WEBVTT - Book of Souls 0:00:02.759 --> 0:00:07.480 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.039 --> 0:00:10.480 It was a painful game. I don't know if I 0:00:10.600 --> 0:00:12.680 enjoyed watching it. It was really stressful. 0:00:13.119 --> 0:00:15.880 Had the experience the entire game of being like, well, 0:00:16.000 --> 0:00:17.400 obviously the Knicks are going to win this. 0:00:17.800 --> 0:00:20.520 Yeah. I felt that way too. 0:00:20.320 --> 0:00:22.319 I said jokingly, but not I was like, well, we 0:00:22.400 --> 0:00:24.680 haven't right where they want them. MIxS were down like 0:00:24.760 --> 0:00:25.600 fifteen or whatever. 0:00:25.800 --> 0:00:27.880 I knew that they were going to win in my 0:00:28.280 --> 0:00:31.120 long tenure of watching basketball for two weeks, because that's 0:00:31.120 --> 0:00:32.920 how they started every game. But I was watching with 0:00:32.960 --> 0:00:35.600 my dad who was having a heart attack like the 0:00:35.760 --> 0:00:38.960 entire time, so he was not as confident. 0:00:39.120 --> 0:00:43.880 But I was also so tired. Yeah, I'm not cut 0:00:43.880 --> 0:00:47.080 out for late night sports. Why I love the World Cup? Yeah, 0:00:47.159 --> 0:00:51.440 because actually I prefer the World Cup in other parts 0:00:51.440 --> 0:00:53.519 of the world, even not going to any games, And 0:00:53.560 --> 0:00:56.520 I'd rather it be in like Asia and have games 0:00:56.560 --> 0:00:58.440 out of like eight in the morning New York times, 0:00:58.440 --> 0:00:59.920 because like then I can watch the games. 0:01:00.480 --> 0:01:02.080 I think, you're you're a rare bird. 0:01:02.840 --> 0:01:04.640 Like there are games in this World Cup that are 0:01:04.640 --> 0:01:05.800 at like nine pm. 0:01:06.040 --> 0:01:07.680 It's it's too late. 0:01:07.840 --> 0:01:09.639 They start at midnight and like never. 0:01:10.160 --> 0:01:12.000 I just don't know if I have the emotional energy 0:01:12.040 --> 0:01:16.319 to like get invested in another sport that I so 0:01:16.520 --> 0:01:18.640 casually follow, you know, I feel like. 0:01:18.800 --> 0:01:25.360 The World Cup is extremely great for not getting very invested. Yeah, 0:01:25.480 --> 0:01:29.440 you can watch two countries you've never thought about play 0:01:29.480 --> 0:01:31.839 each other and it's just fun. It's just like there's 0:01:31.840 --> 0:01:34.280 no stakes. I mean there's stakes, are that that's true. 0:01:34.640 --> 0:01:37.440 I just think basketball is the perfect sport for someone 0:01:37.440 --> 0:01:40.279 who doesn't follow it to watch it because it's super fast, 0:01:40.319 --> 0:01:43.640 they score a ton, They're all like kind of concentrated together. 0:01:44.120 --> 0:01:46.920 You always know where the basketball is, whereas you know, soccer, 0:01:46.959 --> 0:01:48.600 it's bigger and they don't score as much. 0:01:48.840 --> 0:01:51.160 I hear you, But as a crotchity old man, I 0:01:51.280 --> 0:01:55.720 really appreciate the way that soccer works where they start 0:01:55.760 --> 0:01:58.800 the clock and then they play soccer, yeah, and then 0:01:58.840 --> 0:02:02.520 they finish the half for the game, whereas like in bascowball, 0:02:02.560 --> 0:02:04.840 when there's five minutes of eighteen seconds of game time left, 0:02:04.960 --> 0:02:07.240 you're like, yeah, another two hours. 0:02:07.360 --> 0:02:09.640 Yeah right, I gotta go to bed, go to the 0:02:09.680 --> 0:02:10.520 bathroom again. 0:02:11.680 --> 0:02:14.840 This is a real sports podcast. You're hosted by and 0:02:14.919 --> 0:02:17.880 for people who don't really go out attention to sports. 0:02:19.280 --> 0:02:23.840 We talked the other day about my very slight desire 0:02:23.840 --> 0:02:25.680 to coach little league. Yes, and I got an email 0:02:25.680 --> 0:02:28.720 from a reader being like, please coach little league. He's like, 0:02:28.720 --> 0:02:31.679 I do some administration for our league. And like the 0:02:31.800 --> 0:02:33.880 dads who are like, I must coach little league like 0:02:34.360 --> 0:02:35.320 need to be balanced. 