1>stuff within Tesla. But if he gets fired, less motivated,

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<v Speaker 1>you quin.

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<v Speaker 2>To phreeze for this. What was it? Was it like

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<v Speaker 2>the Elon attention auction?

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<v Speaker 1>Yeah? Right, Like if you are an investor or a

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<v Speaker 1>director at one of Elon's companies, the more of his

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<v Speaker 1>attention you get, the more valuable the company is, right,

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<v Speaker 1>And like you see that particularly with Tesla now or

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<v Speaker 1>like they get less of his attention, thought goes down

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<v Speaker 1>a lot, and like partly because they want more of

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<v Speaker 1>his attention and partly because when he directs his attention elsewhere,

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<v Speaker 1>it's like bad for pr But how do you get

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<v Speaker 1>that attention? The normal way is to give him stuff

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<v Speaker 1>like a big pay package, but some amount of threatening

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<v Speaker 1>it's also possibility. I know that it's threatening exactly, but

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<v Speaker 1>you had as a board have some amount of independence

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<v Speaker 1>and maturity where you can say to the CEO, Hey,

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<v Speaker 1>it would be nice if you shut up to work.

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<v Speaker 2>Yeah, maybe swipe your badge now, and then should we

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<v Speaker 2>talk about some debt?

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<v Speaker 1>Yeah about x X.

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<v Speaker 2>Finally sold.

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<v Speaker 1>Yeah. Like a lot of people probably including me, in

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<v Speaker 1>like twenty twenty three, like this is like one of

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<v Speaker 1>the worst leverage biots ever. In like early twenty twenty three,

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<v Speaker 1>you look at this and you're like, okay, Like Elon

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<v Speaker 1>Musk overpaid for a company. Twitter was not a traditional

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<v Speaker 1>leverage biot company because it didn't have great cash flow.

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<v Speaker 1>It wasn't like a you know, money spinner. It was

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<v Speaker 1>a you know, social media company that didn't make a

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<v Speaker 1>lot of money. And so Elon mus decided to buy

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<v Speaker 1>it and the leveraged buyout and he got thirteen billion

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<v Speaker 1>dollars over of the DIT, which is a lot of

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<v Speaker 1>debt for Twitter. And then after he gret to buy it,

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<v Speaker 1>everyone agreed, including him, that he was overpaying for it,

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<v Speaker 1>and he tried to get out of it by saying

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<v Speaker 1>Twitter is a big fraud. And by the time the

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<v Speaker 1>deal closed, it looked like a very unpleasant deal to

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<v Speaker 1>finance and the banks that finance that couldn't sell or

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<v Speaker 1>didn't selve the dietage presumaly because there's not much market

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<v Speaker 1>for it. And I don't think they ever marked it

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<v Speaker 1>down formally, but like the equity investors marked down their

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<v Speaker 1>equity a lot, and there were you know, news stories

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<v Speaker 1>saying that, like the banks were getting offers like fifty

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<v Speaker 1>cents on the dollar, so it looks like they'd lost

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<v Speaker 1>billions of dollars underwriting the Twitter deal and three years later,

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<v Speaker 1>two years later, they've sold held the data like you

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<v Speaker 1>know around bar Like the most reason slug was like

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<v Speaker 1>ninety eighth on's on the dollar. They got paid big

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<v Speaker 1>interest payments over that time period because like there was

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<v Speaker 1>you know, expensive debts, So they've made an accounting profit

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<v Speaker 1>on the deal. I made an economic profit on the deal,

0:11:20.480 --> 0:11:23.760
<v Speaker 1>and they also like coz it up with Elon Musk

0:11:23.840 --> 0:11:26.800
<v Speaker 1>and now probably get financing work for Xai, which is

0:11:26.840 --> 0:11:27.640
<v Speaker 1>a giant company.

0:11:27.800 --> 0:11:30.080
<v Speaker 2>I love it because if you just held onto this

0:11:30.160 --> 0:11:32.880
<v Speaker 2>debt and kind of ignored it for three years, you

0:11:32.960 --> 0:11:34.760
<v Speaker 2>made out fine, but it came with a lot of

0:11:34.840 --> 0:11:35.880
<v Speaker 2>emotional turmoil.

0:11:36.559 --> 0:11:38.480
<v Speaker 1>It's something I think about a lot, right, like the

0:11:39.040 --> 0:11:41.640
<v Speaker 1>you know, the pitch for private markets is you don't

0:11:41.640 --> 0:11:45.760
<v Speaker 1>have so much emotional turmoil, right, And the individuals who

0:11:45.800 --> 0:11:48.240
<v Speaker 1>like underwrote the X debt, they did a great decision

0:11:48.240 --> 0:11:49.560
<v Speaker 1>for their banks. They made a lot of money, but

0:11:49.640 --> 0:11:52.000
<v Speaker 1>like some of them got fired in the interim because

0:11:52.040 --> 0:11:55.600
<v Speaker 1>it looked like a terrible decision. And the journal story

0:11:55.600 --> 0:11:58.080
<v Speaker 1>about that selling the last slug of the ex debt

0:11:58.720 --> 0:12:02.559
<v Speaker 1>says the lega the hung debt might have longer term implications.

