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Speaker 2: I'm trying to buy a house.
Speaker 1: Yeah, it's the nesting instinct.
Speaker 2: Things in Hoboken, New Jersey. They just get wet because
Speaker 2: the city is below sea level. I'm exaggerating, but only slightly.
Speaker 2: And you know, mold is a problem, and remediation of
Speaker 2: mold is a problem, and it's like, what are we
Speaker 2: going to do? I don't know, meate that mold, I know,
Speaker 2: and that's gonna cost money. And this whole thing, it's
Speaker 2: gonna cost money in time. Why does anyone own a house?
Speaker 1: I asked myself that question every day. Yeah, but I
Speaker 1: want to on an apartment, but I don't own a house.
Speaker 1: Every mediate mold check for raid On.
Speaker 2: Yeah, we checked for Raidon too. There's no freight on
Speaker 2: oh Neat Yeah. Yeah, that's cool.
Speaker 1: The whole thing.
Speaker 2: This is a place that we live in for like
Speaker 2: five to seven years. Okay, in five to seven years,
Speaker 2: I'm going to try to sell this bag of snakes. Yeah,
Speaker 2: same way it was sold to Mate. But at least,
Speaker 2: you know, I'm with my good friend Matt Levine and
Speaker 2: there's microphones in front of us.
Speaker 1: Yeah, I have no bags of snakes to sell you. Hello,
Speaker 1: and welcome to the money Stuff Podcast. Youreicly podcast. Are
Speaker 1: we talking about stuff without it? To Bunny the money?
Speaker 2: Funny funny Bunny stuff.
Speaker 1: Funny money, money stuff. And I write the Matt Levine column.
Speaker 2: This is very silly. I'm I'm just Katie Greifeld. I'm
Speaker 2: a reporter for Bloomberg News and an anchor for Bloomberg Television.
Speaker 1: To the snakes. Ye Bill Ackman, founder of Pershing Square,
Speaker 1: the lads fund management firm closed un fund management firm,
Speaker 1: also has been talking for like two years about taking
Speaker 1: a big new closed end fund public. It's called the
Speaker 1: Pershing Square USA or ps US, and I feel like
Speaker 1: this time too years ago, it was going to be
Speaker 1: a twenty five billion dollar clothes und fund, and it
Speaker 1: was going to trade it a premium, unlike most other
Speaker 1: clothes und funds, including notably like Ben's other clothes then
Speaker 1: fund for sure, And you really had to trade it
Speaker 1: a premion to like get a twenty five billion dollar
Speaker 1: IPO done, You really have to think that the thing
Speaker 1: will trade up. No one did, so that IPO didn't happen,
Speaker 1: And he came back last month with like, what we're
Speaker 1: going to do is We're going to give you free
Speaker 1: shares of the management company person to square, the Hedgelinde
Speaker 1: management firm, and with those free shares, that'll be enough
Speaker 1: incentive for you to buy the clothes Unfund shares and
Speaker 1: then the whole thing will work. And it worked. Yeah,
Speaker 1: they went public dual ipo both ps the Hedgeho management
Speaker 1: company and PSUs the clothes Und Fund. They went public
Speaker 1: this week. They started trading Wednesday. They raised five billion
Speaker 1: dollars for the clothes Und Fund, which you can now
Speaker 1: put to work investing in large cap public companies and
Speaker 1: uber credit.
Speaker 2: Hues Hi. I have a few questions. I guess I
Speaker 2: just keep coming back to the point. I mean, you
Speaker 2: think about before we get to.
Speaker 1: Too many questions. Yeah, yeah, talking about So they did
Speaker 1: go public PSUs so two o'clock on Thursday.
Speaker 2: Yeah.
Speaker 1: PSUs was trading at like forty three point fifty last
Speaker 1: night checked.
Speaker 2: So sounds right.
Speaker 1: Not a prem to net ascid value, no meaningful discount
Speaker 1: to net asset money.
Speaker 2: It did close a bigger discount on once.
Speaker 1: Yeah, it's up a bit today. Yeah, it closed down
Speaker 1: like sort of twenty percent. Yeah, from that asset It
Speaker 1: closed forty two ish and now it's at forty three
Speaker 1: and change. So you know, yeah, well below that ass
Speaker 1: that value.
Speaker 2: I mean, it just seems extremely hard to defy the
Speaker 2: physics of closed un funds.
Speaker 1: Sure, I agree, I should stress that spent years being
Speaker 1: like you know, in twenty twenty four, he wrote in
Speaker 1: a letter, it requires a significant leap of faith and
Speaker 1: ultimately careful analysis and judgment for investors to recognize that
Speaker 1: this closed end company will trade at a prim master
Speaker 1: the IPI, when very few in history have done so. Yeah,
Speaker 1: careful analysis, not careful enough. So yeah, so that traded down.