0:02:35.520 --> 0:02:35.800 Yeah. 0:02:35.800 --> 0:02:39.680 Other dads are like, yeah, yes, sure you've got you need. 0:02:40.040 --> 0:02:42.240 You need some low commitment little league catches. 0:02:42.400 --> 0:02:46.040 That's good. Yeah. Remind everyone that they should be having fun. 0:02:46.000 --> 0:02:51.520 Right yeah, sportsmanship. Hello, and welcome to The Money Stuff Podcast, 0:02:51.560 --> 0:02:56.200 your weekly podcasts where youre talking about stuff related to money. 0:02:57.280 --> 0:02:59.359 I'm Matt Levian, r at the Money Stuff column. 0:02:59.120 --> 0:03:03.120 For Bloomberg Opinion, and I'm Katie Greifeld, a reporter for 0:03:03.120 --> 0:03:05.440 Bloomberg News and an anchor for Bloomberg Television. 0:03:14.080 --> 0:03:15.679 I think you're just not talking about. 0:03:16.520 --> 0:03:19.560 I'm spacexed out, even though I will say, as we're 0:03:19.600 --> 0:03:22.240 recording this on fed Day, by the way, we're going 0:03:22.280 --> 0:03:24.919 to miss the starting minutes of Kevin Worrish at the 0:03:24.960 --> 0:03:27.000 podium for the first time. Not that I don't think 0:03:27.000 --> 0:03:29.200 you care. I care a little bit. SpaceX is a 0:03:29.240 --> 0:03:34.880 little bit lower today on this Wednesday the line hasn't 0:03:35.000 --> 0:03:38.360 moved in that direction before, and its short life is 0:03:38.400 --> 0:03:40.440 a publicly listed equity. But we don't have to talk. 0:03:40.280 --> 0:03:42.120 About I feel like I have a lot of like 0:03:42.280 --> 0:03:45.760 ill formed thoughts about it's not gying up. Who cares? 0:03:46.040 --> 0:03:48.880 I tweeted something about SpaceX today. 0:03:49.920 --> 0:03:55.000 It's funny that tweeting is now business. 0:03:55.120 --> 0:04:00.280 Yeah, that's true, that's true. I tweeted on X or 0:04:00.400 --> 0:04:03.720 post it on X owned by the parent company SpaceX. 0:04:03.840 --> 0:04:06.480 Would the discovery of aliens be bullish or bearish for 0:04:06.560 --> 0:04:07.680 SpaceX's valuation. 0:04:08.040 --> 0:04:08.920 That's a great question. 0:04:09.000 --> 0:04:10.320 It's kind of fun to think about. 0:04:10.480 --> 0:04:13.680 I've joked that, like their medium term plan is like 0:04:14.040 --> 0:04:16.960 data centers in space to run like Enterprise ai yah, 0:04:17.120 --> 0:04:19.600 but their long term plan is to like colonize the 0:04:19.680 --> 0:04:25.160 universe and sell spice to alien civilizations. So I'm gonna 0:04:25.160 --> 0:04:27.400 be with bullish. But you know, obviously, if like the 0:04:27.440 --> 0:04:33.200 aliens have better spacefaring technology and also like robustly developed 0:04:33.200 --> 0:04:35.599 capital markets, then like you don't need to don one 0:04:35.640 --> 0:04:38.560 SpaceX when you can know and you know that's intergalactic 0:04:38.880 --> 0:04:40.160 space conglomerate. 0:04:40.520 --> 0:04:43.839 I do think it would introduce some shortly volatility as 0:04:43.839 --> 0:04:45.640 we sort through those questions. 0:04:45.200 --> 0:04:47.120 But possibly long with volatility. 0:04:47.200 --> 0:04:54.400 Yeah, that's true anyways, SpaceX So, I mean it's like, 0:04:54.480 --> 0:04:58.320 which hedge fund ish do you want to talk about? 0:04:58.640 --> 0:04:59.880 I don't know what do you want to talking about? 0:05:00.240 --> 0:05:02.000 I mean we could talk about Ken Griffin. 0:05:01.680 --> 0:05:07.919 First in The New Yorker by Carrie Cernowitz, who's the 0:05:07.960 --> 0:05:10.560 guy I know in his book I've blurped, and he 0:05:10.680 --> 0:05:13.360 was photographed for that story. But oh yeah, Jeff Brown, 0:05:13.400 --> 0:05:19.400 who photographed me for my no kidding, I very cool 0:05:19.600 --> 0:05:25.240 publicity stills like me slept in a chair the past 0:05:25.240 --> 0:05:27.599 time during the start issue. Ye, Jeff Fron's a genius 0:05:27.600 --> 0:05:32.040 and photographed and it's a profile of what makes Ken 0:05:32.080 --> 0:05:32.719 Griffin tick. 0:05:33.000 --> 0:05:35.600 I really enjoyed it. I have to say my attention 0:05:35.680 --> 0:05:36.719 span is so shot. 0:05:36.880 --> 0:05:39.119 This was the most I've never read article. 