Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: The Money Stuff Podcast, your weekly podcast where we talk
Speaker 1: about stuff related to money. I'm Matt Levine, and I
Speaker 1: write the Money Stuff column for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television. Elon Musk, when was the
Speaker 2: last time we talked about this man?
Speaker 1: More than a week ago? Yes, I think I'm probably lying.
Speaker 2: It's been a minute. It's been a minute. Let's talk
Speaker 2: about him. We've talked about the Elon Musk premium before
Speaker 2: that's been built into the stock of Tesla. I've asked
Speaker 2: the question, I mean, does Tesla still need Elon Musk?
Speaker 2: It sounds like the board was, according to the Wall
Speaker 2: Street Journal, was also asking that question.
Speaker 1: There's two very distinct questions, which are like, does Tesla
Speaker 1: the car company benefit from having Elon Musk a CEO?
Speaker 1: There's the question of like does Tesla the multi hundred
Speaker 1: billion dollar stock benefits from having Elon Musk a CEO?
Speaker 1: I think those questions have very different answers, right, Like,
Speaker 1: I think that if you were like, hey, here's this company,
Speaker 1: that's selling cars, and it's CEO is in the business
Speaker 1: of like making the people who buy its cars hate
Speaker 1: him and also not paying any attention to the company
Speaker 1: because he's doing ten different other things. You might be like, hey,
Speaker 1: let's get a new CEO. But like, then, if you
Speaker 1: like the stock and you think about what would happen
Speaker 1: to the stock if Elon Musk wasn't the CEO, I
Speaker 1: think it would go down.
Speaker 2: Yeah, it's funny because if we were talking about a
Speaker 2: normal company with a very distracted CEO, of course you
Speaker 2: would expect that the board would be, you know, engaging
Speaker 2: firms to help look for a new CEO. Tesla obviously
Speaker 2: is not a normal company, and this is a special situation.
Speaker 1: Right, And I should say that Tesla has denied reports
Speaker 1: that it's looking for a new CEO. Right. The Also
Speaker 1: Journal reported that some members of the board had reached
Speaker 1: out to executive search forms. So you can sort of
Speaker 1: square that circle by saying, yeah, some board members are
Speaker 1: curious about the possibility of a new CEO, but there's
Speaker 1: not a formal process by the board to engage a
Speaker 1: search farm. Right, It's like somewhere in between. But right,
Speaker 1: even though it's not a normal company, you would think
Speaker 1: that the board, when faced with this extremely distracted CEO,
Speaker 1: would look into a new CEO, even if they don't
Speaker 1: want a new CEO, just to be like, hey, buddy,
Speaker 1: could you spend a little more time with Tesla? Like,
Speaker 1: I think that it's very clear that the board would
Speaker 1: like him to spend more time with Tesla, and the
Speaker 1: shareholders would like to spend more time with Tesla, and
Speaker 1: probably the customers and many voters in the United States
Speaker 1: would all like them to spend more time with Tesla.
Speaker 1: So as a way to put pressure on him to
Speaker 1: spend more time with Tesla, like, does this work? Maybe?
Speaker 2: I mean, we know that investors want him to spend
Speaker 2: more time with Tesla because after the earnings call in
Speaker 2: which he said I'm going to spend more time with Tesla,
Speaker 2: significantly more time starting in May, the stock popped. Yeah,
Speaker 2: so the reaction was clear. But I don't know, you
Speaker 2: think about the timing of this Wall Street Journal report
Speaker 2: when they were asking this question and potentially, you know,
Speaker 2: talking with firms about initiating a search. It seems like
Speaker 2: that happened before that Erness call where Elon Musk said that, So, yeah, I.
Speaker 1: Mean there's been conversations with him about spending more time
Speaker 1: with Tesla. Yeah, I think he's like, this is not
Speaker 1: an all or nothing decision, right. The model is kind
Speaker 1: of Twitter, where Elon Musk bought Twitter. He installed himself
Speaker 1: as the CEO for a minute, and then eventually, after
Speaker 1: a flurry of activity, appointed Lindy Akarina as the CEO.