Speaker 1: You know, the management company is trading it like twenty
Speaker 1: nine bucks a share, thirty bucks a share, which if
Speaker 1: you bought in the IPO, you got one share of
Speaker 1: piece of PSUs and one fifth of a share of
Speaker 1: Pershing Square. Right, so if you do the math, you
Speaker 1: got about like forty three bucks worth of the clothes
Speaker 1: on fund and about six bucks worth of the management company.
Speaker 1: So you lost a little bit of money as of
Speaker 1: now on the IPI. Yeah, it's down from the IPI price,
Speaker 1: but it's not catastrophically done. Yeah up, No, normally IPOs.
Speaker 2: Go up normally, I mean ideally, Yeah, to the closed
Speaker 2: end funds. He did say yesterday that there are hundreds
Speaker 2: of close und funds, but they are very different animals
Speaker 2: from what we are doing over time. We're going to
Speaker 2: compound the book value if we do anything like we've
Speaker 2: done in the past, at a high rate over time,
Speaker 2: and we're going to run it like a real company.
Speaker 2: I guess I just struggle to understand how this animal
Speaker 2: looks different than the other animals that are out there
Speaker 2: when it comes to close un funds. His eyes, Yeah, true, true.
Speaker 1: His twitter, Yeah right, everyone who runs a clothes un
Speaker 1: fund would like to compound it. Yeah, at a high rate.
Speaker 2: I'm sure that's what he would have wanted to do
Speaker 2: in Europe as well, where his clothing fund is trading
Speaker 2: at a discount.
Speaker 1: And compose at a high rate. But yeah, like the
Speaker 1: actual investing tracker, it is good.
Speaker 2: Yeah, Yeah, it just feels it feels yeah, it feels
Speaker 2: disconnected from the trading dynamics of the actual structure. The
Speaker 2: structure is interesting in that I really want him to
Speaker 2: launch an ETF. I know he's not going to launch
Speaker 2: an UTF the discount problem would be solved, but it
Speaker 2: feels like that's a detail for him since he wants
Speaker 2: the permanent capital.
Speaker 1: It's not just that, like, yeah, like he wants it
Speaker 1: to be a company, like he wants it to be
Speaker 1: Berkshire halfway. Well, like if you can just be redeemed
Speaker 1: at any moment, and like you're dealing with Jane Street arbitrage,
Speaker 1: Like it's not the same thing. Yeah, he wants to
Speaker 1: have a permanent company with permanent capital where you can
Speaker 1: make permanent investments.
Speaker 2: It's the Warren Buffett comparison that I also have a
Speaker 2: lot of questions about, because how does the Howard Hughes
Speaker 2: of it all fold into this?
Speaker 1: I've never understood that. Yes, Howard Hughes is a real company,
Speaker 1: but he owns a big stake in it's the offered
Speaker 1: to acquire more of it, would like to control it
Speaker 1: and use it as a platform to make investments. And
Speaker 1: then severally there's a closing fund.
Speaker 2: I don't know, So, yeah, how do those two co exist?
Speaker 2: Are you going to compete with yourself? I mean probably not,
Speaker 2: but it seems like you're trying to do the same
Speaker 2: thing through two different Yeah.
Speaker 1: I'm sure he has a plan, but I don't know
Speaker 1: that it's that super well explained.
Speaker 2: Yeah, Like why would I buy shares of Howard Hughes
Speaker 2: and support your vision there. If you're also doing it
Speaker 2: in the closed up fund.
Speaker 1: It's probably a different vision, slightly different vision.
Speaker 2: I want to know what it is.
Speaker 1: Yeah, I don't care. I'm going to say attitude, the
Speaker 1: grandiosity with which started and the sort of fizzle with
Speaker 1: which is sort of when public is a little disappointing,
Speaker 1: Like this is gonna be a twenty five billion dollar
Speaker 1: clothes in fund, the trades at a premium. Now it's
Speaker 1: a five billion dollar clothes in fund. The trades at
Speaker 1: are discounts. Like, okay, thing is the normal thing happened?
Speaker 1: Someone got really mad about this. This IPO sort of
Speaker 1: took place in two phases. He rounded up a bunch
Speaker 1: of anchor investors, institutions and family offices in highlight while
Speaker 1: worth individuals who invested, who like committed their capital before
Speaker 1: the IPO. They sorted like an anchor to like do
Speaker 1: the IPI. They're like, we've already got like two point
Speaker 1: eight million dollars of capital spoken for, so the thing,
Speaker 1: will you know, have enough money? Those people got a
Speaker 1: little bit extra in the IPO instead of getting one
Speaker 1: fifth of a share of Pershing square for every share
Speaker 1: of pieces they got, they got three tenths of a share,
Speaker 1: so they got an extra like fifty percent of the
Speaker 1: management company. And someone emailed me like a weeko being like,
Speaker 1: it's so unfair that like the favored fat cats get
Speaker 1: more than like the regular investors are buying the IPO.