0:05:39.680 --> 0:05:45.400 Yeah, exactly. I couldn't quite get there. I do make 0:05:45.440 --> 0:05:48.560 it through money stuff, but I made it probably three 0:05:48.600 --> 0:05:50.839 fourths the way through. That's why I asked to push 0:05:50.960 --> 0:05:55.800 to two TE. I was wondering at what point Ken 0:05:55.839 --> 0:05:59.680 Griffin's eyes would come up, and they came up pretty quickly. 0:06:00.160 --> 0:06:04.320 Here's the sentence in particular, Griffin's blue eyes are unsettlingly bright. 0:06:04.680 --> 0:06:08.680 Colleagues debate half in jest about whether he lacks the 0:06:08.720 --> 0:06:09.760 normal need to blink. 0:06:09.920 --> 0:06:12.719 I love that I just made a joke today about 0:06:12.760 --> 0:06:15.760 hedgehund managers not having time to blink. Now this market moves, 0:06:15.760 --> 0:06:18.360 maybe he's evolved to keep his eyes up in all 0:06:18.400 --> 0:06:18.760 the time. 0:06:18.960 --> 0:06:21.760 I feel like he might like that joke, right. But yeah, No, 0:06:22.000 --> 0:06:24.520 it was a great profile. There were a lot of 0:06:24.520 --> 0:06:26.440 interesting things. I like when I'm reading a thing that 0:06:26.480 --> 0:06:27.960 I know that we're going to talk about, and then 0:06:28.839 --> 0:06:31.800 I find the angle while i'm reading it, then I 0:06:31.880 --> 0:06:32.919 know that you're going to want to. 0:06:32.920 --> 0:06:36.520 Talk about behind the scenes, Yeah, is making presses? What 0:06:36.560 --> 0:06:37.479 am I going to want to talk about? 0:06:37.520 --> 0:06:40.359 You want to talk You do my part for me, 0:06:40.600 --> 0:06:41.839 the quality of earning? 0:06:42.080 --> 0:06:45.400 Yes, exactly, you did right about that too, right. My 0:06:46.440 --> 0:06:49.839 stick for a while has been that I think people 0:06:50.640 --> 0:06:52.640 have this view of what a hedgehund manager is, or 0:06:52.640 --> 0:06:54.760 what a hedgehund is, that it's like an investing firm, 0:06:55.240 --> 0:06:59.840 And my view is that these multistat funds are much 0:06:59.880 --> 0:07:02.559 more more like what investment banks were twenty years ago, 0:07:02.880 --> 0:07:06.280 and they're they're not the best thought of as like 0:07:06.480 --> 0:07:11.200 making investment decisions, but rather as like running businesses that 0:07:11.640 --> 0:07:15.080 provide services to the market. Some of those services are 0:07:15.080 --> 0:07:19.320 like making prices more efficient, they're like long short equity trading. 0:07:19.440 --> 0:07:22.720 But some of those services are liquidity services, and like 0:07:22.800 --> 0:07:25.600 you know, like the dispersion trade in the index ARB 0:07:25.680 --> 0:07:29.280 trades are really like just real liquidity provision services that 0:07:29.360 --> 0:07:31.160 used to be done by bank center now being done 0:07:31.160 --> 0:07:34.120 by these hedge ones. And what is pleasing in this 0:07:34.240 --> 0:07:37.400 article is like that thesis has sort of been enshrined. 0:07:37.400 --> 0:07:40.080 In The New Yorker, carry Sernovis writes about ken Griffin 0:07:40.400 --> 0:07:43.680 being in college at Cabot House, which is also where 0:07:43.680 --> 0:07:47.480 I lived in college. He and I are among the 0:07:47.560 --> 0:07:51.160 illustrious cabin house Alonia. Ken Griffin was like doing options trades, 0:07:51.560 --> 0:07:53.320 and he was like, well, I've made money on these 0:07:53.360 --> 0:07:56.480 options trades, but like the market maker on the other 0:07:56.520 --> 0:07:59.920 side explaining all of the options trades, I should do that. 0:08:00.040 --> 0:08:02.160 So I eventually started a market maker. But also