0:12:03.120 --> 0:12:05.480
<v Speaker 1>X and other hung loans prompted pay cuts and an

0:12:05.480 --> 0:12:08.680
<v Speaker 1>exodus of bankers. They also forced some banks to pull

0:12:08.720 --> 0:12:10.679
<v Speaker 1>back on lending, which gave room for competitors and the

0:12:10.679 --> 0:12:13.040
<v Speaker 1>booming private credit space to muscle it. So it's like,

0:12:13.200 --> 0:12:15.040
<v Speaker 1>did Elon Musk invent private credit?

0:12:15.200 --> 0:12:18.040
<v Speaker 2>Not really, but like kind of like perhaps you did.

0:12:18.160 --> 0:12:20.280
<v Speaker 1>Will the story of private credit be like yeah, and

0:12:20.320 --> 0:12:22.720
<v Speaker 1>then Elon Musk hung a debt deal and so everyone

0:12:22.760 --> 0:12:24.439
<v Speaker 1>had to you know, the banks had to stop lending,

0:12:24.480 --> 0:12:26.600
<v Speaker 1>and so private credit got to get into the game.

0:12:26.600 --> 0:12:28.920
<v Speaker 1>Because it's true, like there was a big uptick in

0:12:28.960 --> 0:12:32.480
<v Speaker 1>private credit because banks did pull back because there's a

0:12:32.520 --> 0:12:35.920
<v Speaker 1>string of hung loans. Yeah, and this was the big one.

0:12:36.040 --> 0:12:37.560
<v Speaker 2>I kind of traced a lot of the boom that

0:12:37.559 --> 0:12:39.800
<v Speaker 2>we saw in private credit to the collapse of Silicon

0:12:39.920 --> 0:12:43.200
<v Speaker 2>Valley Bank, but MOBE the whole time it was just xtet,

0:12:43.240 --> 0:12:44.600
<v Speaker 2>you know, in like the.

0:12:44.640 --> 0:12:48.040
<v Speaker 1>LBO space, like the banks that did LBO lending, you

0:12:48.080 --> 0:12:50.319
<v Speaker 1>have like a small balance sheet for LBO lending, and

0:12:50.360 --> 0:12:52.000
<v Speaker 1>you have to turn it over a lot by selling

0:12:52.000 --> 0:12:55.000
<v Speaker 1>all your loans. And if you stick thirteen billion dollars

0:12:55.000 --> 0:12:57.080
<v Speaker 1>of loans on your LBO balance sheet, you can't do

0:12:57.080 --> 0:12:58.400
<v Speaker 1>any more loans, and so you know, you have to

0:12:58.440 --> 0:12:59.240
<v Speaker 1>let private credit do it.

0:12:59.360 --> 0:13:03.680
<v Speaker 2>Yeah, So you wrote that perhaps Elon Musk created private credit,

0:13:03.760 --> 0:13:05.760
<v Speaker 2>and perhaps he did. But when I read that, my

0:13:05.840 --> 0:13:08.280
<v Speaker 2>initial thought was to think about the psyche. You know

0:13:08.320 --> 0:13:10.920
<v Speaker 2>what we're talking about the private markets. Investing in private markets,

0:13:10.960 --> 0:13:13.760
<v Speaker 2>it's supposed to take out the emotional turmoil. Because I

0:13:13.800 --> 0:13:15.880
<v Speaker 2>was thinking about the past month and the equity markets,

0:13:16.080 --> 0:13:18.080
<v Speaker 2>and the S and P five hundred in April actually

0:13:18.080 --> 0:13:21.640
<v Speaker 2>amazingly was only down about seven eight tenths of a percent,

0:13:22.000 --> 0:13:25.160
<v Speaker 2>which is nothing. That's like the smallest move on a

0:13:25.160 --> 0:13:27.079
<v Speaker 2>monthly basis that we've seen a long time. But that

0:13:27.120 --> 0:13:30.760
<v Speaker 2>came with so much handwringing. It came with so much

0:13:30.840 --> 0:13:34.280
<v Speaker 2>volatility that you could watch second to second that you

0:13:34.320 --> 0:13:35.959
<v Speaker 2>asked someone how they felt at the end of April,

0:13:36.000 --> 0:13:39.560
<v Speaker 2>they would probably say that was crazy. But that mentality

0:13:39.600 --> 0:13:41.200
<v Speaker 2>of you know, if you just close your eyes for

0:13:41.240 --> 0:13:43.720
<v Speaker 2>three years, you made out great on this XTT. You

0:13:43.720 --> 0:13:46.000
<v Speaker 2>didn't have to think about it. But obviously it wasn't

0:13:46.040 --> 0:13:48.480
<v Speaker 2>actually private credit, so those banks probably thought about it

0:13:48.520 --> 0:13:48.960
<v Speaker 2>a lot.