Speaker 1: Was like, look, like it's always true that. Yeah, venture
Speaker 1: capitalists who invest in the last round before an IPO
Speaker 1: get you know, a better deal than people invest in
Speaker 1: the IPO. That's not that weird, but it is kind
Speaker 1: of there. You're paying these people to anchor the deal
Speaker 1: and make sure it happens. But it is the case
Speaker 1: that like, as of like the prices right now, that
Speaker 1: people who invested before the IPO have made a little
Speaker 1: bit of a profit on the deal. People invested in
Speaker 1: the IPO have lost a little bit of money in
Speaker 1: the deal. It's a little awkward. Yeah, word that, Like
Speaker 1: that's the dividing one, Like you split that perfectly where
Speaker 1: the favorite investors did well and the disabored investors did poorly.
Speaker 2: Yeah, I do wonder we've talked about this before. I
Speaker 2: also wonder when it comes to the management company, like
Speaker 2: what is the motivation to go public. There's so few
Speaker 2: publicly listed hedge funds. Man Group is the one that
Speaker 2: springs to mind for me. I just wonder.
Speaker 1: Why, Well, I feel like the number one reason is
Speaker 1: to get this close un fund one. Yeah right, Like
Speaker 1: as I've written a lot, like you just can't get
Speaker 1: the clothes on fund because it's well feasible.
Speaker 2: But if you soon got to twenty twenty fours, like
Speaker 2: they weren't connected, they were going to be to separate.
Speaker 2: I know, but I feel like you're outside.
Speaker 1: They were talking about doing an IPO. Yeah, yeah, no,
Speaker 1: I mean I think it's the same reason anyone takes
Speaker 1: any you know, financial services company public, which is if
Speaker 1: you think that the public market would pay a high
Speaker 1: value for your ownership and your company, Like yeah, why
Speaker 1: do I take some cash up? Like you know, it's
Speaker 1: like he's sort of not the main chief investment officer
Speaker 1: of the company anymore. Like there's you know, there's like
Speaker 1: a next generation coming up. It makes sense for him
Speaker 1: to have a publicly list that's duck. So I don't know,
Speaker 1: for all I know they're going to do I'm and
Speaker 1: a you know, for all I know, the publicly list
Speaker 1: that's luck will be a currency beyond just the getting
Speaker 1: the closed end fund launched. It's also like they have
Speaker 1: sort of an interesting structure where like everyone's calls him
Speaker 1: a hedge fund manager, it's like sort of a hedge
Speaker 1: fund firm, but it's like a closed and fund management firm.
Speaker 1: I think they would argue they have more stable, recurring
Speaker 1: revenue then a lot of hedge fund firms. They're not
Speaker 1: making most of their money on totally at risk performance fees,
Speaker 1: like they're The way it works is like the they
Speaker 1: get like a senior share and the performance fees goes
Speaker 1: to the shareholders, and then like the junior share goes
Speaker 1: to the employees, and so they are a little bit
Speaker 1: more of a like recurring revenue play. And so I
Speaker 1: think they think that's something that shareholders value and they
Speaker 1: can monetize.
Speaker 2: Yeah, I guess maybe another way to ask that question
Speaker 2: is why aren't there more public lists and hedge funds.
Speaker 1: So a couple of answers. One is like, because a
Speaker 1: lot of hedge funds have bad income, like they're very
Speaker 1: volatile income, and so it is hard to sell that
Speaker 1: to the public. Approaching Square thinks that has built a
Speaker 1: better mouse trap where it has less volatile income, and
Speaker 1: so you know, because it runs like locked up you
Speaker 1: know in the Eastern capital with like very stable fees
Speaker 1: and you know, invest in large cap aquity, it's like
Speaker 1: a you know, it's a it's a fairly stable revenue stream.