he 0:08:02.200 --> 0:08:04.520 had like the more holistic view of like I want 0:08:04.560 --> 0:08:07.880 to hire earnings quality even in my regular trading. So 0:08:07.920 --> 0:08:09.960 he got into like a convert our business that used 0:08:09.960 --> 0:08:12.239 to be done by banks and is now like convert harvest, 0:08:12.280 --> 0:08:14.840 just the standard hedge fund trade. So he got into 0:08:14.840 --> 0:08:21.040 these businesses that are repeatable liquidity provision, almost like fee 0:08:21.040 --> 0:08:23.720 for service businesses, where like you do stuff that gets 0:08:23.760 --> 0:08:26.120 a steady return because you're providing a service to the market, 0:08:26.240 --> 0:08:28.000 rather than like picking the stock that'll go up. 0:08:28.200 --> 0:08:31.800 Yeah. I thought that was an interesting anecdote in sort 0:08:31.800 --> 0:08:35.560 of explaining the starting point of his thinking, because I 0:08:35.640 --> 0:08:40.160 can connect that story easily into why he started a 0:08:40.160 --> 0:08:42.240 market maker eventually, Yes, but. 0:08:42.360 --> 0:08:44.839 He even started a marketmaker, initially started a hedge fund 0:08:44.960 --> 0:08:48.360 that did trades that sort of had that shape of 0:08:48.440 --> 0:08:51.960 like being repeatable businesses rather than being like stock picking. 0:08:52.200 --> 0:08:55.160 Yeah. I did think it's interesting that when Starner Woods 0:08:55.200 --> 0:08:58.520 sort of asked him, like, who are your heroes, Ken 0:08:58.559 --> 0:09:01.040 Griffin didn't really have anyone to name. 0:09:01.520 --> 0:09:04.120 Yeah, because like there are a lot of hegemon managers, 0:09:04.160 --> 0:09:07.000 Bill Ackman being perhaps the most prominent among them. 0:09:06.800 --> 0:09:10.120 Who also has piercing blue eyes or. 0:09:10.160 --> 0:09:12.640 Hazel a matter of some controversy. He would be the 0:09:12.640 --> 0:09:14.800 first to tell you that he wants to be Warren Buffett, right, 0:09:14.800 --> 0:09:16.560 And there's like a lot of hedgemo matters like that, 0:09:17.080 --> 0:09:20.520 and like that is the opposite of what Ken Griffin's approaches, right, 0:09:20.520 --> 0:09:22.160 Like he is not like I'm going to pick good 0:09:22.160 --> 0:09:24.160 businesses and on their stocks forever. He is like, I'm 0:09:24.160 --> 0:09:26.840 going to have a high quality earnings. I'm gonna have 0:09:26.840 --> 0:09:30.760 recurring earnings every quarter, you know. And so that model 0:09:31.240 --> 0:09:33.720 like the sort of like big swing headshow manager the 0:09:33.800 --> 0:09:36.760 you know, Gary mentioned George Soros as a as a 0:09:36.840 --> 0:09:40.160 name of you know who other hedge matters have admired. Like, 0:09:40.160 --> 0:09:42.760 that's not what he's trying to do, right, He's trying 0:09:42.760 --> 0:09:46.080 to build high quality of earnings and repeatable business. 0:09:46.400 --> 0:09:49.240 Yeah, there was a great one here from Lloyd Blankfine, 0:09:49.320 --> 0:09:53.160 the former CEO of Goldman, who told Cernawitz that he 0:09:53.280 --> 0:09:55.960 still can't figure out who mentored him to who he 0:09:56.120 --> 0:10:00.160 has a debt because I mean Griffin also, I mean 0:10:00.160 --> 0:10:02.360 he started Todel so early, like. 0:10:02.320 --> 0:10:04.679 In like the cable House, Yeah more or less, I 0:10:04.679 --> 0:10:07.120 mean not literally, but like he started the stuff he 0:10:07.160 --> 0:10:09.360 was doing at cabin House grew very quickly into being 0:10:09.400 --> 0:10:09.840 said at all. 0:10:10.040 --> 0:10:13.080 Yeah, no real time to like find a mentor if 0:10:13.080 --> 0:10:15.920 you just start out the gate. Also, it's also a 0:10:16.080 --> 0:10:19.920 very different model from like a Bridgewater for example. Oh yeah, 0:10:20.080 --> 0:10:20.760 oh yeah. 0:10:20.840 --> 0:10:23.760 Yeah, two important things about Ken Griffin. One is that 0:10:23.760 --> 0:10:26.960 he owns all the houses. Also, all the