Speaker 1: Now everyone kind of assumed that he was calling the
Speaker 1: shots at X even though she was the CEO. But like,
Speaker 1: you unload some of the responsibilities onto the CEO who
Speaker 1: like runs the thing day to day, and then you're
Speaker 1: like the visionary kibbitzer and like, you know, I wrote
Speaker 1: this week that's not like already has that model where
Speaker 1: Elon Musk's title at Tesla embarrassingly or technically techno King
Speaker 1: and CEO he's the techno King.
Speaker 2: Didn't realize that.
Speaker 1: Oh yeah, it's happened a while. He's happened in like
Speaker 1: twenty twenty one and he was named the Techno King
Speaker 1: and the CFI was named the Master of Coin.
Speaker 2: Now it's coming back to me.
Speaker 1: Everyone blocks it out because it's really embarrassing, but it's
Speaker 1: still you know, you still look at the filings it's
Speaker 1: a techno king. Wow, And so you could split those rules.
Speaker 1: He was once the chairman of the board as well
Speaker 1: as the CEO, as many powerful CEOs are, and then
Speaker 1: he had to stop being the chairman of the board
Speaker 1: because he got in trouble with the SEC. But he's
Speaker 1: now the techno king and CEO. So you can split
Speaker 1: those roles too and leave him as the techno king,
Speaker 1: make someone else the CEO. And like I think in
Speaker 1: that split, like the CEO runs the car company and
Speaker 1: the techno king is the guy who's like, we're gonna
Speaker 1: build human eyed robots.
Speaker 2: We're doing the AI stuff, doing the AI stuff. Yeah.
Speaker 2: Another suggestion that I've seen in terms of how you know,
Speaker 2: the structure could work at Tesla. I forget who exactly
Speaker 2: suggested this, but someone from the cell side, so that
Speaker 2: maybe he could become chairman again and just be chairman.
Speaker 1: Yeah, But like in the traditional division of public company responsibility,
Speaker 1: as the chairman who is in charge of the board
Speaker 1: as a fiducia responsibility and overseas management is not quite
Speaker 1: what he wants, and the CEO who runs the company
Speaker 1: as a full time job is not quite what I
Speaker 1: think techner king is a good description of what he
Speaker 1: wants to be, which is he wants that absolute power,
Speaker 1: be like focused on tech stuff and not have the
Speaker 1: sort of full time day to day responsibilities of either
Speaker 1: a CEO or a chairman.
Speaker 2: That's true. I will say it kind of reminds me
Speaker 2: of micro Strategy to an extent, because Michael Saylor founded
Speaker 2: micro Strategy, who is the CEO for a long long time.
Speaker 2: He stepped down from being CEO and now I believe
Speaker 2: he's just chairman.
Speaker 1: So that's a common thing. But I do think that
Speaker 1: I do think that micro Strategy and Tesla are sort
Speaker 1: of at opposite ends of like business complexity, like Mega
Speaker 1: Strategy in the business of buying bitcoin and putting them
Speaker 1: in a pub.
Speaker 2: Hear me out they actually have thousands of employees, because.
Speaker 1: That's not all I understand.
Speaker 2: That they're somewhat similar in that, Okay, Tesla is a
Speaker 2: car company that also has this like AI stuff happening
Speaker 2: with it. Micro Strategy is nominally a software company. Couldn't
Speaker 2: tell you more than that, but then they have this
Speaker 2: whole other thing on top of it, which is just
Speaker 2: buying bitcoin and bitcoin. I think that micro Strategy is
Speaker 2: known for the thing on top of it, whereas Tesla
Speaker 2: is still known for primarily being a car company.
Speaker 1: Yeah. See, that's where I'm not sure. Like, like I
Speaker 1: think that a lot of people would say that the
Speaker 1: thing that Tesla does day to day is a car company.