Speaker 1: That's one part of the answer. If you run a
Speaker 1: medium sized hedge fund and you like very volatile earnings,
Speaker 1: then it's harder to take that public. My theory is
Speaker 1: that the giant hedge fund firms don't go public because
Speaker 1: their hedge funds operate like investment banks. They offer their
Speaker 1: investors a return on equity rather than offering them like
Speaker 1: all of the upside and the you know, upside minus
Speaker 1: twenty percent performance fees. Like they take whatever they want
Speaker 1: from the investors to pay their fees, and so there's
Speaker 1: not really like another layer of equity that you can
Speaker 1: put on that. I think that's not a very clear answer,
Speaker 1: but I think that's part of the answer. Like I
Speaker 1: think of the big multi strategy hedge funds as like
Speaker 1: this is a business, yeah, and the business has equity capital,
Speaker 1: and the equity capital comes from the LPs in the
Speaker 1: hedge fund. And when you think of it like that,
Speaker 1: like you don't need another layer of equity capital for
Speaker 1: the management company, because the management company is just a
Speaker 1: way to pay the fees to the employees.
Speaker 2: The good news is that we're going to be talking
Speaker 2: about the fee structure of multistraats. Oh yeah, we are
Speaker 2: later in this podcast. I just just want to point
Speaker 2: out one more thing. Bill Lackman, he said on Bloeber
Speaker 2: TV that he's been very constrained when it comes to tweeting.
Speaker 2: He did tweet on Thursday morning was that he bought
Speaker 2: in the open market both ps U s and p S. Yeah.
Speaker 2: I thought that was a.
Speaker 1: Cool little established He thinks he should traded a premium.
Speaker 2: Yeah, you have to invest in yourself, Matt, Bill Lackman
Speaker 2: Man not bird.
Speaker 1: Did you talking about Bobby Jane and the fees?
Speaker 2: Yeah, I think that we were trying to be thematic.
Speaker 1: Yeah, sure, So elsewhere in hedge funds, behund managers, edge
Speaker 1: trend managers who maybe you know, it's somewhat disappointing weeks.
Speaker 2: Yeah.
Speaker 1: Bobby Jane, the founder of.
Speaker 2: Jane Global, which I don't think is going to go
Speaker 2: public anytime.
Speaker 1: Soon, multi strategy hedge fund startup from the last couple
Speaker 1: of years. He is returning outside capital and going back
Speaker 1: to managing money exclusively from Millennium, which is the firm
Speaker 1: that he came from.
Speaker 2: M He's going home, going home.
Speaker 1: It's hard out there for.
Speaker 2: A It really is strategy hedge on the startup. I
Speaker 2: think a lot of people read this news and at
Speaker 2: least my first thought was, if it's not Bobby Jane,
Speaker 2: who can crack into this into multistrats, That's what everyone said, right.
Speaker 1: He was like high up in investing at Millennium and
Speaker 1: also was like sort of known as the guy who
Speaker 1: built a lot of millenniums like architecture and processes. Like
Speaker 1: he seemed like a guy who could run a firm
Speaker 1: rather than just be an investor at a firm. Yeah,
Speaker 1: and it didn't work, apparently, And I think the answer is, like,
Speaker 1: it's just really hard. These are platforms that really require
Speaker 1: scale and have a lot of fixed costs, and it's
Speaker 1: just hard to get started and cover all those fixed
Speaker 1: costs as you're like wrapping up your strategies and as
Speaker 1: you're wrapping up your investor base. Yeah, and therefore it's
Speaker 1: hard to get new investors because early on you're not
Speaker 1: earning the return that they want, and so they're like, yeah,
Speaker 1: we'll wait until you get huge, and let's stick with
Speaker 1: the money and then till them.
Speaker 2: Yeah, I mean it has about six billion dollars. Not enough,
Speaker 2: it's not enough. What is enough? Jane struck out on
Speaker 2: his own in twenty twenty four.
Speaker 1: Yeah, so he's been independent for about two years and
Speaker 1: it's hard to get to scale.
Speaker 2: Yeah, let's talk a little bit about how passed through
Speaker 2: fees factor into this, because multistraats are very expensive.
Speaker 1: Yeah. I think that, like the intuition that people have
Speaker 1: about hedge funds doesn't apply to all these shots. Like
Speaker 1: Bill Ackman runs like an investment from right there. Yeah,
Speaker 1: he like takes your money and he invested in some
Speaker 1: stuff and he gives you the return minus his fees.
Speaker 1: It's not what Millennium or Jane Global do. What they
Speaker 1: do is they run some businesses. They have some desks
Speaker 1: that do some businesses. They do index arbitrage, they do
Speaker 1: basis trades. They do like some stuff that generates high
Speaker 1: expected returns with like relatively low volatility, and they combine
Speaker 1: those things into a thing that has even lower volatility
Speaker 1: and they sell that to investors. They say, we're going
Speaker 1: to give you alpha we're gonna give you like very stable,
Speaker 1: medium sized returns. And when you do those businesses, there's
Speaker 1: a certain amount of capacity in those strategies, and if
Speaker 1: you have too much money for the capacity, then you
Speaker 1: can't do it right. And so like these friends will
Speaker 1: sometimes return money because they don't have enough capacity to
Speaker 1: run the money that the investors will give them. But
Speaker 1: if too little capacity, then you can still do the trades.
