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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Here we go, Hello,

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Speaker 1: and welcome to The Money Stuff Podcast, your weekly podcast

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Speaker 1: where we talk about stuff related to money. I'm Matt

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Speaker 1: Levigne and I write the Moneys Doff column for Bloomberg Opinion.

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

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Speaker 2: an anchor for Bloomberg Television.

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Speaker 1: What are you talking about today, Katie?

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Speaker 2: We're going to talk about ESG and whether index funds

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Speaker 2: are illegal. We're going to talk about maybe an answer

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Speaker 2: to shareholder voting, and then we're going to talk about

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Speaker 2: Blackrock HPS. It finally happened. Blackrock finally bought HPS. But

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Speaker 2: let's start with ESG. Turns out, at least according to Texas,

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Speaker 2: that's an anti trust violation.

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Speaker 1: It's been writing for almost ten years. Our index fund's illegal,

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Speaker 1: and I didn't invent that idea, but I feel like

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Speaker 1: I've done a lot to popular has it, and within

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Speaker 1: the next few years it might become the case that

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Speaker 1: index funds are illegal. So Texas and some other states,

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Speaker 1: but some states, led by Texas, sued what do we

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Speaker 1: in the business called the Big three asset managers, so

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Speaker 1: Vanguard Blackrock, and State Street for an alleged anti trust

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Speaker 1: conspiracy where they allegedly all got together and pressured coal

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Speaker 1: companies to cut the production of coal to raise the

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Speaker 1: price of coal, and that is the anti trust conspiracy. Now,

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Speaker 1: there's a long running theory that these big diversified asset

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Speaker 1: managers like Blackrock and Vanguarden, State Street, but also like

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Speaker 1: some of the smaller less INDEXI managers, because they kind

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Speaker 1: of own every company in an industry, they have a

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Speaker 1: desire for the companies in that industry to get together,

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Speaker 1: cut production, not compete with each other too hard, raise prices,

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Speaker 1: and like earn outsized margins because they are not competing

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Speaker 1: the way they would if they were all owned by

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Speaker 1: separate owners. This is like a long running theory. It's

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Speaker 1: very controversial, and one reason it's controversial is that no

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Speaker 1: one really thinks that those meetings happen, you know, so

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Speaker 1: the classic examples airlines, no one really thinks that like

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Speaker 1: Blackrock sends people to the CEOs of airlines and says

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Speaker 1: you need to stop competing with other airlines on your

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Speaker 1: roots because we want you to raise ticket prices and

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Speaker 1: earn more profits, and we want everyone else to raise

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Speaker 1: ticket prices are and more profits too, and no one

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Speaker 1: really thinks that the airline executives would listen to those conversations.

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Speaker 1: So there's just not like a lot of evidence that

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Speaker 1: these index fund companies, these big investors get together and

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Speaker 1: actually explicitly tell companies to cut production and raise prices.

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Speaker 1: So that's like the problem with a lot of these

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Speaker 1: anti trustee theories that like, oh, look, these index funds

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Speaker 1: own every company, so isn't that a weird anti trust problem.

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Speaker 1: The huge exception to that is esg. The huge exception

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Speaker 1: to that is that the big asset managers really did

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Speaker 1: sign on to statements saying we want companies to achieve

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Speaker 1: net zero emissions. And that is all well and good

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Speaker 1: when you're talking about consulting companies trying to fly less

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Speaker 1: or whatever. But when you talk about coal companies, talking

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Speaker 1: about a coal company lowering its emissions is very similar

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Speaker 1: to talking about a coal company lowering its production of coal.

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Speaker 1: And so if all of the big shareholders of all

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Speaker 1: the big coal companies get together and say to the

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Speaker 1: coal companies, you should lower your production of coal, and

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Speaker 1: the coal companies go out and say, we have lowered

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Speaker 1: our production of coal in order to meet ESG goals. Then, like,

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Speaker 1: I don't know, that kind of looks like the owners

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Speaker 1: of all the companies getting together and saying we're going

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Speaker 1: to lower production to raise prices. And so you have

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Speaker 1: this lawsuit saying not only that Black Rock and Vanguard

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Speaker 1: signed on to net zero pledges and then urged companies

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Speaker 1: to lower their emissions, but also that these coal companies

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Speaker 1: cut production of coal into rising demand for coal and

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Speaker 1: the price of coal sort, and these coal companies made

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Speaker 1: quote cartel like profits. So I don't know, it's kind

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Speaker 1: of a cool lawsuit.

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Speaker 2: If I were Black Rock or Vanguard or State Street,

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Speaker 2: could I defend myself on the emissions point saying we

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Speaker 2: didn't mean for you to lower production, We didn't mean

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Speaker 2: for you to stop mining coal, just do it in

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Speaker 2: a more green way. Does that hold any water?

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Speaker 1: I don't know. That's like kind of hard, Like I

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Speaker 1: think there are a lot of defenses here, and this

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Speaker 1: is like a creative lawsuit more than it is like

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Speaker 1: a slam dunk lawsuit. Even if the story was we

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Speaker 1: just wanted them to mind in a greener way and

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Speaker 1: that raised the cost of mining or like you know,

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Speaker 1: delayed mining, like that would still be sort of a

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Speaker 1: production cut. But it's also like obviously the case that

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Speaker 1: if you are generically an ESG investor, thermal coal is

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Speaker 1: kind of your least favorite thing. And so yeah, there

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Speaker 1: is some amount of pressure on companies to shift away

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Speaker 1: from thermal coal mining. And like the lawsuit, you don't

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Speaker 1: see like explicit statements from like Blackrock saying coal companies

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Speaker 1: shouldn't mind coal anymore. It's more like statements like we're

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Speaker 1: going to engage with companies about their climate goals and

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Speaker 1: try to really understand how they see the future of

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Speaker 1: the market for thermal coal. It's all vague statements, but

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Speaker 1: it is all suggestive of the idea that the people

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Speaker 1: writing those statements are not big believers in increasing the

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Speaker 1: production of thermal coal.