0:13:49.440 --> 0:13:52.240
<v Speaker 1>One selling point of private assets is that they have

0:13:52.320 --> 0:13:55.680
<v Speaker 1>lower volatility, and if you think about that for a second,

0:13:55.679 --> 0:13:58.800
<v Speaker 1>it can't really be true. But what is true is

0:13:58.800 --> 0:14:00.680
<v Speaker 1>that you don't mark them to market its frequently, and

0:14:00.679 --> 0:14:03.240
<v Speaker 1>so you can't know how volatile they are, unlike a

0:14:03.360 --> 0:14:06.640
<v Speaker 1>sort of like theoretical value. And so it is true

0:14:06.640 --> 0:14:08.640
<v Speaker 1>that because you don't mark them to market it is frequently,

0:14:08.720 --> 0:14:11.320
<v Speaker 1>you don't have to be as emotionally upset about them.

0:14:11.559 --> 0:14:13.320
<v Speaker 1>And so friend of the Pod Cliff as This has

0:14:13.320 --> 0:14:17.360
<v Speaker 1>written about this that like there is an actual value

0:14:17.400 --> 0:14:20.480
<v Speaker 1>from having private assets because if you are if you're

0:14:20.520 --> 0:14:23.160
<v Speaker 1>a human who might be prone to panic and sell

0:14:23.160 --> 0:14:25.520
<v Speaker 1>when things are low, or if you're like an institutional

0:14:25.520 --> 0:14:29.440
<v Speaker 1>allocator who has like some rule where you know, if

0:14:29.440 --> 0:14:30.840
<v Speaker 1>you have a big draw down you have to sell,

0:14:30.920 --> 0:14:32.680
<v Speaker 1>or something like that, you know like some of the

0:14:32.680 --> 0:14:37.680
<v Speaker 1>institutional structures of investing can like replicate irrational panic reader,

0:14:37.720 --> 0:14:40.560
<v Speaker 1>email me about this, Like to the extent that the

0:14:40.600 --> 0:14:43.760
<v Speaker 1>public markets are dominated by like multi strategy hedge funds,

0:14:43.760 --> 0:14:46.400
<v Speaker 1>who's like one of their salient features is that if

0:14:46.400 --> 0:14:48.640
<v Speaker 1>you have a ten percent drat on, you're fired. Like

0:14:49.160 --> 0:14:53.640
<v Speaker 1>that like creates potential bad incentives where you have months

0:14:53.720 --> 0:14:56.680
<v Speaker 1>like this where you have five percent drite out every

0:14:56.680 --> 0:15:00.480
<v Speaker 1>other day but nothing happens, right, Like you could have

0:15:00.600 --> 0:15:04.600
<v Speaker 1>like selling it the worst times because you are exposed

0:15:04.680 --> 0:15:06.600
<v Speaker 1>to volatility that you can see, whereas if you had

0:15:06.640 --> 0:15:08.600
<v Speaker 1>assets that you can't see the volatility of, you can

0:15:08.640 --> 0:15:11.040
<v Speaker 1>just like, yeah, that's great. And if like the volatility

0:15:11.080 --> 0:15:13.560
<v Speaker 1>is mostly you know, washed out, then yeah, that works

0:15:13.600 --> 0:15:14.600
<v Speaker 1>out better for you in the long run.

0:15:14.680 --> 0:15:17.160
<v Speaker 2>I wonder how you quantify human emotion, though.

0:15:17.040 --> 0:15:20.680
<v Speaker 1>Intuitively, one way you quantify it is that you think, well,

0:15:20.680 --> 0:15:23.440
<v Speaker 1>in the long run, private assets and public assets should

0:15:23.440 --> 0:15:28.680
<v Speaker 1>have like the same returns arguably, and if like ninety

0:15:28.680 --> 0:15:32.880
<v Speaker 1>percent of the volatility in public markets washes out, then

0:15:32.920 --> 0:15:35.920
<v Speaker 1>like that was all emotional volatility rather than real volatility.

0:15:36.360 --> 0:15:39.000
<v Speaker 1>That's really not quite right. But like, yeah, this is

0:15:39.040 --> 0:15:39.720
<v Speaker 1>the first.

0:15:39.480 --> 0:15:41.960
<v Speaker 2>Cat like can design a factor around that and then

0:15:42.440 --> 0:15:43.560
<v Speaker 2>somehow launching EUTF.