Speaker 1: But you're paying a portfolio manager fifty million dollars a
Speaker 1: year to do the trades, and you're only making forty
Speaker 1: million dollars a year from the trades because you're not
Speaker 1: putting enough money into them, right. So that's a lot
Speaker 1: of what's happening here is like the going rate for
Speaker 1: someone to sit in these seats and do these trades
Speaker 1: is fifty million dollars or something, and if you're not
Speaker 1: giving him enough capital, then he's only earning forty million
Speaker 1: dollars and you're not earning a return for your investors.
Speaker 1: I think that's a lot of what happened here. Like
Speaker 1: they were earning returns running their strategies, but when you
Speaker 1: took out the amount they were their portfolio managers, it
Speaker 1: wasn't enough for the investors.
Speaker 2: Yeah, it's a sad start sat right. Yeah.
Speaker 1: The essential problem here is that hedgehund portfolio managers get
Speaker 1: paid a lot, which is, you know, a nice problem
Speaker 1: for them. Yeah, but it makes it hard to become
Speaker 1: an employer of hedge on portfolio managers.
Speaker 2: I like how you compared it to tech startups in
Speaker 2: the newsletter that you wrote on this topic that you
Speaker 2: think about tech startups. Employees come in and they you know,
Speaker 2: are paid pennies, but they get a lot of stock
Speaker 2: and investors are content to wait out for their big payday.
Speaker 1: Yeah. Everyone has Like investors in a startup company have
Speaker 1: a long term horizon where they're like, I know, I'm
Speaker 1: not going to get any return on my capital in
Speaker 1: the first year, but in ten years I'll get a lot.
Speaker 1: I get a huge return on my capital, right, you know,
Speaker 1: if things go well and employees are kind of taking
Speaker 1: the same bargain at a multi strategy hedge fund, if
Speaker 1: you're like competing for the audience that is giving money
Speaker 1: to like Millennium and zero point seventy two and whatever,
Speaker 1: people are not like, oh yeah in ten years, all
Speaker 1: ten X my money. Great. Those people are like, I
Speaker 1: want a very steady fifteen percent a year with no
Speaker 1: correlation to the market and no drawdowns, right, Like, those
Speaker 1: people are not the ideal investors in a startup that
Speaker 1: is not currently earning its cost of capital. And similarly,
Speaker 1: like the employees. I don't know, man, I'm sure there
Speaker 1: are some, you know, portfolio managers at hedgehos who are like,
Speaker 1: I'll work for nothing in exchange for huge equity, right,
Speaker 1: I mean they are famous stories, right, like, yeah, Jeff
Speaker 1: Bezos left E Shaw to Campbell on himself. But you
Speaker 1: know a lot of them are like getting fifty million
Speaker 1: dollars a year over here. I'd rather keep getting fifty
Speaker 1: million dollars a year.
Speaker 2: Yeah, I'm just I'm just doing the math, man, And
Speaker 2: doesn't it doesn't work out?
Speaker 1: Right? Should we move on to another Yeah?
Speaker 2: We have a lot to cover Front of.
Speaker 1: The show hedgehow manager had a disappointing.
Speaker 2: Week in actual Front of the show.
Speaker 1: Buzz once then came on the pod a few weeks
Speaker 1: ago to talk about how he was bidding to buy
Speaker 1: I don't know, five or ten percent of OBDC two,
Speaker 1: the Blue Owl Private Credit Fund Audacious he got less
Speaker 1: than one percent. I don't think he's that disappointed. I mean,
Speaker 1: as I said on the podcast, it was not zero
Speaker 1: percent trolling. Yeah, you got to he accomplished the trolling
Speaker 1: whether or not he bought any shares.
Speaker 2: Yeah.
Speaker 1: Also, he said on the podcast, like, if he had
Speaker 1: gotten filled, it would have been sort of scary for everyone,
Speaker 1: including him. It would have been like, oh wow, people
Speaker 1: are really panicking about these private credit funds. But the
Speaker 1: fact that he didn't get that many shares suggest that, like, yeah,
Speaker 1: everyone's fine, it's fine.
Speaker 2: Yeah, it was an interesting experiment. He pulled it off,
Speaker 2: and we got in interesting read on how folks are
Speaker 2: actually feeling.
Speaker 1: Yeah, it's very hard for me to know the psychology
Speaker 1: of investors in private credit non traded BDCs, And I
Speaker 1: want to emphasize that. I say that as an investor
Speaker 1: in a non traded BDC I own, as we'll talk
Speaker 1: about next week. I own a small amount of all
Speaker 1: non traded bdct this one. But who are these people
Speaker 1: like me? Some of them are people who are like,
Speaker 1: these credits are bad. I want my money back, and
Speaker 1: if the best I can do is bo As giving
Speaker 1: me sixty five cents on the dollar, I'll take it. Right.