Speaker 1: It makes cars and sells cars, but the thing that
Speaker 1: it is known for is being an MS company, and
Speaker 1: particularly the thing that like drives its stock market evaluation
Speaker 1: is not the current cash list from cars, but like
Speaker 1: the future projections of We're going to build humanoid robots
Speaker 1: and like be like the world's leading robotics and a company,
Speaker 1: and like be like pioneers and some driving cars and
Speaker 1: like all this stuff that Elon mus promises, and like
Speaker 1: the journal story about the board looking Elsewhere also mentioned
Speaker 1: some texts that Musk sent to someone close to him
Speaker 1: saying that he no longer wanted to be CEO of Tesla,
Speaker 1: but he was worried that no one could replace him
Speaker 1: atop the company and sell the vision that Tesla isn't
Speaker 1: just an automaker, but the future of robotics and automation
Speaker 1: as well. I think that's right, right, Like, if you
Speaker 1: got like a car person in to run it as
Speaker 1: a car company, it's much harder to sell that vision.
Speaker 1: The problem is not just that Elon Musk is a
Speaker 1: good salesman for that vision, and if you put someone
Speaker 1: else in charge, you wouldn't have that good salesmanship. There's
Speaker 1: also the problem that, like Elon Musk does a lot
Speaker 1: of stuff, and if someone else was running Tesla, then
Speaker 1: when he wakes up in the morning and has an
Speaker 1: idea for robotics stuff, he is more likely to do
Speaker 1: it somewhere else. Right, he owns like six companies, He
Speaker 1: can always start more companies. If he wants to do
Speaker 1: the future of robotics somewhere else, he kind of just can.
Speaker 1: Leaving him as the CEO of Tesla ties him a
Speaker 1: little bit more closely to Tesla and makes and more
Speaker 1: likely to do futuristic stuff within Tesla as opposed to
Speaker 1: at SpaceX of the boring company or in a new
Speaker 1: company or XII or XAI. And if there were just
Speaker 1: like a coup, if the board was like, we're sick
Speaker 1: of you, you're fired, We're getting a new CEO, that
Speaker 1: would be really bad for Tesla. You know, he has
Speaker 1: like a million things that he's doing, he'd do all
Speaker 1: of them elsewhere. Is he sort of threatened to do
Speaker 1: if he didn't get paid enough from Tesla. Right, Like,
Speaker 1: one aspect of this is like, you know, we've talked
Speaker 1: a lot about Delaware courts clying back. His compensation still
Speaker 1: kind of being litigated, and you know he sort of said,
Speaker 1: you know that if I had an extra fifty billion
Speaker 1: dollars a Tesla stuck, I'd be more motivated to do
Speaker 1: stuff within Tesla. But if he gets fired, less motivated,
Speaker 1: you quin.
Speaker 2: To phreeze for this. What was it? Was it like
Speaker 2: the Elon attention auction?
Speaker 1: Yeah? Right, Like if you are an investor or a
Speaker 1: director at one of Elon's companies, the more of his
Speaker 1: attention you get, the more valuable the company is, right,
Speaker 1: And like you see that particularly with Tesla now or
Speaker 1: like they get less of his attention, thought goes down
Speaker 1: a lot, and like partly because they want more of
Speaker 1: his attention and partly because when he directs his attention elsewhere,
Speaker 1: it's like bad for pr But how do you get
Speaker 1: that attention? The normal way is to give him stuff
Speaker 1: like a big pay package, but some amount of threatening
Speaker 1: it's also possibility. I know that it's threatening exactly, but
Speaker 1: you had as a board have some amount of independence
Speaker 1: and maturity where you can say to the CEO, Hey,
Speaker 1: it would be nice if you shut up to work.
Speaker 2: Yeah, maybe swipe your badge now, and then should we
Speaker 2: talk about some debt?
Speaker 1: Yeah about x X.
Speaker 2: Finally sold.