0:15:46.080 --> 0:15:51.160
<v Speaker 1>Let's see, there's also a Bloomberg report that XAI isn't

0:15:51.160 --> 0:15:53.880
<v Speaker 1>talks to raise twenty billion dollars of equity, which would

0:15:53.920 --> 0:15:57.400
<v Speaker 1>be like the second biggest startup fundraise.

0:15:56.960 --> 0:15:59.520
<v Speaker 2>Ever, second only to Open Eye.

0:16:01.040 --> 0:16:02.840
<v Speaker 1>One of the uses of proceeds might be to pay

0:16:02.880 --> 0:16:05.880
<v Speaker 1>down the debt. It's a little unclear how much money

0:16:05.960 --> 0:16:08.760
<v Speaker 1>Twitter is making. I mean x like the ex portion

0:16:08.840 --> 0:16:11.320
<v Speaker 1>of XII the social media company. But it's not like

0:16:11.360 --> 0:16:16.640
<v Speaker 1>a great business style, and businesses are still like pretty speculative,

0:16:16.800 --> 0:16:19.280
<v Speaker 1>hugely capital and tons of businesses, So you don't really

0:16:19.320 --> 0:16:21.200
<v Speaker 1>want to spend a billion dollars a year on debt

0:16:21.240 --> 0:16:24.920
<v Speaker 1>service if you're a company like that. And so it

0:16:24.960 --> 0:16:26.440
<v Speaker 1>looks like they can get rid of the debt by

0:16:26.520 --> 0:16:29.600
<v Speaker 1>raising twenty billion dollars of equity. Not only did this

0:16:29.720 --> 0:16:32.520
<v Speaker 1>that all get sold, but also it might get like

0:16:32.600 --> 0:16:37.720
<v Speaker 1>paid back at par early, and like I think that,

0:16:37.800 --> 0:16:40.480
<v Speaker 1>Like the message is that it's fairly expensive to raise

0:16:40.520 --> 0:16:44.400
<v Speaker 1>debt for a social media company and like incredibly cheap

0:16:44.480 --> 0:16:47.800
<v Speaker 1>to raise equity for a AI company, right, Like you

0:16:47.840 --> 0:16:50.440
<v Speaker 1>can raise billions of dollars of equity at one hundred

0:16:50.440 --> 0:16:53.520
<v Speaker 1>billion dollar valuations if you're a cool AI company, and so, like,

0:16:53.680 --> 0:17:13.639
<v Speaker 1>you know, they're correcting the capital structure. Speaking of the

0:17:13.680 --> 0:17:15.240
<v Speaker 1>appeal of private markets, go.

0:17:15.280 --> 0:17:18.160
<v Speaker 2>On Group and KKR.

0:17:18.560 --> 0:17:20.680
<v Speaker 1>Well everyone, I mean right, so there there's a story

0:17:20.680 --> 0:17:23.440
<v Speaker 1>this speak about Capital Group and KKR teaming up to

0:17:23.520 --> 0:17:28.159
<v Speaker 1>launch mixed public private debt funds, which is like a

0:17:28.200 --> 0:17:32.479
<v Speaker 1>fund that's like sixty percent public bonds and loans and

0:17:32.520 --> 0:17:35.959
<v Speaker 1>forty percent drag lending and other private credit stuff. So

0:17:36.000 --> 0:17:40.800
<v Speaker 1>it's a public private credit fund. And you know, Capital

0:17:40.880 --> 0:17:44.000
<v Speaker 1>is a big mutual fund manager that I believe sells

0:17:44.119 --> 0:17:46.800
<v Speaker 1>through financial advisors, and so like you know, if you

0:17:46.840 --> 0:17:48.520
<v Speaker 1>have a financial advisor, they might be like, oh, you

0:17:48.520 --> 0:17:51.560
<v Speaker 1>should put your money in this Capital mutual fund. And

0:17:51.600 --> 0:17:53.359
<v Speaker 1>now the financial advisor can say, oh, you should put

0:17:53.400 --> 0:17:56.560
<v Speaker 1>your money in this Capital slash KKR public private fund,

0:17:57.400 --> 0:18:01.399
<v Speaker 1>and yeah, that's like the way of the near future.

0:18:01.440 --> 0:18:04.879
<v Speaker 1>I think. Bloomberg reported yesterday that State Street and Carlisle

0:18:05.240 --> 0:18:06.440
<v Speaker 1>are in similar.

0:18:06.080 --> 0:18:09.440
<v Speaker 2>Talks, which is interesting because State Street, you know, has

0:18:09.440 --> 0:18:11.000
<v Speaker 2>this partnership with Apollo as well.