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Speaker 2: Something that I feel like I've asked you before, but

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Speaker 2: I'll ask you again is whether or not intent matters

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Speaker 2: when it comes to antitrust. Like, surely, when you know,

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Speaker 2: putting together these ESG flavored proposals for these coal companies,

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Speaker 2: Blackrock wasn't trying to like boost their margins and line

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Speaker 2: the pockets of these coal companies.

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Speaker 1: So a couple of points of that one the lawsuit

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Speaker 1: says It doesn't matter that they think they were doing

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Speaker 1: this for the good of the world. If you have

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Speaker 1: a conspiracy to restrain trade, if you have a conspiracy

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Speaker 1: to lower production that has the effect of raising prices,

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Speaker 1: the fact that you were doing it or some outside

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Speaker 1: benefit is not a really good anti trust defense. On

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Speaker 1: the other hand, it's a very weird claim because like

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Speaker 1: the lawsuits, they are anti trust lawsuits, and so they

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Speaker 1: are arguing that Blackrock and Vanguard were ganging up to

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Speaker 1: have cartel like profits in the coal industry, which is

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Speaker 1: a strange claim for a couple of reasons. One is

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Speaker 1: like most of the time when politicians complain about ESG,

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Speaker 1: what they say is Blackrock is usually the punching bag.

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Speaker 1: Blackrock is not being a fiduciary for its investors. It's

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Speaker 1: not trying to get the highest returns for investors. It's

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Speaker 1: not putting profits first. Instead, it's putting its own moral

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Speaker 1: interest in climate change or whatever ahead of the financial

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Speaker 1: interests of its investors. But this lawsuit says no, no, no, Actually,

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Speaker 1: BlackRock's ESG stuff is making cartelig profits right Like the

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Speaker 1: ESG stuff is incredibly lucrative for these big asset managers,

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Speaker 1: which is just a strange claim. It's not really a

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Speaker 1: claim that Blackrock would make, right. I mean, I think

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Speaker 1: a lot of ESG investors would say, this is actually

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Speaker 1: in the long term financial interest of our investors. But

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Speaker 1: they're not saying, oh, we're making cartel like profits by

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Speaker 1: cutting down the minor coal. But it's also not something

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Speaker 1: that like the Attorney General of Texas would say in

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Speaker 1: any context outside of this lawsuit, right, Like the attorney

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Speaker 1: general texts say, oh, Blackrock is not putting its investors'

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Speaker 1: interests first, except here it is here it's making a

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Speaker 1: lot of money for investors. So that's like a funny

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Speaker 1: little claim. The other thing that's weird is that the

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Speaker 1: coal companies are not defendants, right. Yeah, if you're worried

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Speaker 1: about anti trust conspiracy in which the coal companies are

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Speaker 1: earning cartel like profits by all agreeing to cut back

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Speaker 1: on production, like why aren't you seeing the coal companies,

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Speaker 1: and again the answer is political, right, The answer is like,

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Speaker 1: it would be weird for the Attorney General of Texas

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Speaker 1: to sue all the big coal companies, but to sue Blackrock.

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Speaker 2: Is finn Yeah, that is so funny. I mean you

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Speaker 2: mentioned that Blackrock is often the punching bag here. I

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Speaker 2: thought that.

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Speaker 1: Much more so than State Street and found here mostly

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Speaker 1: because they've put out more cablic statements. One way or

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Speaker 1: the other.

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Speaker 2: That's true. And I mean Vanguard is just a passive beast,

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Speaker 2: just passive animal.

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Speaker 1: But that's not entirely. They're much less like public about it,

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Speaker 1: and they are much more Their heritage is much more

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Speaker 1: index funds versus Blackrock, like owns a lot of index funds,

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Speaker 1: but it is also like you know, has more of

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Speaker 1: a heritage an active bond manager.

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Speaker 2: But yeah, you're right. You know, the conversation I've had

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Speaker 2: with Vanguard as well that they're also in on the

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Speaker 2: active game.

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Speaker 1: Active I don't mean active investment. I mean like intentional

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Speaker 1: stewardship of even their passive holdings. Right, if you are

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Speaker 1: a massive index fund manager, you have to think about

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Speaker 1: how you vote your shares, and you have to think about,

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Speaker 1: you know, whether and how you engage with companies. And

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Speaker 1: I think Vanguard does not say we do none of that, right,

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Speaker 1: I mean, I think they have some sort of some

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Speaker 1: of the same sorts of stewardship thoughts that like blackrockers.

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Speaker 2: I do think it's interesting that something that's brought up

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Speaker 2: in this lawsuit is the fact that the Big Three

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Speaker 2: are part of these like various climate groups, some of

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Speaker 2: them that are named or the Climate Action one hundred plus.

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Speaker 2: There's also the Net Zero Asset Managers and NICHE. I mean,

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Speaker 2: that's pointed to as proof that they formed a syndicate

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Speaker 2: and agreed to use their collective holdings of publicly traded

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Speaker 2: coal companies to introduce industry wide output reductions. For several

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Speaker 2: of these groups. I mean, State Street, for example, quit

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Speaker 2: a CAA one hundred plus in February. Vanguard left the

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Speaker 2: Net Zero Asset Manager's Initiative in twenty twenty two. Was

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Speaker 2: never a part of the previous group as well, and

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Speaker 2: that's also acknowledged in the lawsuit that at least for

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Speaker 2: several of these collectives, they're not even part of these anymore.

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Speaker 2: But I don't know, it's a weird thing to point

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Speaker 2: to as proof of something, and also I just don't

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Speaker 2: know how much teeth is involved.