constitutions, yes, 0:10:27.040 --> 0:10:29.680 all the dinosaurs, Yeah, all the art. If you're in 0:10:29.720 --> 0:10:32.800 the business of like generating billions of dollars of profits 0:10:32.800 --> 0:10:38.120 from doing financial trades, like, I appreciate people who are 0:10:38.120 --> 0:10:40.160 like I mean to like turn that as rapidly as 0:10:40.240 --> 0:10:44.120 possible into tangible wealth. Yeah, Like all this stuff feels 0:10:44.120 --> 0:10:46.800 somewhat imaginary, but a stegosaurus that's real. 0:10:47.000 --> 0:10:49.400 Well, the the profile does go into you know, he 0:10:49.440 --> 0:10:52.080 had a really rough time during the financial crisis and 0:10:52.120 --> 0:10:54.480 made the decision at that point that he wanted to 0:10:54.520 --> 0:10:58.079 have non financial assets. Yeah, from that point on. 0:10:58.160 --> 0:11:03.080 You out of market making businesses into stegosaurus constitutions. 0:11:03.400 --> 0:11:06.280 Yeah, that cartis and a lot of pieces he does 0:11:06.360 --> 0:11:10.240 have on loan to actual museums, which is cool versus 0:11:10.280 --> 0:11:15.360 just sitting in the various basements of his billion and 0:11:15.360 --> 0:11:17.079 a half dollar real estate portfolio. 0:11:18.440 --> 0:11:20.960 Right. I don't know if he has a dinosaur at 0:11:20.960 --> 0:11:23.920 any of his houses. If I had a billion dollar 0:11:23.960 --> 0:11:28.440 collection of stuff, I would probably want a stegosaurus in 0:11:28.559 --> 0:11:32.640 my living room because that is very cool. Like I 0:11:32.720 --> 0:11:36.000 get that having it at a museum is also also cool. 0:11:36.120 --> 0:11:38.600 It might just because I'm sick, but I did get 0:11:38.640 --> 0:11:42.680 the shivers thinking about that. Like here's a dinosaurs. This 0:11:42.760 --> 0:11:44.960 is something that was a live once a long time ago, 0:11:45.040 --> 0:11:48.400 and now I own it. I have a lot of 0:11:48.559 --> 0:11:52.160 a live horses. Yeah, right, alive being. 0:11:52.120 --> 0:11:58.840 Right, key right, totally different collecting impulse. The other thing 0:11:58.840 --> 0:12:02.880 about cityl yeah kindo, friends saidst is no one is 0:12:02.920 --> 0:12:06.800 a tough place to work. Yeah, And the story gets 0:12:06.840 --> 0:12:10.920 into things like someone someone calls it a highway wreck 0:12:10.960 --> 0:12:13.600 of human bodies, not meaning that the bodies have been wrecked, 0:12:13.679 --> 0:12:15.480 but rather that the people get fired a lot when 0:12:15.480 --> 0:12:18.320 they like transition, turnover, a lot of turnover. Someone kept 0:12:18.320 --> 0:12:20.800 a book of souls about all their friends who go 0:12:22.720 --> 0:12:24.559 and again it's like it's like there's something about like 0:12:24.640 --> 0:12:27.280 quality of earnings, right, It's like it's like if you 0:12:27.360 --> 0:12:30.840 think about hedgehns generating alpha, there are alphas that are 0:12:31.200 --> 0:12:33.600 just repeatable forever because you're providing a service. But there's 0:12:33.600 --> 0:12:36.360 a lot of stuff that's like yeah, like people didn't 0:12:36.400 --> 0:12:37.760 notice it, and then you notice it. You made a 0:12:37.760 --> 0:12:39.280 little money, and then like people notice it and it 0:12:39.320 --> 0:12:42.800 stops making money, and so there's a real like you know, 0:12:43.040 --> 0:12:47.600 constant churn as signals the kay when the cigneal partner 0:12:47.960 --> 0:12:50.520 says in the story, it's not about a portfolio, it's 0:12:50.520 --> 0:12:53.520 about a business that can recreate great portfolios again and again, 0:12:53.600 --> 0:12:57.080 which is like you think about like what a person does, 0:12:57.160 --> 0:13:01.040 like often a person is good at finding your particular portfolio, 0:13:01.080 --> 0:13:03.319 and like if you need to totally recreate the portfolios, 0:13:03.360 --> 0:13:21.480 then that means getting only people. So another hedge fund 0:13:21.640 --> 0:13:23.440 is yeah, Bridge Wader. 