0:18:11.400 --> 0:18:14.280
<v Speaker 1>Yeah, but like the private managers are kind of they're

0:18:14.320 --> 0:18:17.480
<v Speaker 1>providing paper and then like these big asset managers are yeah,

0:18:17.520 --> 0:18:19.600
<v Speaker 1>we'll sell lots of that paper. I think I agree

0:18:19.600 --> 0:18:21.520
<v Speaker 1>that it's a little weird because they are like partnerships

0:18:21.600 --> 0:18:24.639
<v Speaker 1>rather than like, yeah, pure like issuers. But yeah, Capital

0:18:24.640 --> 0:18:27.320
<v Speaker 1>and KKR, State Street and everybody.

0:18:27.640 --> 0:18:31.000
<v Speaker 2>That's just this week you also had Blackstone, Vanguard and

0:18:31.080 --> 0:18:35.360
<v Speaker 2>Wellington team up and some jv to launch these sort

0:18:35.359 --> 0:18:35.920
<v Speaker 2>of products.

0:18:36.000 --> 0:18:38.240
<v Speaker 1>And the other thing that there is is Morgan Stanley

0:18:38.320 --> 0:18:40.720
<v Speaker 1>this week in Goldman a couple of weeks ago, launched

0:18:41.040 --> 0:18:46.720
<v Speaker 1>private wealth thingies where it's like their own alts businesses,

0:18:46.760 --> 0:18:49.400
<v Speaker 1>their own private credit businesses or private aquity businesses. I'm

0:18:49.440 --> 0:18:51.760
<v Speaker 1>going to sell some paper to like they're not like

0:18:52.359 --> 0:18:54.720
<v Speaker 1>pure retail, but like they're you know, High night Worth

0:18:55.440 --> 0:18:58.040
<v Speaker 1>retail ish private health clients. And so there's a lot

0:18:58.080 --> 0:19:03.280
<v Speaker 1>of emphasis everywhere in private credit and private equity managers. Yeah,

0:19:03.320 --> 0:19:06.480
<v Speaker 1>to sell to individuals, right, because like historically this has

0:19:06.480 --> 0:19:10.040
<v Speaker 1>been a business where they raise money from institutional allocators

0:19:10.080 --> 0:19:14.679
<v Speaker 1>and now they're like so big that they need to

0:19:14.880 --> 0:19:18.200
<v Speaker 1>tap trillions of dollars of individual wealth. And so there's

0:19:18.200 --> 0:19:21.000
<v Speaker 1>just a lot of talk about like putting private credit

0:19:21.000 --> 0:19:24.840
<v Speaker 1>and private equity into for one ks, and like target

0:19:24.920 --> 0:19:28.840
<v Speaker 1>date funds and ETFs and retail financial advisors and so

0:19:28.960 --> 0:19:30.400
<v Speaker 1>this is like the big push.

0:19:30.440 --> 0:19:32.680
<v Speaker 2>So when you and I were discussing what to talk

0:19:32.680 --> 0:19:35.040
<v Speaker 2>about today, I call this sort of like the evergreen

0:19:35.080 --> 0:19:37.199
<v Speaker 2>story because we're talking about Capitol Group and KKR this

0:19:37.280 --> 0:19:39.080
<v Speaker 2>tie up. But it just feels like we're going to

0:19:39.080 --> 0:19:40.840
<v Speaker 2>see more of these And you talk about that push

0:19:40.920 --> 0:19:43.960
<v Speaker 2>because they want to open up and raise trillions of

0:19:44.000 --> 0:19:46.920
<v Speaker 2>dollars from retail investors. I mean, it just seems that

0:19:46.960 --> 0:19:49.480
<v Speaker 2>this is like the inevitable march forward. We could talk

0:19:49.480 --> 0:19:50.760
<v Speaker 2>about this story every single week.

0:19:50.840 --> 0:19:53.080
<v Speaker 1>Yeah, oh we will. And it's interesting, you know, you say,

0:19:53.160 --> 0:19:56.520
<v Speaker 1>like March forward. Like my like cynical take on this

0:19:57.000 --> 0:20:01.040
<v Speaker 1>is that people solve the problem of investors, right, Like

0:20:01.520 --> 0:20:03.680
<v Speaker 1>it's a dispariting solution, right, But it's like you buy

0:20:03.680 --> 0:20:07.480
<v Speaker 1>all the companies and like black Rock or Vanguard will

0:20:07.520 --> 0:20:09.720
<v Speaker 1>do that for you because it's a useful service for

0:20:09.760 --> 0:20:12.840
<v Speaker 1>them to provide and they will charge you three basis points. Right,

0:20:13.119 --> 0:20:15.359
<v Speaker 1>buy all the companies and then you own the market

0:20:15.440 --> 0:20:17.520
<v Speaker 1>and no one's going to beat the market for you.