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Speaker 1: I agree with that. I mean, I think the lawsuit

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Speaker 1: has to mention this because one anti trust claim you

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Speaker 1: could make is that Blackrock itself or you know, one

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Speaker 1: of these three managers just by itself because it owns

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Speaker 1: big stakes in all of these public companies, it has

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Speaker 1: some incentive and some power to make those companies colude together.

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Speaker 1: So like Blackrock itself could go to meetings at all

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Speaker 1: the coal companies say cut to like boost the price

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Speaker 1: of the other coal companies, and maybe that's an anti

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Speaker 1: trust violation, but that is less compelling because Blackrock is

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Speaker 1: a you know, passive minority shareholder and all these it's

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Speaker 1: less compelling than saying, well, between them, the Big three

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Speaker 1: owned thirty percent of all these coal companies, and so

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Speaker 1: they have enormous power. And the fact is that for

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Speaker 1: a while, the Big three asset managers all sort of

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Speaker 1: made similar statements about being interested in ESG and being

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Speaker 1: concerned about climate disclosure and talking to portfolio companies about

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Speaker 1: how they think about climate change. And it's possible that

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Speaker 1: those statements were all independent. Right, It's possible that if

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Speaker 1: you're a coal company, you have a lot of shareholders

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Speaker 1: who are separate, unrelated shareholders who are all interested in

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Speaker 1: climate change and who're all worried about ESG issues, and

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Speaker 1: so as a coal company CEO, you have to respond

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Speaker 1: to your various shareholders who all care about ESGA or

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Speaker 1: many of whom care about escha. But that's not an

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Speaker 1: anti trust problem, right, Like, if all of your shareholders

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Speaker 1: independently worry about climate change because it's like a fact

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Speaker 1: in the world, then that's not an antrust problem. The

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Speaker 1: a interrust problem is if they all get together in

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Speaker 1: a group, right, And so that's why the lawsuits mentioned

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Speaker 1: these groups. I agree with you, these groups don't seem

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Speaker 1: like they have a ton of teeth, right, Like these

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Speaker 1: are not literally like backroom meetings of the heads of

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Speaker 1: Black Rock and Vanguard and States. She's saying, oh, that's

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Speaker 1: got coal production, right, But like they are a group

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Speaker 1: that you can point to where they all sort of

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Speaker 1: got together and signed on to the same statement.

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Speaker 2: Let's also talk about what they're trying to achieve, because

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Speaker 2: this line caught my eye, and I think it leads

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Speaker 2: in nicely to what we're going to be talking about next.

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Speaker 2: So the States are asking the court to bar the

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Speaker 2: three largest US investment firms from using their stock in

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Speaker 2: coal companies to vote on shareholder resolutions, which I don't know,

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Speaker 2: that doesn't seem very healthy and good. Just to remove

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Speaker 2: the voting power of specifically these three altogether, I.

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Speaker 1: Think a lot of people, not just that idea ischi

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Speaker 1: people find it weird that so much of the voting

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Speaker 1: power of stocks is controlled by literally Larry think right by,

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Speaker 1: like the people in charge of stewardship at these three companies.

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Speaker 1: And this is not the first suggestion I've seen that, oh, actually,

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Speaker 1: just index ones shouldn't be able to vote. That would

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Speaker 1: solve all the problems. I agree that it's a weird solution.

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Speaker 1: I don't know that it solves all the problems. But

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Speaker 1: saying these big firms shouldn't be allowed to vote their

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Speaker 1: shares is not an uncommon proposed solution. Actually, it sort

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Speaker 1: of crudely gets at the issue of like, hey, it's

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Speaker 1: weird that they control so many votes, and they have

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Speaker 1: sort of different motivations from other shareholders because they do

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Speaker 1: own every company, and they do sort of represent a

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Speaker 1: lot of passive investors who maybe don't supervise their voting

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Speaker 1: choices that closely.

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Speaker 2: Yeah, I mean, you tweet anything about Blackrock, or if

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Speaker 2: you spend even five minutes on Twitter at least the

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Speaker 2: circles that I run in, and you'll find a lot

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Speaker 2: of conspiracy theories immediately.

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Speaker 1: But they truly lend themselves to conspiracy theories, right. I mean,

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Speaker 1: they're like a multi trillion dollar company that controls every company.

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Speaker 1: Like if you're like, oh, there's a company that like

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Speaker 1: is the biggest shareholder for every company in the world, Like, ooh,

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Speaker 1: that's a good conspiracy. That's a good starting sentence for

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Speaker 1: a conspiracy. And so they do attract a lot of conspiracy.

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Speaker 2: We have a novel solution that's been proposed to sort

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Speaker 2: of solve some of these issues. Do you think we

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Speaker 2: should talk about it?

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Speaker 1: We should talk about it.

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Speaker 2: Okay.

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Speaker 1: It's a proposal from Oliver Hart, Helene Landimore and Luigi's

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Speaker 1: and Galas in Bloomberg Weekend about how to implement shareholder

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Speaker 1: democracy using shareholder assemblies.

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Speaker 2: Yeah, so this is interesting. We kind of compare it

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Speaker 2: to basically a jury where you select a sample of

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Speaker 2: the shareholders. It's like a sampling sort of technique and

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Speaker 2: a bond index fund. Well, it's more like a lottery,

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Speaker 2: but sure a lottery. Well, I mean it reminds you

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Speaker 2: of a sampling technique just because you're not going to

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Speaker 2: get all of the bonds in your index. So the

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Speaker 2: hope is to pick a sample that sort of accurately

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Speaker 2: represents the demographics or whatever. But you're right, they are

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Speaker 2: picking randomly.