Speaker 1: Yeah. Like a lot of people probably including me, in
Speaker 1: like twenty twenty three, like this is like one of
Speaker 1: the worst leverage biots ever. In like early twenty twenty three,
Speaker 1: you look at this and you're like, okay, Like Elon
Speaker 1: Musk overpaid for a company. Twitter was not a traditional
Speaker 1: leverage biot company because it didn't have great cash flow.
Speaker 1: It wasn't like a you know, money spinner. It was
Speaker 1: a you know, social media company that didn't make a
Speaker 1: lot of money. And so Elon mus decided to buy
Speaker 1: it and the leveraged buyout and he got thirteen billion
Speaker 1: dollars over of the DIT, which is a lot of
Speaker 1: debt for Twitter. And then after he gret to buy it,
Speaker 1: everyone agreed, including him, that he was overpaying for it,
Speaker 1: and he tried to get out of it by saying
Speaker 1: Twitter is a big fraud. And by the time the
Speaker 1: deal closed, it looked like a very unpleasant deal to
Speaker 1: finance and the banks that finance that couldn't sell or
Speaker 1: didn't selve the dietage presumaly because there's not much market
Speaker 1: for it. And I don't think they ever marked it
Speaker 1: down formally, but like the equity investors marked down their
Speaker 1: equity a lot, and there were you know, news stories
Speaker 1: saying that, like the banks were getting offers like fifty
Speaker 1: cents on the dollar, so it looks like they'd lost
Speaker 1: billions of dollars underwriting the Twitter deal and three years later,
Speaker 1: two years later, they've sold held the data like you
Speaker 1: know around bar Like the most reason slug was like
Speaker 1: ninety eighth on's on the dollar. They got paid big
Speaker 1: interest payments over that time period because like there was
Speaker 1: you know, expensive debts, So they've made an accounting profit
Speaker 1: on the deal. I made an economic profit on the deal,
Speaker 1: and they also like coz it up with Elon Musk
Speaker 1: and now probably get financing work for Xai, which is
Speaker 1: a giant company.
Speaker 2: I love it because if you just held onto this
Speaker 2: debt and kind of ignored it for three years, you
Speaker 2: made out fine, but it came with a lot of
Speaker 2: emotional turmoil.
Speaker 1: It's something I think about a lot, right, like the
Speaker 1: you know, the pitch for private markets is you don't
Speaker 1: have so much emotional turmoil, right, And the individuals who
Speaker 1: like underwrote the X debt, they did a great decision
Speaker 1: for their banks. They made a lot of money, but
Speaker 1: like some of them got fired in the interim because
Speaker 1: it looked like a terrible decision. And the journal story
Speaker 1: about that selling the last slug of the ex debt
Speaker 1: says the lega the hung debt might have longer term implications.
Speaker 1: X and other hung loans prompted pay cuts and an
Speaker 1: exodus of bankers. They also forced some banks to pull
Speaker 1: back on lending, which gave room for competitors and the
Speaker 1: booming private credit space to muscle it. So it's like,
Speaker 1: did Elon Musk invent private credit?
Speaker 2: Not really, but like kind of like perhaps you did.
Speaker 1: Will the story of private credit be like yeah, and
Speaker 1: then Elon Musk hung a debt deal and so everyone
Speaker 1: had to you know, the banks had to stop lending,
Speaker 1: and so private credit got to get into the game.
Speaker 1: Because it's true, like there was a big uptick in
Speaker 1: private credit because banks did pull back because there's a
Speaker 1: string of hung loans. Yeah, and this was the big one.
Speaker 2: I kind of traced a lot of the boom that
Speaker 2: we saw in private credit to the collapse of Silicon
Speaker 2: Valley Bank, but MOBE the whole time it was just xtet,
Speaker 2: you know, in like the.
Speaker 1: LBO space, like the banks that did LBO lending, you
Speaker 1: have like a small balance sheet for LBO lending, and
Speaker 1: you have to turn it over a lot by selling
Speaker 1: all your loans. And if you stick thirteen billion dollars
Speaker 1: of loans on your LBO balance sheet, you can't do
Speaker 1: any more loans, and so you know, you have to
Speaker 1: let private credit do it.