Speaker 1: A few of those people, right, you got some take up.
Speaker 1: A lot of them I think are like, I would
Speaker 1: like to not be involved in this conversation. I would
Speaker 1: like my money back at one hundred cents on the dollar,
Speaker 1: which all these funds offer, but with caps on how
Speaker 1: many withdraws you can and not how much they'll have
Speaker 1: at each quarter. And they're like putting in their requests
Speaker 1: to get back their money at one hundred cents on
Speaker 1: the dollar. And if it's capped and they only get
Speaker 1: a portion of their money back a one hundred cents
Speaker 1: on the dollar, then they'll wait for next time.
Speaker 2: Yeah.
Speaker 1: What they won't do is sell to Boaz for sixty
Speaker 1: five cents on the dollar, because the whole point of
Speaker 1: this product is it doesn't go down.
Speaker 2: Sixty five is less than one hundred.
Speaker 1: Yeah. There are a lot of people who sell stocks
Speaker 1: at below where they bought them because like stocks go
Speaker 1: up and down, right, this is not supposed to go
Speaker 1: up and down. Yeah, whatever the navy goes up and down,
Speaker 1: put mostly up. And if the market price of this
Speaker 1: thing is in some sense down thirty five percent from
Speaker 1: it's that acid value, people are not going to sell
Speaker 1: that market price. So that's a lot of what's happening
Speaker 1: here is that these people kidding me are in these
Speaker 1: products for like stability, and if the market has just located,
Speaker 1: they're like, no, thank you, I don't want to play.
Speaker 1: And then some people are like not checking their mailbox.
Speaker 2: Right. Yeah, it feels like quite an exercise in trying
Speaker 2: to herd cats without knowing.
Speaker 1: I get him throw away all tender offer statements from
Speaker 1: Blue Out.
Speaker 2: Yeah, some of them might be interesting. Maybe you would
Speaker 2: have liked to look.
Speaker 1: At the time I open one, I'm like, it's relevant to.
Speaker 2: My job, goodbye. Okay, So we don't know too much
Speaker 2: about the psychology. If you can draw the conclusion here.
Speaker 1: Though, that people like outright panic.
Speaker 2: Yeah, they weren't so desperate to get out of this.
Speaker 1: If he had bought like ten percent of the fund
Speaker 1: it sixty five cents on the dollar, that would have
Speaker 1: been a strong suggestion that it was worth considerably less
Speaker 1: than sixty five cents on the dollar. Yes, and he
Speaker 1: would be taking a bath. Yeah. But herly it's like, yeah,
Speaker 1: that's interesting.
Speaker 2: Well, I was to say in an interview with Bloomberg News.
Speaker 2: To Blue Owl's credit, they went around to calm nerves.
Speaker 2: We would have had more success if we offered for
Speaker 2: their larger BDC, but we had the offer ready before
Speaker 2: they offered to pay back investors, and we still wanted
Speaker 2: to go through with it. Obviously, we hope to buy
Speaker 2: more shares from them than we did. He's not out
Speaker 2: of this game, right Yeah.
Speaker 1: OBC two is a weird one because like they are
Speaker 1: trying to wind it up at one hundred cents on
Speaker 1: the dollar. So like one reason for him to tender
Speaker 1: for it is it's a pretty short timeline to probably
Speaker 1: get all of all of your money back, right the
Speaker 1: other Blue Owl and also other firms like have a
Speaker 1: lot of private, non traded BDCs where people have asked
Speaker 1: for more than five percent of their money back, they've
Speaker 1: been capped at five percent. There's a line to get out.
Speaker 1: And how long that problem will persist, nobody quite knows.
Speaker 1: And so he's going to tender for some other ones
Speaker 1: where maybe the timeline is a little bit more uncertain,
Speaker 1: maybe people will be more interested. I think he's going
Speaker 1: to tender for the one I own, and then that'd.
Speaker 2: Be so fun you have to sell to him. I
Speaker 2: think it would be really good for the podcast. Make
Speaker 2: a good ye think of the content, Matt think of
Speaker 2: the content. If you want to talk about Avis suggests
Speaker 2: we do it now.
Speaker 1: That's interesting thing.
Speaker 2: That's what we saved it for last A short squeeze,
Speaker 2: Yeah they did.
Speaker 1: That's been going for like a month and like it
Speaker 1: peaked last week. This stock had gone from like one
Speaker 1: hundred dollars like a few weeks ago to seven closed
Speaker 1: over seven hundred dollars one day last week and then
Speaker 1: it deflated and it's back down until the one hundredths.