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Speaker 1: Right. The idea is like there's like a million you know,

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Speaker 1: shareholders and a mutual fund or whatever, and you give

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Speaker 1: them each one lottery ticket for each share of the

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Speaker 1: fund that they own, and then you choose you know,

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Speaker 1: one hundred and fifty lottery tickets, and so you collect

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Speaker 1: one hundred and fifty people who are in some sense

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Speaker 1: representative investors in the fund, and then you get them

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Speaker 1: together in a big room and they talk about what

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Speaker 1: the funds voting policies should be, so that instead of

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Speaker 1: like Larry think, deciding how Blackrock will vote its shares

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Speaker 1: in coal companies, you have like, you know, some people

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Speaker 1: in a room who are like ultimately the direct investors

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Speaker 1: in like the Blackrock index fund, and they get together

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Speaker 1: and they decide have Black Action vote its shares and

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Speaker 1: then their decision, you know, after deliberation and consultation, is

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Speaker 1: the new policy for Blackrock.

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Speaker 2: And this is specific to mutual funds. And they do

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Speaker 2: propose that you know, if you have a larger investment,

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Speaker 2: you would have a higher chance of being drawn, but

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Speaker 2: everyone would have an equal voice once actually in the assembly,

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Speaker 2: which I also don't know how to think about that. Obviously,

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Speaker 2: with a jury, that makes sense. But if you own

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Speaker 2: a ton of shares in a mutual funds, shouldn't you

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Speaker 2: have a bigger vote?

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Speaker 1: Well, but most of the people who own the shares the

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Speaker 1: mutual fund of zero voted in this propessal Right, it's

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Speaker 1: not like a direct democracy. It's it's a random temple

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Speaker 1: to get some people who seem vaguely representative and they

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Speaker 1: hash out something that seems like it might be workable

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Speaker 1: for everyone. Like, my impression is that there's like a

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Speaker 1: lot of overstatement of the importance of shareholder voting. Like

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Speaker 1: I don't think that like Blackrock is influential or that

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Speaker 1: ESG is important because of how black Rock votes on

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Speaker 1: shareholder proposals at coal companies, Like I don't think that's

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Speaker 1: the thing that is driving anything, right, Like these shareholder

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Speaker 1: proposals are frequently sort of symbolic, non binding proposals, and

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Speaker 1: so it's nice for a company to win the votes

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Speaker 1: against the sheralfter's proposal. That doesn't Like it's an annoying

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Speaker 1: embarrassment to fight over these things, But it's not like

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Speaker 1: the driving force behind Like you know, how the CEO

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Speaker 1: lives her life or is paid or anything like that. Right,

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Speaker 1: Like the thing that matters is, you know, voting in

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Speaker 1: contested proxy fights and mergers. But it's also like the

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Speaker 1: soft power of Vanguard coming in or of black Rock

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Speaker 1: coming in and having a meeting and saying, hey, we'd

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Speaker 1: really like you to dig up less coal or whatever.

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Speaker 1: And I think that like what that means is that

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Speaker 1: the sort of explicit voting policies are less important than

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Speaker 1: the informal meetings and engagement that these firms can have.

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Speaker 1: And you can only really have these assemblies to set

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Speaker 1: the explicit voting policies, right, Like you have these meetings

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Speaker 1: to say we will vote in favor of shareholder proposals

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Speaker 1: to like disclose more about climate change or whatever, or

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Speaker 1: against them or whatever. You know, like the people will

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Speaker 1: get together into alot, but you can't have the assemblies

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Speaker 1: show up at the meetings with the companies. Right. Like

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Speaker 1: that's going to be the Blackrock Stewardship team, right, And

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Speaker 1: like those people are going to continue to be those people,

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Speaker 1: and they're going to be They're going to have the

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Speaker 1: sort of professional biases that those people have, and the

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Speaker 1: voting policy will be a sort of marginal change rather

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Speaker 1: than like a real change in like how Blackrock operates itself.

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Speaker 1: Now people really care about the voting stuff, right, and

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Speaker 1: like there's a lot of like focus on you know,

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Speaker 1: Blackrock is like a number of these funds, these big

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Speaker 1: fund firms are like experimenting with pass through voting, where

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Speaker 1: like the shareholders, the ultimate beneficiaries of the fund can

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Speaker 1: vote their shares or they can choose from a menu

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Speaker 1: of policies that will drive the votes, so they can

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Speaker 1: be like a little bit more responsive to like the

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Speaker 1: ultimate beneficiary's interests, And this is another way to do that.

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Speaker 1: I just I just don't know how much any of

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Speaker 1: this matters. Like the voting stuff is the sort of

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Speaker 1: like showy, visible stuff, but I'm not sure how much

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Speaker 1: it matters.

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Speaker 2: And I'm sure there's people that would disagree. But the

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Speaker 2: pass through voting doesn't seem like a terrible solution, especially

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Speaker 2: when you consider sort of the logistical problems that would

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Speaker 2: come with these shareholder or investor assemblies, Like.

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Speaker 1: Well, the pastor voting is very logistically problematic. It's like

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Speaker 1: because yeah, you have to vote, Like I think the

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Speaker 1: way I actually implement it is like you choose from

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Speaker 1: a menu of like three different voting policies and then

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Speaker 1: they do the voting for you. It's not actually pass

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Speaker 1: through voting in the sense that like, you know, yeah,

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Speaker 1: black guy gets like a thousand proxy statements and you

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Speaker 1: get to choose how you vote your little shares on

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Speaker 1: each one of them.

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Speaker 2: Yeah. In terms of though, what is being proposed by

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Speaker 2: these three professors, they talk about, you know, gathering one

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Speaker 2: hundred and fifty people in a room, and it sounds

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Speaker 2: like a pretty intense process. And they say, you know,

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Speaker 2: since participation would be voluntary, participants should be adequately paid,

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Speaker 2: provided with child care, et cetera. Like that seems like

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Speaker 2: quite quite an uphill battle.

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Speaker 1: I don't know, man, that's a drop in the bucket

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Speaker 1: compared to running trillions and trillions of dollars of money,

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Speaker 1: and also like dropping the bucket compared to running trillions

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Speaker 1: of dollars of money and getting in trouble with politicians

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Speaker 1: because you're voting in a way that's different from if

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Speaker 1: you have like a good way to sort of point at,

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Speaker 1: like we have a good process.