Speaker 2: Yeah, So you wrote that perhaps Elon Musk created private credit,
Speaker 2: and perhaps he did. But when I read that, my
Speaker 2: initial thought was to think about the psyche. You know
Speaker 2: what we're talking about the private markets. Investing in private markets,
Speaker 2: it's supposed to take out the emotional turmoil. Because I
Speaker 2: was thinking about the past month and the equity markets,
Speaker 2: and the S and P five hundred in April actually
Speaker 2: amazingly was only down about seven eight tenths of a percent,
Speaker 2: which is nothing. That's like the smallest move on a
Speaker 2: monthly basis that we've seen a long time. But that
Speaker 2: came with so much handwringing. It came with so much
Speaker 2: volatility that you could watch second to second that you
Speaker 2: asked someone how they felt at the end of April,
Speaker 2: they would probably say that was crazy. But that mentality
Speaker 2: of you know, if you just close your eyes for
Speaker 2: three years, you made out great on this XTT. You
Speaker 2: didn't have to think about it. But obviously it wasn't
Speaker 2: actually private credit, so those banks probably thought about it
Speaker 2: a lot.
Speaker 1: One selling point of private assets is that they have
Speaker 1: lower volatility, and if you think about that for a second,
Speaker 1: it can't really be true. But what is true is
Speaker 1: that you don't mark them to market its frequently, and
Speaker 1: so you can't know how volatile they are, unlike a
Speaker 1: sort of like theoretical value. And so it is true
Speaker 1: that because you don't mark them to market it is frequently,
Speaker 1: you don't have to be as emotionally upset about them.
Speaker 1: And so friend of the Pod Cliff as This has
Speaker 1: written about this that like there is an actual value
Speaker 1: from having private assets because if you are if you're
Speaker 1: a human who might be prone to panic and sell
Speaker 1: when things are low, or if you're like an institutional
Speaker 1: allocator who has like some rule where you know, if
Speaker 1: you have a big draw down you have to sell,
Speaker 1: or something like that, you know like some of the
Speaker 1: institutional structures of investing can like replicate irrational panic reader,
Speaker 1: email me about this, Like to the extent that the
Speaker 1: public markets are dominated by like multi strategy hedge funds,
Speaker 1: who's like one of their salient features is that if
Speaker 1: you have a ten percent drat on, you're fired. Like
Speaker 1: that like creates potential bad incentives where you have months
Speaker 1: like this where you have five percent drite out every
Speaker 1: other day but nothing happens, right, Like you could have
Speaker 1: like selling it the worst times because you are exposed
Speaker 1: to volatility that you can see, whereas if you had
Speaker 1: assets that you can't see the volatility of, you can
Speaker 1: just like, yeah, that's great. And if like the volatility
Speaker 1: is mostly you know, washed out, then yeah, that works
Speaker 1: out better for you in the long run.
Speaker 2: I wonder how you quantify human emotion, though.
Speaker 1: Intuitively, one way you quantify it is that you think, well,
Speaker 1: in the long run, private assets and public assets should
Speaker 1: have like the same returns arguably, and if like ninety
Speaker 1: percent of the volatility in public markets washes out, then
Speaker 1: like that was all emotional volatility rather than real volatility.
Speaker 1: That's really not quite right. But like, yeah, this is
Speaker 1: the first.
Speaker 2: Cat like can design a factor around that and then
Speaker 2: somehow launching EUTF.
Speaker 1: Let's see, there's also a Bloomberg report that XAI isn't
Speaker 1: talks to raise twenty billion dollars of equity, which would
Speaker 1: be like the second biggest startup fundraise.
Speaker 2: Ever, second only to Open Eye.