0:20:17.720 --> 0:20:20.760
<v Speaker 1>And getting the market return with lofis is the right

0:20:20.760 --> 0:20:23.080
<v Speaker 1>way to do it. And like there's lots of reasons subjective,

0:20:23.119 --> 0:20:24.760
<v Speaker 1>but it's like it kind of is a first cut,

0:20:24.800 --> 0:20:26.920
<v Speaker 1>like the solution, and a lot of people believe that

0:20:27.480 --> 0:20:29.600
<v Speaker 1>for plausible reasons. And so like a lot of people,

0:20:29.800 --> 0:20:32.640
<v Speaker 1>you know, put their money in intoex ETFs. And if

0:20:32.680 --> 0:20:37.480
<v Speaker 1>you are Wellington or Capital and you're in the business

0:20:37.600 --> 0:20:41.919
<v Speaker 1>of long only public equity management, you've had a good

0:20:42.359 --> 0:20:45.159
<v Speaker 1>fifty one hundred year run. But like that business is

0:20:45.240 --> 0:20:47.399
<v Speaker 1>really hard right now. It's really hard to sell an

0:20:47.440 --> 0:20:50.680
<v Speaker 1>actively managed mutual fund through financial advisors because people are, yeah,

0:20:50.680 --> 0:20:53.600
<v Speaker 1>there's self tright to you know, account buy s and

0:20:53.640 --> 0:20:56.120
<v Speaker 1>p five hundred etf right and pay three basis points.

0:20:55.920 --> 0:20:57.440
<v Speaker 2>Instead of several dozens.

0:20:57.640 --> 0:20:58.960
<v Speaker 1>You know, you used to pay like two percent for

0:20:59.000 --> 0:21:00.720
<v Speaker 1>a mutual fund for like that those days are long

0:21:00.800 --> 0:21:05.639
<v Speaker 1>dat and so how do you address that? The universal

0:21:05.680 --> 0:21:09.080
<v Speaker 1>answer is private markets? Yeah, and like what does that mean?

0:21:09.480 --> 0:21:11.040
<v Speaker 1>What it means? It's like you see like kind of

0:21:11.040 --> 0:21:14.840
<v Speaker 1>medium sized companies, youngish medium sized companies would go public

0:21:15.080 --> 0:21:17.760
<v Speaker 1>and now like companies stay private longer and grow bigger

0:21:17.760 --> 0:21:21.560
<v Speaker 1>in private markets, and and like why is that? Like

0:21:21.560 --> 0:21:23.160
<v Speaker 1>there are a lot of good reasons for it, right,

0:21:23.240 --> 0:21:25.600
<v Speaker 1>There's a lot of capital in private markets, it's much less.

0:21:25.800 --> 0:21:27.800
<v Speaker 1>It's mcual. We're convenient to be private than to have

0:21:27.840 --> 0:21:31.360
<v Speaker 1>to deal with earnings calls and SEC report and share

0:21:31.480 --> 0:21:33.040
<v Speaker 1>their lawsuits and.

0:21:32.119 --> 0:21:34.360
<v Speaker 2>All the boring staff.

0:21:34.440 --> 0:21:36.199
<v Speaker 1>Like short sell. There's a lot of stuff that companies

0:21:36.240 --> 0:21:38.520
<v Speaker 1>don't like about being public. But I also do think

0:21:38.560 --> 0:21:40.800
<v Speaker 1>that like if you're like, yeah, if you're like a

0:21:40.800 --> 0:21:43.960
<v Speaker 1>big private company, you go talk to like investors or

0:21:44.840 --> 0:21:48.280
<v Speaker 1>banks and you're like, hey, should I go public? They're like, no,

0:21:48.560 --> 0:21:51.000
<v Speaker 1>stay private, and like why well, this, like the financially

0:21:51.000 --> 0:21:53.480
<v Speaker 1>intermediates makes so much more money in private markets than

0:21:53.520 --> 0:21:55.960
<v Speaker 1>in public markets. In some ways, it feels like a

0:21:56.240 --> 0:21:58.520
<v Speaker 1>step backward in progress, right, Like, in some ways it

0:21:58.560 --> 0:22:02.440
<v Speaker 1>feels like what's happening here is that public markets are

0:22:02.880 --> 0:22:07.399
<v Speaker 1>so cheap and efficient for some definition of efficient that

0:22:07.600 --> 0:22:09.320
<v Speaker 1>it is kind of no fun to be an investor

0:22:09.359 --> 0:22:12.359
<v Speaker 1>in the public markets. And so all these investment firms

0:22:12.400 --> 0:22:15.800
<v Speaker 1>are like, how do we get more stuff that isn't

0:22:16.040 --> 0:22:19.680
<v Speaker 1>just like ruthlessly indexed and charges three asis plants, and

0:22:19.840 --> 0:22:21.760
<v Speaker 1>like the answers like more private stuff.

0:22:21.920 --> 0:22:23.840
<v Speaker 2>Yeah, I'm trying to just said what is the chicken

0:22:23.920 --> 0:22:26.160
<v Speaker 2>and what is the egg? Because like there's two things happening.

0:22:26.200 --> 0:22:29.080
<v Speaker 1>I mean, you're all self reinforcing. Just one thing started.