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Speaker 2: But just in terms of like who would actually agree

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Speaker 2: to do that, Like who would take time because their

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Speaker 2: life could participate? Yeah, exactly. They propose that to make

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Speaker 2: people who.

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Speaker 1: Participate in CHERYLD they're ready anyway, So it's like.

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Speaker 2: Fun, that's true, that's true, but self selection obviously would

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Speaker 2: still be a big problem here.

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Speaker 1: I will say it reminds me of a paper by

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Speaker 1: John Coates, the Harvard law professor. It's called the Problem

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Speaker 1: of twelve, which is a great title. It's about the

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Speaker 1: idea that like, like he says twelve, many people now

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Speaker 1: say three. But there's some small number of asset managers

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Speaker 1: who will end up controlling most of the votes at

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Speaker 1: most of the companies in America. And one thing he

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Speaker 1: writes about is like they've gotten to that position sort

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Speaker 1: of like by accident, and there's no thought given to

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Speaker 1: how they exercise that power. And we're now increasingly see

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Speaker 1: people thinking about how they exercise that power. And one

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Speaker 1: thing he proposed is like there's like all these rules

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Speaker 1: of administrative law for how like US federal agencies should

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Speaker 1: have to like make decisions, how they should like make

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Speaker 1: new rules or they should make enforcement decisions. There's just

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Speaker 1: a lot of like process around how federal agencies make decisions.

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Speaker 1: And like, obviously the big asset managers have some process

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Speaker 1: around how they make decisions, but like it's all internal,

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Speaker 1: it's all voluntary. It's like, you know, their companies, and

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Speaker 1: they make decisions however they want to make decisions. There's

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Speaker 1: this idea that they shouldn't be completely free to make

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Speaker 1: decisions on their own. They're like now like a sort

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Speaker 1: of quasi public function, and so there should be some

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Speaker 1: public process. There should be some like way for citizens

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Speaker 1: or like investors to like come in and give them

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Speaker 1: some feedback and tell them how to make decisions so

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Speaker 1: that they're not just like making unconstrained decisions. It reminds

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Speaker 1: you of like the Facebook oversight board, where Facebook is

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Speaker 1: like we don't know how to moderate our contents, so

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Speaker 1: we're going to have like some you know, official supreme

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Speaker 1: court of moderation. This is like one more proposal of

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Speaker 1: like how to do that, of how to get like

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Speaker 1: some sort of process and public input into how these

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Speaker 1: asset managers make decisions. And I think it's like not

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Speaker 1: quite right for like how they actually influence companies, but

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Speaker 1: it's a gesture in that direction.

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Speaker 2: Yeah. I mean, ultimately, I feel like if you're a

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Speaker 2: public company, your stock price is going to be the

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Speaker 2: ultimate sounding board. If you make a bad decision, your

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Speaker 2: stock price will probably go down eventually, Like if you

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Speaker 2: make enough bad decisions that they outweigh the good decisions,

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Speaker 2: et cetera. But obviously that's more indirect.

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Speaker 1: Yeah, I mostly agree with that, and I think the

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Speaker 1: stock price is the main disciplining mechanism. Shareholder votes is

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Speaker 1: a secondary disciplining mechanism, right, Like you could imagine a

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Speaker 1: company performing perfectly well financially, but like annoying enough if

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Speaker 1: it's like locked up index investors, that someone raises a

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Speaker 1: proxy fight and gets management kicked out. Like that's a

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Speaker 1: little bit what happened with Exxon and engine number one.

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Speaker 1: They didn't management didn't get kicked out, but they did

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Speaker 1: lose a proxy fight, not because investors were particularly disgruntled

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Speaker 1: with the financial performance, but because like a small activist

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Speaker 1: fund was able to kind of get support from big

435
00:22:21,359 --> 00:22:26,120
Speaker 1: indexy investors to change some policies. So like like it's

436
00:22:26,160 --> 00:22:28,240
Speaker 1: mostly stock prices what matters, and so like all this

437
00:22:28,280 --> 00:22:30,200
Speaker 1: stuff is like a second tier thing, but like there's

438
00:22:30,240 --> 00:22:32,479
Speaker 1: a little bit of this stuff can affect how companies

439
00:22:32,520 --> 00:22:33,159
Speaker 1: actually operate.

440
00:22:47,359 --> 00:22:49,480
Speaker 2: Matt, I think we should keep talking about black Rock.

441
00:22:49,640 --> 00:22:53,440
Speaker 2: Oh yeah, it's the world's biggest asset manager, and they're

442
00:22:53,480 --> 00:22:57,240
Speaker 2: trying to get a lot bigger, specifically in the months. Well,

443
00:22:57,400 --> 00:22:59,359
Speaker 2: they'd like to get a lot bigger, and they'd like

444
00:22:59,440 --> 00:23:02,680
Speaker 2: to be leader in private markets. And boy are they

445
00:23:02,800 --> 00:23:05,440
Speaker 2: spending a lot of money to get there, are they?

446
00:23:05,600 --> 00:23:06,320
Speaker 1: I guess they are.

447
00:23:06,600 --> 00:23:10,160
Speaker 2: Well, they spent another twelve billion on HPS. They spent

448
00:23:10,240 --> 00:23:13,000
Speaker 2: like twelve and a half billion right on a GIP

449
00:23:13,680 --> 00:23:16,879
Speaker 2: about a year ago, and I forget how much they

450
00:23:16,960 --> 00:23:20,320
Speaker 2: spent on prequein but that was mostly about data. But HPS,

451
00:23:20,359 --> 00:23:24,000
Speaker 2: I mean, we've been this has been written about and

452
00:23:24,040 --> 00:23:27,840
Speaker 2: speculated on for a while now, and they finally came

453
00:23:27,880 --> 00:23:30,040
Speaker 2: out and announced that they're buying HPS.