0:13:23.880 --> 0:13:28.480 Yeah, capacity constraints, tensions between GPS and LPs. 0:13:28.800 --> 0:13:30.959 I don't want to say this, but you shouldn't. The 0:13:30.960 --> 0:13:34.200 Bridge Order had this reputation for a while, okay, forgetting 0:13:34.440 --> 0:13:38.840 you know, like a load of mid single digit returns, 0:13:39.520 --> 0:13:42.680 being very stable, leading with its reputations being the biggest 0:13:42.720 --> 0:13:45.160 hedge fund in the world and being you know sort 0:13:45.200 --> 0:13:48.640 of like not a like taking big swings, making lots 0:13:48.679 --> 0:13:51.800 of money kind of place, right, And that reputation was 0:13:52.840 --> 0:13:54.240 not entirely a positive thing. 0:13:54.520 --> 0:13:56.960 They were going to talk about their other reputation, Oh sure, sure. 0:13:56.800 --> 0:13:59.080 Sure, they had a reputation for being very interpersonally weird. 0:13:59.280 --> 0:14:01.680 Yeah, they're actually got a name drop in the New 0:14:01.760 --> 0:14:05.800 Yorker profile about Ray Dalio being a pregnant woman cry. 0:14:06.000 --> 0:14:09.440 Yeah, yeah, like it being just so ostentatiously weird personally, 0:14:10.080 --> 0:14:12.839 but like they were doing all of that and like 0:14:13.000 --> 0:14:17.840 doing all that ruthless self examination and like struggle sessions 0:14:17.920 --> 0:14:20.520 or they all got in a room and berated each other. Well, 0:14:20.560 --> 0:14:24.280 their performance is like kind of mediocre. Yes, it, take 0:14:24.320 --> 0:14:26.400 a step back and do a struggle session about that. 0:14:26.640 --> 0:14:29.520 Yeah. It wasn't in service of like improving their returns, right, 0:14:29.680 --> 0:14:31.920 it was just like it was just its own thing. Yeah, 0:14:32.440 --> 0:14:34.200 like a weird social experience exactly. 0:14:34.720 --> 0:14:38.040 If you talk about that to a like an investor, 0:14:38.080 --> 0:14:41.120 an alligator, like that sounds bad, right. It's like, no, 0:14:41.200 --> 0:14:42.920 I want a good return rather than a bad return. 0:14:43.200 --> 0:14:46.080 But I'd rather be in a good fund that generates 0:14:46.120 --> 0:14:48.280 high returns than in like a giant fund that doesn't. 0:14:48.720 --> 0:14:52.240 But as a business matter, it's nice to run a 0:14:52.320 --> 0:14:55.320 giant fund that has very sticky capital for a variety 0:14:55.320 --> 0:14:59.160 of reasons and that generates steady, you know, mediocre returns 0:14:59.560 --> 0:15:02.560 because it's a business matter. You're charging management fees, and 0:15:03.000 --> 0:15:06.840 it is nice to have a very predictable recurring management 0:15:06.880 --> 0:15:09.560 fee revenue. And so arguably it was a good business 0:15:09.640 --> 0:15:13.640 for Bridgewater to be running as much money as possible 0:15:13.720 --> 0:15:16.320 and like, yeah, I have an okay returns. Yeah, but 0:15:16.400 --> 0:15:20.840 they moved on from that, and so Bloomberg's Emma Parmer 0:15:20.840 --> 0:15:24.040 are pretty singing and Lionoda I have a story about 0:15:24.640 --> 0:15:27.800 how basically near Bardea, who's like the I was gonna 0:15:27.800 --> 0:15:29.520 say new CEO. He's not that new, but he's a 0:15:30.440 --> 0:15:33.240 guy who took over when Ray Dalio kind of retired 0:15:33.280 --> 0:15:36.800 from from Bridgewater. He has been trying to make it 0:15:37.320 --> 0:15:40.760 a smaller, more focused, higher performance fund. 0:15:41.120 --> 0:15:42.240 Yeah, I think I think it's. 0:15:42.560 --> 0:15:44.520 Operating a little bit more like a hedge fund than it. 0:15:44.600 --> 0:15:45.880 Used to, which makes sense. 0:15:45.880 --> 0:15:49.640 Which makes sense because like when it was Ray Dalio's baby, 0:15:49.680 --> 0:15:52.160 it was just like a strange, giant institution. But now 0:15:52.200 --> 0:15:53.720 it's like the guy, you got a round a hedge fund, 0:15:53.720 --> 0:15:53.840 you know. 0:15:54.120 --> 0:15:54.320 Yeah. 0:15:55.280 --> 0:15:57.360 And so one thing that means is the performance is better. 