0:22:29.200 --> 0:22:30.720
<v Speaker 2>But yeah, what do you call when the snake is

0:22:30.760 --> 0:22:31.840
<v Speaker 2>eating itself.

0:22:31.880 --> 0:22:36.480
<v Speaker 1>Robbers roborusus roboris. Yeah, that sounds good.

0:22:36.640 --> 0:22:39.440
<v Speaker 2>Well, what I'm trying to say, you have you know,

0:22:39.560 --> 0:22:41.600
<v Speaker 2>the capitol groups and the Wellingtons of the world. They

0:22:41.680 --> 0:22:44.600
<v Speaker 2>want to tap into retail investors because we've solved the

0:22:44.640 --> 0:22:47.000
<v Speaker 2>problem of investing and here's a new thing you can do.

0:22:47.119 --> 0:22:49.639
<v Speaker 2>And then here's the other force, is that you have

0:22:49.720 --> 0:22:52.919
<v Speaker 2>all these cool, interesting companies that are small that are

0:22:52.960 --> 0:22:55.960
<v Speaker 2>staying private for longer, partly because the funding is there.

0:22:56.000 --> 0:22:58.320
<v Speaker 2>You mentioned all the annoying things, but there's also like

0:22:58.400 --> 0:23:00.560
<v Speaker 2>there's ways to access funding. You don't need to go

0:23:00.640 --> 0:23:02.879
<v Speaker 2>public anymore. And I guess that's the snake.

0:23:03.160 --> 0:23:05.440
<v Speaker 1>Oh yeah, absolutely. And also the other thing is there

0:23:05.560 --> 0:23:08.119
<v Speaker 1>is retail demand for this, like yeah, it's not just

0:23:08.200 --> 0:23:10.840
<v Speaker 1>like the issues like it and the intermediaries like the

0:23:11.040 --> 0:23:13.720
<v Speaker 1>retail coastors. Yeah, I get to own cool private companies, right. Yeah.

0:23:13.760 --> 0:23:17.399
<v Speaker 1>There is this perception based in fact that the highest

0:23:17.480 --> 0:23:20.360
<v Speaker 1>growing companies are in the private.

0:23:20.119 --> 0:23:22.440
<v Speaker 2>Markets Stripe, SpaceX. Yeah.

0:23:22.480 --> 0:23:24.560
<v Speaker 1>And then also on the credit side, because a company

0:23:24.680 --> 0:23:27.520
<v Speaker 1>what you're getting in private credit is like a certain

0:23:27.520 --> 0:23:30.280
<v Speaker 1>amount of like flexibility and structuring and a certain amount

0:23:30.280 --> 0:23:32.680
<v Speaker 1>of certainty, and you're paying for that with higher interest rates.

0:23:32.720 --> 0:23:34.240
<v Speaker 1>And so if you're a retail client and you're like,

0:23:34.520 --> 0:23:35.879
<v Speaker 1>I can have a bond fund, or I can have

0:23:35.960 --> 0:23:38.040
<v Speaker 1>a private credit fund that pays ANXT one hundred and

0:23:38.040 --> 0:23:39.960
<v Speaker 1>fifty basis plant, it's like, why not do the private credit.

0:23:40.440 --> 0:23:43.119
<v Speaker 1>So there's some reality to the idea that private markets

0:23:43.160 --> 0:23:45.600
<v Speaker 1>have higher returns, and so you should invest in private markets.

0:23:45.880 --> 0:23:48.440
<v Speaker 2>God, I had something to say and it just flirted away,

0:23:48.960 --> 0:23:51.040
<v Speaker 2>it went private. Yeah, I can't access it.

0:23:51.280 --> 0:23:52.920
<v Speaker 1>Did I tell you that at Disney World I saw

0:23:53.359 --> 0:23:53.720
<v Speaker 1>a snake?

0:23:53.840 --> 0:23:56.120
<v Speaker 2>We haven't talked at all about your trip to Disney World? Yeah,

0:23:56.160 --> 0:23:56.560
<v Speaker 2>how was it?

0:23:57.280 --> 0:23:57.440
<v Speaker 1>Oh?

0:23:57.520 --> 0:23:59.520
<v Speaker 2>I remember what I wanted to say? Should I say it?

0:23:59.680 --> 0:23:59.880
<v Speaker 1>Yeah?

0:24:00.240 --> 0:24:03.359
<v Speaker 2>A mailbag question we got about adverse selection. Yeah, this

0:24:03.560 --> 0:24:06.560
<v Speaker 2>was in relation to private credit euts. But you know,

0:24:06.720 --> 0:24:10.359
<v Speaker 2>the cynical suspicion that the private manager was just going

0:24:10.400 --> 0:24:12.920
<v Speaker 2>to dump all their not so great stuff into these

0:24:13.040 --> 0:24:13.800
<v Speaker 2>retail funds.