454
00:23:30,320 --> 00:23:33,160
Speaker 1: Yeah, it feels like we're in a really white hot

455
00:23:33,160 --> 00:23:34,560
Speaker 1: time for private credit.

456
00:23:34,760 --> 00:23:37,840
Speaker 2: And a golden age, a golden age.

457
00:23:37,640 --> 00:23:41,200
Speaker 1: For private credit, and golden ages always feel like. Golden

458
00:23:41,240 --> 00:23:44,040
Speaker 1: age is like until like for the last moment, and

459
00:23:44,920 --> 00:23:49,040
Speaker 1: HPS seems very smart. Like they did a very smart

460
00:23:49,119 --> 00:23:52,800
Speaker 1: job here where they made a lot of noises about

461
00:23:52,800 --> 00:23:54,399
Speaker 1: it and like went pretty far down the road of

462
00:23:54,600 --> 00:23:57,480
Speaker 1: going public and talking about a very high valuation for

463
00:23:57,520 --> 00:24:00,000
Speaker 1: their IPI and they made a lot of noise about it.

464
00:24:00,119 --> 00:24:02,840
Speaker 1: Like went far down the road of like raising big

465
00:24:02,880 --> 00:24:05,800
Speaker 1: minority stakes from like Middle East sovereign wealth funds. So

466
00:24:05,840 --> 00:24:09,119
Speaker 1: there's a lot of like talk about we're gonna have

467
00:24:09,280 --> 00:24:11,840
Speaker 1: some mark where the thing is worth ten or twelve

468
00:24:11,840 --> 00:24:15,320
Speaker 1: billion dollars. And then they were able to use that

469
00:24:15,520 --> 00:24:19,119
Speaker 1: kind of public pressure to get Blackrock, which was pretty

470
00:24:19,119 --> 00:24:21,840
Speaker 1: obviously pretty desperate to buy a big private credit fund

471
00:24:21,840 --> 00:24:23,919
Speaker 1: and like HPS was kind of like the biggest target.

472
00:24:24,400 --> 00:24:26,320
Speaker 1: They were able to use that, like all those marks

473
00:24:26,320 --> 00:24:30,360
Speaker 1: to get Blackrock to pay twelve billion dollars for hps's business.

474
00:24:30,800 --> 00:24:33,920
Speaker 1: And you know, like you get the sense they think

475
00:24:34,000 --> 00:24:36,919
Speaker 1: that's kind of a rich valuation. Mm hmmm, and a're

476
00:24:37,000 --> 00:24:38,000
Speaker 1: very happy what they're doing.

477
00:24:38,320 --> 00:24:42,280
Speaker 2: Yeah, I imagine. So, but as you write about recently

478
00:24:42,320 --> 00:24:44,800
Speaker 2: in money stuff, they're not sailing into the sunset. They

479
00:24:44,800 --> 00:24:48,240
Speaker 2: are going to continue to work. And I mean that's

480
00:24:48,280 --> 00:24:50,960
Speaker 2: important because you can, like there's.

481
00:24:50,800 --> 00:24:52,960
Speaker 1: Like a bunch of articles in Bloomberg about how like

482
00:24:53,080 --> 00:24:55,600
Speaker 1: there's a huge incentive compensation package to keep all the

483
00:24:55,680 --> 00:24:58,040
Speaker 1: HPS people and like they're getting all these big retention

484
00:24:58,119 --> 00:25:01,360
Speaker 1: bonuses and they are take all their money in Blackrock

485
00:25:01,440 --> 00:25:04,280
Speaker 1: stock and they're keeping billions of dollars of like their

486
00:25:04,359 --> 00:25:07,800
Speaker 1: pas in like HPS funds. You're saying all of that

487
00:25:08,119 --> 00:25:11,520
Speaker 1: because because it's surprising, right, You're saying all of that,

488
00:25:11,520 --> 00:25:13,680
Speaker 1: because you need to say all of that, right, Like, yes,

489
00:25:13,720 --> 00:25:15,640
Speaker 1: they are not just cashing at and selling off into

490
00:25:15,640 --> 00:25:20,199
Speaker 1: the sunset, but it's like it feels like such a

491
00:25:20,240 --> 00:25:24,040
Speaker 1: good and rich and timely exit that you know you

492
00:25:24,080 --> 00:25:26,000
Speaker 1: have to be like, no, it's not an excent. We're fine,

493
00:25:26,520 --> 00:25:27,120
Speaker 1: We're still here.

494
00:25:27,160 --> 00:25:30,240
Speaker 2: Yeah. Yeah, Well, I mean you think about all the

495
00:25:30,920 --> 00:25:32,840
Speaker 2: sell side notes that have been written about this deal

496
00:25:32,920 --> 00:25:37,200
Speaker 2: talking about concerns about culture, et cetera. And you highlighted

497
00:25:37,320 --> 00:25:41,399
Speaker 2: the best one which got at it pretty directly from Evercore,

498
00:25:41,440 --> 00:25:44,320
Speaker 2: talking about how this does come with execution risk. This

499
00:25:44,440 --> 00:25:47,800
Speaker 2: is a people led business and assets go up and

500
00:25:47,880 --> 00:25:51,800
Speaker 2: down the elevator every single day, so they need to

501
00:25:51,840 --> 00:25:53,480
Speaker 2: come out with these sort of noises.