Speaker 1: One of the uses of proceeds might be to pay
Speaker 1: down the debt. It's a little unclear how much money
Speaker 1: Twitter is making. I mean x like the ex portion
Speaker 1: of XII the social media company. But it's not like
Speaker 1: a great business style, and businesses are still like pretty speculative,
Speaker 1: hugely capital and tons of businesses, So you don't really
Speaker 1: want to spend a billion dollars a year on debt
Speaker 1: service if you're a company like that. And so it
Speaker 1: looks like they can get rid of the debt by
Speaker 1: raising twenty billion dollars of equity. Not only did this
Speaker 1: that all get sold, but also it might get like
Speaker 1: paid back at par early, and like I think that,
Speaker 1: Like the message is that it's fairly expensive to raise
Speaker 1: debt for a social media company and like incredibly cheap
Speaker 1: to raise equity for a AI company, right, Like you
Speaker 1: can raise billions of dollars of equity at one hundred
Speaker 1: billion dollar valuations if you're a cool AI company, and so, like,
Speaker 1: you know, they're correcting the capital structure. Speaking of the
Speaker 1: appeal of private markets, go.
Speaker 2: On Group and KKR.
Speaker 1: Well everyone, I mean right, so there there's a story
Speaker 1: this speak about Capital Group and KKR teaming up to
Speaker 1: launch mixed public private debt funds, which is like a
Speaker 1: fund that's like sixty percent public bonds and loans and
Speaker 1: forty percent drag lending and other private credit stuff. So
Speaker 1: it's a public private credit fund. And you know, Capital
Speaker 1: is a big mutual fund manager that I believe sells
Speaker 1: through financial advisors, and so like you know, if you
Speaker 1: have a financial advisor, they might be like, oh, you
Speaker 1: should put your money in this Capital mutual fund. And
Speaker 1: now the financial advisor can say, oh, you should put
Speaker 1: your money in this Capital slash KKR public private fund,
Speaker 1: and yeah, that's like the way of the near future.
Speaker 1: I think. Bloomberg reported yesterday that State Street and Carlisle
Speaker 1: are in similar.
Speaker 2: Talks, which is interesting because State Street, you know, has
Speaker 2: this partnership with Apollo as well.
Speaker 1: Yeah, but like the private managers are kind of they're
Speaker 1: providing paper and then like these big asset managers are yeah,
Speaker 1: we'll sell lots of that paper. I think I agree
Speaker 1: that it's a little weird because they are like partnerships
Speaker 1: rather than like, yeah, pure like issuers. But yeah, Capital
Speaker 1: and KKR, State Street and everybody.
Speaker 2: That's just this week you also had Blackstone, Vanguard and
Speaker 2: Wellington team up and some jv to launch these sort
Speaker 2: of products.
Speaker 1: And the other thing that there is is Morgan Stanley
Speaker 1: this week in Goldman a couple of weeks ago, launched
Speaker 1: private wealth thingies where it's like their own alts businesses,
Speaker 1: their own private credit businesses or private aquity businesses. I'm
Speaker 1: going to sell some paper to like they're not like
Speaker 1: pure retail, but like they're you know, High night Worth
Speaker 1: retail ish private health clients. And so there's a lot
Speaker 1: of emphasis everywhere in private credit and private equity managers. Yeah,
Speaker 1: to sell to individuals, right, because like historically this has
Speaker 1: been a business where they raise money from institutional allocators
Speaker 1: and now they're like so big that they need to
Speaker 1: tap trillions of dollars of individual wealth. And so there's
Speaker 1: just a lot of talk about like putting private credit
Speaker 1: and private equity into for one ks, and like target
Speaker 1: date funds and ETFs and retail financial advisors and so
Speaker 1: this is like the big push.
Speaker 2: So when you and I were discussing what to talk
Speaker 2: about today, I call this sort of like the evergreen
Speaker 2: story because we're talking about Capitol Group and KKR this
Speaker 2: tie up. But it just feels like we're going to
Speaker 2: see more of these And you talk about that push
Speaker 2: because they want to open up and raise trillions of
Speaker 2: dollars from retail investors. I mean, it just seems that
Speaker 2: this is like the inevitable march forward. We could talk
Speaker 2: about this story every single week.