0:24:14.320 --> 0:24:17.480
<v Speaker 1>Yeah, there's always like some hierarchy of like if you

0:24:17.560 --> 0:24:20.200
<v Speaker 1>are a private investment manager running a bunch of different

0:24:20.240 --> 0:24:24.240
<v Speaker 1>things like you'll have a natural inclination to allocate the

0:24:24.359 --> 0:24:27.680
<v Speaker 1>very best things to your personal account, the next best

0:24:27.720 --> 0:24:30.239
<v Speaker 1>things to the accounts of the important clients to pay

0:24:30.240 --> 0:24:32.560
<v Speaker 1>you the highest fees, and like the worst things you know,

0:24:32.960 --> 0:24:35.119
<v Speaker 1>to the retail clients to pay your eighty basis funds. Right,

0:24:35.560 --> 0:24:37.800
<v Speaker 1>But there are a lot of like things to counteract

0:24:37.840 --> 0:24:41.920
<v Speaker 1>that tendency, like regulation and like you know, the conflict

0:24:41.960 --> 0:24:44.199
<v Speaker 1>committees of these firms, and like, you know, a lot

0:24:44.280 --> 0:24:47.000
<v Speaker 1>of the stuff is like sort of vertical slices of everything.

0:24:47.080 --> 0:24:50.640
<v Speaker 1>So it's like, I wouldn't you know, like you can't

0:24:50.680 --> 0:24:52.840
<v Speaker 1>really have this business where like you take the best

0:24:52.920 --> 0:24:54.520
<v Speaker 1>loans and you put them in your private credit fund,

0:24:54.520 --> 0:24:56.280
<v Speaker 1>and you take the worst loans and you stuff them

0:24:56.320 --> 0:24:59.280
<v Speaker 1>into the public private fund for retail. And also the

0:24:59.359 --> 0:25:02.159
<v Speaker 1>partnerships guard against that a little bit, where like the

0:25:02.200 --> 0:25:04.920
<v Speaker 1>straight streets and capitals of the world have incentives to

0:25:05.200 --> 0:25:07.040
<v Speaker 1>negotiate to get the good loans rather than just the

0:25:07.080 --> 0:25:07.520
<v Speaker 1>bad ones.

0:25:07.720 --> 0:25:10.560
<v Speaker 2>Yeah, they're doing due diligence and the like, But I

0:25:10.600 --> 0:25:10.840
<v Speaker 2>don't know.

0:25:10.880 --> 0:25:12.840
<v Speaker 1>I mean, if you're like a private credit manager, like

0:25:12.880 --> 0:25:15.879
<v Speaker 1>your job is to like make good loans and then

0:25:16.040 --> 0:25:19.640
<v Speaker 1>like you fund them with like a sort of undifferentiated

0:25:19.720 --> 0:25:21.800
<v Speaker 1>pool of like the money that you get from, you know,

0:25:21.840 --> 0:25:22.800
<v Speaker 1>wherever you get it from.

0:25:23.000 --> 0:25:25.000
<v Speaker 2>Cool, So maybe we shouldn't worry.

0:25:25.080 --> 0:25:26.920
<v Speaker 1>It's not highest on my list of worries. Are we

0:25:27.000 --> 0:25:29.679
<v Speaker 1>gonna like talk about an sec in force for nationalting

0:25:29.720 --> 0:25:32.439
<v Speaker 1>at someone who, like, you know, adversely selected their retail

0:25:32.480 --> 0:25:33.760
<v Speaker 1>fun maybe one day.

0:25:34.160 --> 0:25:36.440
<v Speaker 2>Six or twelve months perhaps the sort of thing.

0:25:36.760 --> 0:25:39.040
<v Speaker 1>We're not we're talking about it not in sixty twelve,

0:25:40.480 --> 0:25:40.879
<v Speaker 1>three and a.

0:25:40.880 --> 0:25:44.280
<v Speaker 2>Half years, three and a half years, you know, when

0:25:44.320 --> 0:25:46.840
<v Speaker 2>we're on episode whatever, Yeah, we're.

0:25:46.680 --> 0:25:52.840
<v Speaker 1>Sorry, we're not talking. Sorry, And that was The Money

0:25:52.880 --> 0:25:53.600
<v Speaker 1>Stuff Podcast.

0:25:53.800 --> 0:25:55.800
<v Speaker 2>I'm Matt Levi and I'm Katie Gal.

0:25:56.160 --> 0:25:58.200
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0:26:02.800 --> 0:26:06.159
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0:26:21.720 --> 0:26:23.159
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0:26:25.320 --> 0:26:27.960
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0:26:30.160 --> 0:26:33.359
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0:26:33.440 --> 0:26:35.760
<v Speaker 1>to the Money Stuff Podcast. We'll be back next week

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<v Speaker 1>with more stuff