502
00:25:54,280 --> 00:25:57,840
Speaker 1: Yeah. As I say, like, you can obviously see the

503
00:25:57,880 --> 00:26:01,160
Speaker 1: appeal to HPS, right besides the twelve dollars, they are

504
00:26:01,160 --> 00:26:04,440
Speaker 1: a big private credit fund, but this is a business

505
00:26:04,440 --> 00:26:06,159
Speaker 1: that has gone from being like a kind of like

506
00:26:06,520 --> 00:26:10,399
Speaker 1: weird niche business to being a huge institutional business. And like,

507
00:26:11,320 --> 00:26:13,320
Speaker 1: if you want to get really big as a private

508
00:26:13,359 --> 00:26:16,440
Speaker 1: credit fund. You kind of need a really big platform

509
00:26:16,440 --> 00:26:18,840
Speaker 1: at this point, and like a platform to go ahead

510
00:26:18,840 --> 00:26:22,159
Speaker 1: and market to big institutions. And you know, HPS is

511
00:26:22,200 --> 00:26:25,640
Speaker 1: like largely a high yieldy direct lending e firm, and

512
00:26:26,480 --> 00:26:29,119
Speaker 1: plausibly the next wave of private credit is more like

513
00:26:29,160 --> 00:26:33,360
Speaker 1: investment credit private credit, and to build that out. It's

514
00:26:33,800 --> 00:26:35,880
Speaker 1: just seems like it would obviously be helpful to have

515
00:26:35,960 --> 00:26:39,320
Speaker 1: like Blackrocks enormous size and client base.

516
00:26:40,200 --> 00:26:42,879
Speaker 2: M I mean, I don't know what to say to that,

517
00:26:42,920 --> 00:26:46,040
Speaker 2: other than God, I wish I was being bought by Blackrock,

518
00:26:46,080 --> 00:26:50,119
Speaker 2: and so I'm like, it is interesting. I don't know,

519
00:26:50,160 --> 00:26:53,600
Speaker 2: it's just it's so it's so Blackrock the way that

520
00:26:53,640 --> 00:26:56,760
Speaker 2: they've approached this for I don't know, a couple of months,

521
00:26:56,760 --> 00:26:59,639
Speaker 2: it's like, oh, Blackrocks trying to catch up in the

522
00:27:00,160 --> 00:27:03,400
Speaker 2: the private markets, and now it's like when this closes,

523
00:27:03,400 --> 00:27:05,800
Speaker 2: what they're going to be managing like six hundred billion

524
00:27:05,960 --> 00:27:08,879
Speaker 2: in alternatives and now they're you know, close to the

525
00:27:08,880 --> 00:27:09,920
Speaker 2: top of the leader board.

526
00:27:10,200 --> 00:27:14,160
Speaker 1: Yeah. I mean it's funny to me, like you think

527
00:27:14,200 --> 00:27:17,959
Speaker 1: about like the giant gasset managers. Black Rock comes from

528
00:27:18,000 --> 00:27:20,919
Speaker 1: a place of you know, being a bond manager eventually

529
00:27:20,920 --> 00:27:25,880
Speaker 1: being an excepent manager, and like Blackstone, Apollo, KKR come

530
00:27:25,880 --> 00:27:33,399
Speaker 1: from places of like being LBO shops, and the convergence

531
00:27:33,480 --> 00:27:36,720
Speaker 1: is in this like private credit world where it sort

532
00:27:36,760 --> 00:27:40,920
Speaker 1: of is like being a public credit investor because yeah,

533
00:27:41,000 --> 00:27:44,320
Speaker 1: it's like credit stuff, and it's increasingly like investment grade

534
00:27:44,320 --> 00:27:48,160
Speaker 1: credit stuff, and it's sort of like being an LBO

535
00:27:48,200 --> 00:27:50,359
Speaker 1: investor because it's like a lot of it as financing LBS.

536
00:27:50,640 --> 00:27:52,280
Speaker 1: But so like you can come to it from either

537
00:27:52,320 --> 00:27:55,600
Speaker 1: direction and it is like that sort of vast middle

538
00:27:55,600 --> 00:27:58,959
Speaker 1: ground where like you know, if you're running a giant

539
00:27:59,000 --> 00:28:01,480
Speaker 1: private credit strateg now you're talking about like, oh we

540
00:28:01,520 --> 00:28:04,879
Speaker 1: talked to investment grade companies, We're like you kind of

541
00:28:04,920 --> 00:28:07,480
Speaker 1: look like a bond manager when you say Blackrock has

542
00:28:07,520 --> 00:28:12,320
Speaker 1: six hundred billion dollars of alternatives, like they're not doing LBS,

543
00:28:12,880 --> 00:28:15,719
Speaker 1: Like yeah, alternative, Like there's a range of what alternatives

544
00:28:15,760 --> 00:28:18,360
Speaker 1: can mean, and it's like it's fixed income credit stuff now.

545
00:28:19,119 --> 00:28:24,159
Speaker 2: Yeah, another point I wanted to make just about like

546
00:28:24,240 --> 00:28:28,359
Speaker 2: this being so Blackrock. I love ETFs, as everyone knows,

547
00:28:28,680 --> 00:28:31,600
Speaker 2: and you think about how Blackrock became Blackrock. In ETFs,

548
00:28:31,800 --> 00:28:35,240
Speaker 2: they bought Barkley's Global Investors for thirteen and a half billion.

549
00:28:35,800 --> 00:28:38,800
Speaker 2: I think that was announced in June two thousand and nine,

550
00:28:39,320 --> 00:28:43,000
Speaker 2: and now you look like fifteen years later and they

551
00:28:43,040 --> 00:28:46,760
Speaker 2: manage close to four trillion globally. They are the biggest

552
00:28:46,760 --> 00:28:49,920
Speaker 2: in ETFs and that was also in organic growth. They

553
00:28:50,000 --> 00:28:52,240
Speaker 2: just bought a business and then built and built and built.

554
00:28:52,360 --> 00:28:56,360
Speaker 2: So I don't know, it's a similar playbook to what

555
00:28:56,360 --> 00:28:57,040
Speaker 2: they always do.