0:15:58.080 --> 0:15:59.920 Another thing it means is that they've returned capital to 0:16:00.040 --> 0:16:03.880 investors because they don't think they have the capacity to 0:16:03.960 --> 0:16:06.560 run as much money as they used to run. And 0:16:06.800 --> 0:16:09.000 the third thing it means they sold stakes to in 0:16:09.080 --> 0:16:12.240 their general partner. They sold stakes in the management company 0:16:12.360 --> 0:16:14.560 to a bunch of investors, including like some people who 0:16:14.640 --> 0:16:18.000 like swapped out hedge fund steaks into management company steaks, 0:16:18.000 --> 0:16:23.840 which is a very strange signal. But anyway, those people 0:16:23.880 --> 0:16:26.040 are now disappointed because they were like I was signing 0:16:26.120 --> 0:16:28.040 up for a steady stream of management fees on this 0:16:28.160 --> 0:16:32.360 giant pool of capital, and now I'm getting good but 0:16:33.360 --> 0:16:36.160 variable performance fees on a smaller pool of capital. And 0:16:36.200 --> 0:16:38.000 that's not what I wanted. I wanted like a high 0:16:38.080 --> 0:16:39.040 quality of earnings, you know. 0:16:39.360 --> 0:16:42.880 Yeah, No, it's great reporting Bloomberg saying that two of 0:16:42.960 --> 0:16:46.520 the firms seven institutional owners have sold their shares back 0:16:46.560 --> 0:16:49.520 to Bridgewater at a discount to their purchase price. 0:16:49.880 --> 0:16:52.320 Right, because like when you buy the thing and it's like, 0:16:52.440 --> 0:16:54.440 you know, the stream of management fees on a giant 0:16:54.480 --> 0:16:56.680 pool of money, like then it goes down when it 0:16:56.800 --> 0:16:57.960 has a smaller pool of money. 0:16:58.120 --> 0:17:00.520 Yeah, but they're not alone. There's a third the Teacher 0:17:00.600 --> 0:17:03.920 Retirement System of Texas. It's also looking to sell. It's 0:17:03.960 --> 0:17:06.719 already slashed its value of its holding by nine percent 0:17:07.359 --> 0:17:11.160 last year. So that's the rub, right, Like you would 0:17:11.160 --> 0:17:14.359 think before you think of like really think about it. 0:17:14.400 --> 0:17:16.359 That Okay, it makes sense the new CEO would come 0:17:16.359 --> 0:17:19.399 in and be like, we need to improve returns. We 0:17:19.560 --> 0:17:23.280 are way too big. We're constrained by how big we are. 0:17:24.359 --> 0:17:28.040 Let's improve this. But even though I mean, twenty twenty 0:17:28.080 --> 0:17:31.160 five was a great year for their pure Alpha fund, 0:17:31.200 --> 0:17:34.960 which had been sort of having a middling decade or so. 0:17:35.560 --> 0:17:38.840 But I guess the anxiety there is that, in addition 0:17:38.920 --> 0:17:42.040 to your earning less on the big pool of money, 0:17:42.200 --> 0:17:44.600 that there's no guarantee that they're going to be able 0:17:44.640 --> 0:17:46.760 to replicate their twenty twenty five. 0:17:46.840 --> 0:17:50.160 Right, it's a quality earnings think, right, Like outside investors 0:17:50.200 --> 0:17:52.879 love management fees because they are the same every year, 0:17:52.960 --> 0:17:54.800 and they don't like performance fees because who knows what 0:17:54.880 --> 0:17:57.600 performance will be next year. I think that most people 0:17:57.640 --> 0:18:00.680 who like work at hedge funds think like you were saying, 0:18:00.760 --> 0:18:03.120 like what you would expect, which is like, of course, 0:18:03.200 --> 0:18:05.560 our job is to make the returns good, right, right? 0:18:06.040 --> 0:18:08.720 Of course, our job is to make as much money 0:18:08.720 --> 0:18:12.359 as possible for our clients. Yes, And if you don't 0:18:12.400 --> 0:18:14.760 have outside money at your GP, if you don't have 0:18:14.760 --> 0:18:16.600 outside money at the imagement company, like you just sort 0:18:16.600 --> 0:18:18.800 of think that now you might not think that you 0:18:18.920 --> 0:18:20.879 might like in your secret evil heart, think I'm just 0:18:20.920 --> 0:18:23.639 gonna like gather as much capital as I can and 0:18:23.800 --> 0:18:26.240 charge two percent fees and who cares about their performance? 