Speaker 1: Yeah, oh we will. And it's interesting, you know, you say,
Speaker 1: like March forward. Like my like cynical take on this
Speaker 1: is that people solve the problem of investors, right, Like
Speaker 1: it's a dispariting solution, right, But it's like you buy
Speaker 1: all the companies and like black Rock or Vanguard will
Speaker 1: do that for you because it's a useful service for
Speaker 1: them to provide and they will charge you three basis points. Right,
Speaker 1: buy all the companies and then you own the market
Speaker 1: and no one's going to beat the market for you.
Speaker 1: And getting the market return with lofis is the right
Speaker 1: way to do it. And like there's lots of reasons subjective,
Speaker 1: but it's like it kind of is a first cut,
Speaker 1: like the solution, and a lot of people believe that
Speaker 1: for plausible reasons. And so like a lot of people,
Speaker 1: you know, put their money in intoex ETFs. And if
Speaker 1: you are Wellington or Capital and you're in the business
Speaker 1: of long only public equity management, you've had a good
Speaker 1: fifty one hundred year run. But like that business is
Speaker 1: really hard right now. It's really hard to sell an
Speaker 1: actively managed mutual fund through financial advisors because people are, yeah,
Speaker 1: there's self tright to you know, account buy s and
Speaker 1: p five hundred etf right and pay three basis points.
Speaker 2: Instead of several dozens.
Speaker 1: You know, you used to pay like two percent for
Speaker 1: a mutual fund for like that those days are long
Speaker 1: dat and so how do you address that? The universal
Speaker 1: answer is private markets? Yeah, and like what does that mean?
Speaker 1: What it means? It's like you see like kind of
Speaker 1: medium sized companies, youngish medium sized companies would go public
Speaker 1: and now like companies stay private longer and grow bigger
Speaker 1: in private markets, and and like why is that? Like
Speaker 1: there are a lot of good reasons for it, right,
Speaker 1: There's a lot of capital in private markets, it's much less.
Speaker 1: It's mcual. We're convenient to be private than to have
Speaker 1: to deal with earnings calls and SEC report and share
Speaker 1: their lawsuits and.
Speaker 2: All the boring staff.
Speaker 1: Like short sell. There's a lot of stuff that companies
Speaker 1: don't like about being public. But I also do think
Speaker 1: that like if you're like, yeah, if you're like a
Speaker 1: big private company, you go talk to like investors or
Speaker 1: banks and you're like, hey, should I go public? They're like, no,
Speaker 1: stay private, and like why well, this, like the financially
Speaker 1: intermediates makes so much more money in private markets than
Speaker 1: in public markets. In some ways, it feels like a
Speaker 1: step backward in progress, right, Like, in some ways it
Speaker 1: feels like what's happening here is that public markets are
Speaker 1: so cheap and efficient for some definition of efficient that
Speaker 1: it is kind of no fun to be an investor
Speaker 1: in the public markets. And so all these investment firms
Speaker 1: are like, how do we get more stuff that isn't
Speaker 1: just like ruthlessly indexed and charges three asis plants, and
Speaker 1: like the answers like more private stuff.
Speaker 2: Yeah, I'm trying to just said what is the chicken
Speaker 2: and what is the egg? Because like there's two things happening.
Speaker 1: I mean, you're all self reinforcing. Just one thing started.
Speaker 2: But yeah, what do you call when the snake is
Speaker 2: eating itself.
Speaker 1: Robbers roborusus roboris. Yeah, that sounds good.
Speaker 2: Well, what I'm trying to say, you have you know,
Speaker 2: the capitol groups and the Wellingtons of the world. They
Speaker 2: want to tap into retail investors because we've solved the
Speaker 2: problem of investing and here's a new thing you can do.
Speaker 2: And then here's the other force, is that you have
Speaker 2: all these cool, interesting companies that are small that are
Speaker 2: staying private for longer, partly because the funding is there.
Speaker 2: You mentioned all the annoying things, but there's also like
Speaker 2: there's ways to access funding. You don't need to go
Speaker 2: public anymore. And I guess that's the snake.