556
00:28:57,960 --> 00:29:00,560
Speaker 1: Yeah, it's funny, like Blackrock is like the you know,

557
00:29:02,320 --> 00:29:04,560
Speaker 1: it's like synonymous with being a giant ATF provider, but

558
00:29:04,600 --> 00:29:06,880
Speaker 1: it's you know, yeah, But like I come from a

559
00:29:06,920 --> 00:29:08,480
Speaker 1: place of thinking of them as a like you know,

560
00:29:08,680 --> 00:29:11,640
Speaker 1: active fixed income manager, because that's like ultimately their heritage, right,

561
00:29:12,040 --> 00:29:14,560
Speaker 1: But like private kind of feels a little different because

562
00:29:14,600 --> 00:29:20,000
Speaker 1: like it doesn't feel especially winner or take all. Right,

563
00:29:20,920 --> 00:29:22,440
Speaker 1: this is the sort of thing where everyone's gonna have

564
00:29:22,440 --> 00:29:24,480
Speaker 1: to have a private credit business, and because they're a

565
00:29:24,480 --> 00:29:26,160
Speaker 1: big company, they had to have a big one, and

566
00:29:26,240 --> 00:29:27,720
Speaker 1: so they went out and got a big one. But like,

567
00:29:28,800 --> 00:29:31,640
Speaker 1: I don't know, they're not gonna be like the provider

568
00:29:31,680 --> 00:29:33,400
Speaker 1: of private credit. They're gonna be one of you know,

569
00:29:33,560 --> 00:29:34,040
Speaker 1: a dozen.

570
00:29:34,920 --> 00:29:37,080
Speaker 2: I can't wait to talk about this in fifteen years.

571
00:29:37,400 --> 00:29:38,880
Speaker 1: I don't want to just flatter you because you're an

572
00:29:38,920 --> 00:29:41,920
Speaker 1: ETF person, but like ETFs like revolutionized areas.

573
00:29:41,560 --> 00:29:44,440
Speaker 2: Of finance, you're so right say more.

574
00:29:45,920 --> 00:29:48,240
Speaker 1: I think in five years, private credit is gonna be

575
00:29:48,240 --> 00:29:49,840
Speaker 1: like bank wut. It's gonna be like yeah, think in

576
00:29:49,840 --> 00:29:51,600
Speaker 1: the pitch bock. It's gonna be like another way of

577
00:29:51,640 --> 00:29:54,760
Speaker 1: financing deals. I think that like, ultimately, people are not

578
00:29:54,800 --> 00:29:57,920
Speaker 1: going to talk about private credit as this thing from

579
00:29:57,920 --> 00:29:59,960
Speaker 1: public credit in the way that they do now, because

580
00:30:00,040 --> 00:30:02,040
Speaker 1: it like still feels kind of new and interesting now,

581
00:30:02,360 --> 00:30:05,400
Speaker 1: whereas ETFs like, really are you know, different from like

582
00:30:05,440 --> 00:30:06,840
Speaker 1: the mutual fans that came before.

583
00:30:07,400 --> 00:30:10,800
Speaker 2: Yeah, I agree with you there. I also was not

584
00:30:10,840 --> 00:30:13,080
Speaker 2: paying attention to ETFs in two thousand and nine, and like,

585
00:30:13,360 --> 00:30:15,560
Speaker 2: I would love to just go back in time and

586
00:30:16,040 --> 00:30:19,760
Speaker 2: see how that moment felt, you know, like when Blackrock

587
00:30:20,320 --> 00:30:22,880
Speaker 2: made that splash, a thirteen and a half billion dollars

588
00:30:22,880 --> 00:30:25,320
Speaker 2: purchase for ey shares, Like what did that feel like?

589
00:30:25,360 --> 00:30:27,800
Speaker 2: I wonder how that was greeted. And I don't know,

590
00:30:27,840 --> 00:30:30,120
Speaker 2: maybe I'll do that in my spare time, because I

591
00:30:30,160 --> 00:30:32,400
Speaker 2: don't know. I talked to a lot of like people

592
00:30:32,440 --> 00:30:34,880
Speaker 2: who've been in the ETF industry for like two decades,

593
00:30:34,880 --> 00:30:36,680
Speaker 2: and like you hear them talk and they're like, yeah,

594
00:30:36,720 --> 00:30:39,080
Speaker 2: we used to be like toiling away in the dark.

595
00:30:39,120 --> 00:30:40,880
Speaker 2: You know, we were just like obscure and no one

596
00:30:40,920 --> 00:30:44,480
Speaker 2: really cared about us. And now we're, you know, at

597
00:30:44,480 --> 00:30:45,400
Speaker 2: the center of the world.

598
00:30:45,600 --> 00:30:49,640
Speaker 1: So I thought of this episode about BlackRock's private creditfiicials

599
00:30:49,680 --> 00:30:52,760
Speaker 1: turn into just combi to ETFs. It's just like that.

600
00:30:52,960 --> 00:30:53,600
Speaker 2: How could it not?

601
00:30:54,360 --> 00:30:56,920
Speaker 1: Everything comes back to ETFs, especially.

602
00:30:56,520 --> 00:30:59,200
Speaker 2: It does when you're a hammer. Everything's a nail.

603
00:31:00,640 --> 00:31:03,440
Speaker 1: We're considering during an other mailbag episode. So if you

604
00:31:03,560 --> 00:31:07,160
Speaker 1: have good questions for the Money Stuff podcast, please send

605
00:31:07,160 --> 00:31:09,640
Speaker 1: them to money pod at Bloomberg dot net and if

606
00:31:09,680 --> 00:31:13,280
Speaker 1: they're good, we'll answer them in another mailbag episode.

607
00:31:13,560 --> 00:31:14,920
Speaker 2: We look forward to hearing from you.

608
00:31:16,760 --> 00:31:18,600
Speaker 1: And that was the Money Stuff Podcasts.

609
00:31:18,800 --> 00:31:20,840
Speaker 2: I'm Matt Levian and I'm Katie Greifeld.

610
00:31:21,200 --> 00:31:23,200
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611
00:31:23,240 --> 00:31:25,680
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612
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613
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620
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621
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622
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623
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625
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