Speaker 1: And this week the company had an earnings call, which
Speaker 1: earnings always somewhat irrelevant to the situations, and stock was
Speaker 1: down a little. Their earnings are little disappointment.
Speaker 2: It doesn't mean yeah, but at least the executives have
Speaker 2: to talk about what's going on going on, and what was.
Speaker 1: Going on was crazy, which is that the night before
Speaker 1: the earnings announcement, so their short scureaze was like they
Speaker 1: had two hedgehuns that owned between actual stock positions and derotos,
Speaker 1: they owned more than one hundred percent of the stock.
Speaker 1: So a lot of people were short, and these two
Speaker 1: hedge funds, SRS and Pentwater were long more than one
Speaker 1: hundred percent of the stock. Put those things together, it
Speaker 1: just seems like there's gonna be a short squeeze, and
Speaker 1: there seems to have been a short squaze. Those two
Speaker 1: Edgems SRS. Is kind of like the company, like they
Speaker 1: have a board seat, like they've been long term holders.
Speaker 1: They're associated with.
Speaker 2: The company, right.
Speaker 1: They have a lockup agreement. They have an agreement where
Speaker 1: they're like bound by the company's black eyed parents. Pentwater
Speaker 1: is just like a hedge fund. There's bought some stock
Speaker 1: as an investment and they got to like fifty percent
Speaker 1: of the stock with including Derovotos, and they sold a
Speaker 1: big chunk of stock at the peak of the short
Speaker 1: squaze last week for something like one point seventy five
Speaker 1: billion dollars of total proceeds and profits of possibly a billion,
Speaker 1: huge profits. And when the short squeeze was happening, I
Speaker 1: remember people emailing me to be like, what is Petwater
Speaker 1: going to do about this? Because they're subject to short
Speaker 1: swing profit rules. They own more than ten percent of
Speaker 1: the stock, and therefore, if they sell their stock within
Speaker 1: six months of buying it, which like they double their
Speaker 1: stake in like February March, if they sell their stock
Speaker 1: within six months of buying it, they have to pay
Speaker 1: back all of the profits to the company, which is
Speaker 1: just the weird rule of section sixteen of the US
Speaker 1: securities laws, and so like, they can't really profit from
Speaker 1: the short squeeze. That's what I thought, and whatever run
Speaker 1: for that was naive. That was a little naive. So
Speaker 1: they announced that they've sold millions of shares, and those
Speaker 1: shares fall into two buckets. One bucket, they're like, yes,
Speaker 1: we are subject to short swing profit rules. We bought
Speaker 1: these shares and then we sold them within six months,
Speaker 1: so we have to give up all of our profits
Speaker 1: to the company. So we called the company and we're like,
Speaker 1: here's your check. Here you go. The other bucket, they're like, no, no,
Speaker 1: the funds like Pentwater is, you know, it manages different funds,
Speaker 1: like theater funds, SMAs, like all sorts of like accounts, right,
Speaker 1: and it buys stock for all the different accounts, and
Speaker 1: the accounts are separate. And they're saying, well, you know,
Speaker 1: most of the shares that we sold in the last
Speaker 1: you know, last week were not sold by funds or
Speaker 1: accounts that bought within the last six months, So there's
Speaker 1: no Section sixteen short swing profits for that. The first bucket,
Speaker 1: the one where they're giving up the profits is like
Speaker 1: ninety four thousand shares, and the second buckets like millions
Speaker 1: of shares. So they're like, we're almost all but we're
Speaker 1: giving the company a tip, you know, you know, fifty
Speaker 1: million bucks or whatever, maybe lass And so that's wild
Speaker 1: on a number of levels. One, it's like, oh, you
Speaker 1: can just get around short swing profit rolls that way.
Speaker 1: Two like how did that happen? Like how did some
Speaker 1: funds that they managed by the shares and other funds
Speaker 1: sold the shares. It seems a little bit mysterious. Presumably
Speaker 1: the funds that sold the shares were funds that had
Speaker 1: owned them for a long time. Maybe not, Maybe they
Speaker 1: were short selling. I don't know.
Speaker 2: Will anyone go and try to figure that out?
Speaker 1: O the company? Will?
Speaker 2: Avis?
Speaker 1: Will? Yeah? Because Avis, they said on their earnings call,
Speaker 1: you know, we got a call from Penwater saying like
Speaker 1: here's your you know, check for a little bit of money.
Speaker 1: And they're like, we're gonna look into anything we can
Speaker 1: do to recover for the shelters, because obviously they'd rather
Speaker 1: have a billion dollars than you know, a few million dollars.