Speaker 1: Oh yeah, absolutely. And also the other thing is there
Speaker 1: is retail demand for this, like yeah, it's not just
Speaker 1: like the issues like it and the intermediaries like the
Speaker 1: retail coastors. Yeah, I get to own cool private companies, right. Yeah.
Speaker 1: There is this perception based in fact that the highest
Speaker 1: growing companies are in the private.
Speaker 2: Markets Stripe, SpaceX. Yeah.
Speaker 1: And then also on the credit side, because a company
Speaker 1: what you're getting in private credit is like a certain
Speaker 1: amount of like flexibility and structuring and a certain amount
Speaker 1: of certainty, and you're paying for that with higher interest rates.
Speaker 1: And so if you're a retail client and you're like,
Speaker 1: I can have a bond fund, or I can have
Speaker 1: a private credit fund that pays ANXT one hundred and
Speaker 1: fifty basis plant, it's like, why not do the private credit.
Speaker 1: So there's some reality to the idea that private markets
Speaker 1: have higher returns, and so you should invest in private markets.
Speaker 2: God, I had something to say and it just flirted away,
Speaker 2: it went private. Yeah, I can't access it.
Speaker 1: Did I tell you that at Disney World I saw
Speaker 1: a snake?
Speaker 2: We haven't talked at all about your trip to Disney World? Yeah,
Speaker 2: how was it?
Speaker 1: Oh?
Speaker 2: I remember what I wanted to say? Should I say it?
Speaker 1: Yeah?
Speaker 2: A mailbag question we got about adverse selection. Yeah, this
Speaker 2: was in relation to private credit euts. But you know,
Speaker 2: the cynical suspicion that the private manager was just going
Speaker 2: to dump all their not so great stuff into these
Speaker 2: retail funds.
Speaker 1: Yeah, there's always like some hierarchy of like if you
Speaker 1: are a private investment manager running a bunch of different
Speaker 1: things like you'll have a natural inclination to allocate the
Speaker 1: very best things to your personal account, the next best
Speaker 1: things to the accounts of the important clients to pay
Speaker 1: you the highest fees, and like the worst things you know,
Speaker 1: to the retail clients to pay your eighty basis funds. Right,
Speaker 1: But there are a lot of like things to counteract
Speaker 1: that tendency, like regulation and like you know, the conflict
Speaker 1: committees of these firms, and like, you know, a lot
Speaker 1: of the stuff is like sort of vertical slices of everything.
Speaker 1: So it's like, I wouldn't you know, like you can't
Speaker 1: really have this business where like you take the best
Speaker 1: loans and you put them in your private credit fund,
Speaker 1: and you take the worst loans and you stuff them
Speaker 1: into the public private fund for retail. And also the
Speaker 1: partnerships guard against that a little bit, where like the
Speaker 1: straight streets and capitals of the world have incentives to
Speaker 1: negotiate to get the good loans rather than just the
Speaker 1: bad ones.
Speaker 2: Yeah, they're doing due diligence and the like, But I
Speaker 2: don't know.
Speaker 1: I mean, if you're like a private credit manager, like
Speaker 1: your job is to like make good loans and then
Speaker 1: like you fund them with like a sort of undifferentiated
Speaker 1: pool of like the money that you get from, you know,
Speaker 1: wherever you get it from.
Speaker 2: Cool, So maybe we shouldn't worry.
Speaker 1: It's not highest on my list of worries. Are we
Speaker 1: gonna like talk about an sec in force for nationalting
Speaker 1: at someone who, like, you know, adversely selected their retail
Speaker 1: fun maybe one day.
Speaker 2: Six or twelve months perhaps the sort of thing.
Speaker 1: We're not we're talking about it not in sixty twelve,
Speaker 1: three and a.
Speaker 2: Half years, three and a half years, you know, when
Speaker 2: we're on episode whatever, Yeah, we're.
Speaker 1: Sorry, we're not talking. Sorry, And that was The Money
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