0:18:26.640 --> 0:18:29.560 But like you don't say that out loud. Inside that 0:18:29.800 --> 0:18:32.200 you probably don't even really think it, right, like like 0:18:32.400 --> 0:18:34.640 that's like a that's like a that's like an insulting 0:18:34.680 --> 0:18:36.720 thing you might say about someone else. But you wouldn't 0:18:36.720 --> 0:18:39.720 like do that because like your whole life is devoted 0:18:39.760 --> 0:18:42.480 to like having the best possible performance and like winning 0:18:42.520 --> 0:18:44.359 at the edge fund game and all this, and so 0:18:44.840 --> 0:18:49.159 it would be very embarrassing and like psychologically damaging to 0:18:49.640 --> 0:18:51.840 sit there and be like, yeah, I just gather assets. 0:18:51.840 --> 0:18:54.960 I'm not worry about performance. But once you have outside 0:18:55.000 --> 0:18:58.480 capital at the management company, then like those people to 0:18:58.520 --> 0:19:00.560 gather assets and charge two percent fees. 0:19:00.680 --> 0:19:01.800 Yeah, they can say that out loud. 0:19:02.000 --> 0:19:04.520 Yeah, so it's a different or they can give you 0:19:04.600 --> 0:19:06.159 the they can that's for their money back. If you 0:19:06.200 --> 0:19:08.439 don't do it. If you own your own hedgehund from 0:19:08.560 --> 0:19:10.960 you are thinking like a hedgphone manager. But once you 0:19:11.000 --> 0:19:14.920 have outside capital, you're like, you know, steward of shareholder 0:19:15.000 --> 0:19:19.080 value and you're becoming a asset accumulator. And this, by 0:19:19.160 --> 0:19:24.840 the way, has some relevance to the publicly traded aults managers, 0:19:25.760 --> 0:19:28.280 who you know, why is private credit so big because 0:19:28.280 --> 0:19:31.000 you can charge fees on them capital I was wont 0:19:31.040 --> 0:19:33.879 to briefly Bi Blackman, who I don't think I've ever 0:19:34.000 --> 0:19:36.280 actually written about this, but we've talked about on the podcast. 0:19:36.560 --> 0:19:39.240 When he took his management company public, he had this 0:19:39.480 --> 0:19:42.480 structure that he thought and I think is really interesting, 0:19:42.520 --> 0:19:47.879 which is where basically, like the company the management company, 0:19:47.960 --> 0:19:50.840 and thus the shareholders get a preferred return on the 0:19:51.119 --> 0:19:54.080 incentive fees. So like, they get the incentive fees in 0:19:54.080 --> 0:19:56.680 the first like, let's say five percent of performance, so 0:19:56.720 --> 0:19:59.600 I like Pershing Square funds go up five percent a 0:19:59.680 --> 0:20:04.840 year the management company, the shareholders get the performance fees 0:20:04.920 --> 0:20:08.080 on that, and then the rest, like if they go 0:20:08.200 --> 0:20:09.960 up thirty percent a year, the other twenty five percent 0:20:10.440 --> 0:20:13.760 the employees get that. So basically the employees get the 0:20:13.920 --> 0:20:18.359 like upper tail performance fees and the shareholders get the 0:20:18.520 --> 0:20:23.280 like preferred performance fees. So they've turned the performance fees 0:20:23.280 --> 0:20:25.159 into something more like a management fee that is a 0:20:25.200 --> 0:20:27.359 little bit more stable, a little bit more high quality 0:20:27.359 --> 0:20:30.280 of earnings, and so they're giving that to their public 0:20:30.280 --> 0:20:33.480 shaholders well, they take the like juicy upside options for 0:20:33.600 --> 0:20:35.720 the hedge on managers, which I think is a good 0:20:35.760 --> 0:20:40.080 way to like, yeah, split this and like give the 0:20:40.920 --> 0:20:44.159 public shareholders what they want, which is steady returns, and 0:20:44.320 --> 0:20:48.000