Speaker 2: That number is bigger than the other one.
Speaker 1: This is just like a weird exogenous event that happened
Speaker 1: to Davis, and they're like probably a little bit unsettled
Speaker 1: by it. And if they could have a billion dollars,
Speaker 1: they'd that would make it better.
Speaker 2: They have a little bit of money though, Yeah, they
Speaker 2: have some money.
Speaker 1: Yeah right, I read it's like a nice windfall for them.
Speaker 1: If you'd asked me last week, and I feel like
Speaker 1: maybe you did. I feel like we talked about this,
Speaker 1: Like it's very hard for anyone to do anything about
Speaker 1: the short screenze. Right, Like Penwater, I had thought, can't
Speaker 1: sell because of Section sixteen year olds, and the company
Speaker 1: can't sell because one they were in an earnings blackout right,
Speaker 1: they really startings this week, so they can't like go
Speaker 1: around selling stock the week before they release harntings. And
Speaker 1: two if you announce a sale, you might pop the
Speaker 1: bubble and then you won't actually sell it the high prices.
Speaker 1: But like somehow Pintwater founder around it, where both Pentwater
Speaker 1: got a lot of money and also the company got
Speaker 1: a little bit of money without actually selling.
Speaker 2: Any stock, so they found a way around it.
Speaker 1: But TBD, well, I certainly sold stock. Who gets that
Speaker 1: money between Pantwater and Avis is an interesting question Penwater
Speaker 1: will be bummed if they lose all of the money.
Speaker 1: But my impressure is they a pretty argument that they're
Speaker 1: fine and they get to keep the money they think
Speaker 1: they can keep. I also think there's some possibility of
Speaker 1: just like Pentwater and Eavis beying, like, we'll give you
Speaker 1: a little bit more than that ninety four thousand shares
Speaker 1: and we'll call it a day. No, no, because ninety
Speaker 1: four thousand shares. Yeah, Like the profits on these shares
Speaker 1: sales are at least at least one hundred dollars and
Speaker 1: as much as like six hundred dollars a share, so
Speaker 1: you know, like it's it's millions and tens of millions
Speaker 1: of dollars, but it's not billion dollars.
Speaker 2: So if they had increased her safe by slightly less,
Speaker 2: could they have just like if they had stayed at
Speaker 2: the nine percent that they were on December thirty first,
Speaker 2: twenty twenty five, would they.
Speaker 1: Have a relevant number? Well, it's a fifty percent, it's
Speaker 1: not like a little bit less. They got to fifty percent,
Speaker 1: which would cause the short squeeze. They went from nine
Speaker 1: percent to fifty percent. People like, oh wow, between them
Speaker 1: Srs and Penal on more than one hundred percent of
Speaker 1: the stock. That's going to cause a short scraze. It
Speaker 1: causes a short squeze. The stock goes to seven hundred
Speaker 1: and they sell right, going from nine to nine and
Speaker 1: a half percent.
Speaker 2: I wouldn't have done that, Yeah, But I'm just wondering
Speaker 2: would they have then been under the threshold where they
Speaker 2: could short sell without penalty or sell without penalty?
Speaker 1: Sure, but who cares?
Speaker 2: I care a little bit. You're saying the short sqeeze
Speaker 2: would have never happen.
Speaker 1: Selling at seven hundred dollars and then dealing with lawyers
Speaker 1: afterwards is much much, much, much better than selling it
Speaker 1: one hundred dollars.
Speaker 2: Yeah. I guess that's assuming that that is what caused
Speaker 2: the short squeeze, because there are stories like, you know,
Speaker 2: the short.
Speaker 1: Squeeze was definitely like two hedge funds on one hundred
Speaker 1: and eight percent of the company. Yeah, these are things
Speaker 1: that happened due to like attention and the best psychology
Speaker 1: and things like that, and you know, it happens because
Speaker 1: like they bought so much of the company. Yeah, anyway,
Speaker 1: it's a great trade.
Speaker 2: It is.
Speaker 1: It's like it's baffling that I don't understand how they
Speaker 1: could have bought so much stock in one place and
Speaker 1: sold so much stock in another place, Like it's something
Speaker 1: as weird but great trade.
Speaker 2: I wish I had tuned into that earnings call because
Speaker 2: we talk about body language all the time. I would
Speaker 2: have loved to.
Speaker 1: Yes, I know, I've read the transfer to letters. Just
Speaker 1: you definitely like can imagine them like.
Speaker 2: Tugging on their collar and dabbing at their brow. Good stuff.
Speaker 1: And that was the Money Stuff Podcast.
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.
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Speaker 1: The Money Stuff Podcast is produced by Anam Azarakus Moses
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