Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 2: Tim Stenebeck on Bloomberg Radio.
Speaker 3: Talking about Jeffrey's financial The group has been told that
Speaker 3: some of the invoices underpinning its financing to an iron
Speaker 3: Ore trader called Sapphire Mini Medals or min Metals excuse me,
Speaker 3: are not genuine. This is according to people familiar with
Speaker 3: the matter. This's been a story that Bloomberg's been reporting
Speaker 3: out over the last week or so with Morris Bloomberg
Speaker 3: News Chief Wall Street correspondent Shrina A. Rajan covering the
Speaker 3: financial spaces here in studio. For those who maybe haven't
Speaker 3: been following, there's been a lot going on. What do
Speaker 3: we need to know?
Speaker 2: Look, this is the latest in a series of incidents.
Speaker 2: We're just shining another light, shining more light on the
Speaker 2: risk around receivables finance. So typically, ordinarily this should be safe.
Speaker 2: You are lending against invoices, it's secured by invoices. You
Speaker 2: expect your client to be ultimately paid, and you expect
Speaker 2: to be paid back when it goes right. It is
Speaker 2: good money for the lenders, but there are occasions when
Speaker 2: it can go wrong, and it can go horribly wrong,
Speaker 2: and that's sort of we saw it last year with
Speaker 2: First Brands and the collapse around First Brands and all
Speaker 2: the allegations around fraud and scam that came out. Now
Speaker 2: over the last week we've seen these instances, first with
Speaker 2: Radiant World that Bloomberg reported last year, and now another company,
Speaker 2: Sapphire Men Metal, which seems to be somewhat tied to
Speaker 2: Radiant World at least at some point Radiant World and
Speaker 2: its owners were majority owners of Sapphire Men Metal. But
Speaker 2: the interesting bit for us is the connection of Point Bonita.
Speaker 2: Point Bonita is a trade finance fund trade Finance focus
Speaker 2: fund at the asset management division of Jeffries. So it's
Speaker 2: just another black eye for Jeffreys at a time you
Speaker 2: really don't want your investors to be asking you more
Speaker 2: questions about your investing missteps.
Speaker 1: Is this a you mentioned some other examples of this,
Speaker 1: including last year. Is this part of the pattern of
Speaker 1: events or is this just a the latest one off?
Speaker 2: To quote Jamie Diamond, it certainly feels like another cock
Speaker 2: croach out there now. Your question is is it an infestation?
Speaker 2: Not necessarily is it going to have material financial impact
Speaker 2: on Jeffrey's not necessarily it has a five point nine
Speaker 2: percent stake in Point Bonita, but does it leave a
Speaker 2: bit of a sour impression for their investors and for
Speaker 2: analysts and for people wondering about banks and other investors
Speaker 2: and their tie ups with other trade fin.
Speaker 3: Oversite right like oversight, like what is it like, you know,
Speaker 3: assessing risks and so on and so forth.
Speaker 2: And to some part you have to assume, like some
Speaker 2: of the allegations that we're talking about is falsifying invoices.
Speaker 2: And again, to be clear, Radiant World denied those allegations
Speaker 2: last week. Sapphire Men Metal in our story today is
Speaker 2: denying those allegations again. But when your talk, if it
Speaker 2: is what the allegations are that is outright fraud, you
Speaker 2: also have to wonder how easy is it for some
Speaker 2: of these firms to be doing all the diligions that's required.
Speaker 2: How do you completely ensure that you snuff that out?
Speaker 2: And that might not necessarily possible, but your investors will
Speaker 2: expect higher standards and much better dilisions going forward, and
Speaker 2: that will focus people to reassess their processes to be
Speaker 2: able to sniff out risk and to be able to
Speaker 2: avoid some of these landmines.
Speaker 3: Just a reputation, right ultimately, and again we should say
Speaker 3: there's still more to be known here, so.
Speaker 2: We're looking more to be known. We're going to.
Speaker 3: Continue following it. We got to get to that.
Speaker 1: I want to get to the big take. Yeah, this
Speaker 1: is one of the most red stories on the Bloomberg terminal.
Speaker 1: It's a tax strategy for the rich, built the world's
Speaker 1: largest hedge fund. You and the team behind it about
Speaker 1: behind one of the most red stories. This is about
Speaker 1: tax loss harvesting on steroids.
Speaker 3: This part of me is like, oh my god, but
Speaker 3: it's actually pretty cool.
Speaker 1: It is cool what is AQR figured out and what
Speaker 1: is AQR doing?
Speaker 2: And again, well, on the one hand, Carol, I am
Speaker 2: slightly offended that this wants to make you snorre what.
Speaker 3: I hear taxes, but I know this stuff is really interesting.
Speaker 2: But that's correct. We're used to these ideas of tax
Speaker 2: loss harvesting and finding ways in investments, where with the
Speaker 2: growth of the technological tools available to us, with the
Speaker 2: sort of ETFs and commission free trading, you can do
Speaker 2: a lot more of these things. But what is happening
Speaker 2: When you pit a lot of mathematicians and PhDs in
Speaker 2: a room together and come up with strategies, you suddenly
Speaker 2: do what Tim rightly described as taking these strategies and
Speaker 2: applying steroids on them that they become so much more
Speaker 2: potent that advertising from firms like AQR is like, if
Speaker 2: you put money in with us, not only will we
Speaker 2: make sure that your money grows over time, but in terium,
Speaker 2: we will also keep generating losses that you've been used
Speaker 2: to write off your capital gains elsewhere.
Speaker 1: I don't get it. How can you put one hundred
Speaker 1: million dollars into an account it then triples over the
Speaker 1: next few years, but then you also have hundreds of
Speaker 1: millions of dollars and losses to use against other gains.
Speaker 3: Aha.
Speaker 2: And with that we shall explain what tax alpha is
Speaker 2: and exactly how this process works. So we're very specifically
Speaker 2: talking about these tax aware long shot strategies. Assume you
Speaker 2: have one hundred million dollars. You were in an early
Speaker 2: Nvidia employee. Your stock has gone up quite a bit.
Speaker 2: You suddenly have one hundred million dollars, But if you
Speaker 2: wanted to realize those games, you also have a hefty
Speaker 2: tax bill coming against that. So you go to an AQR,
Speaker 2: maybe you set up a separate fund with them where
Speaker 2: you put in that hundred million dollars against that one
Speaker 2: hundred million dollars. The AQR can go and borrow some money,
Speaker 2: say they borrow eighty million dollars against it. They can
Speaker 2: put forty million dollars of long bets. They can put
Speaker 2: forty million dollars of short bets broadly tracking some of
Speaker 2: the biggest companies out there and some of the biggest
Speaker 2: name in the indexes. But with the hope that your
Speaker 2: lungs always go up and your shots are always going down,
Speaker 2: so that your fund is performing well. But that's not
Speaker 2: always guaranteed. On a day by day basis, that's not
Speaker 2: going to happen. Some days your bets will go wrong,
Speaker 2: even if over the long term you were right. But
Speaker 2: on the days it goes wrong, save if the market
Speaker 2: goes down, you can sell some of the lungs because
Speaker 2: they have now you've not realized losses against them, replace
Speaker 2: them with the surrogate. On the days that the market's
Speaker 2: in this bull mode, your shots are not performing well,
Speaker 2: you close out those positions and replace them with the surrogate.
Speaker 2: So what you're doing is in the interim you're harvesting
Speaker 2: these little losses that start to pile up, and in
Speaker 2: the long term you make money. So eventually, what does
Speaker 2: the money look like? AQR says, And an example for
Speaker 2: one of their flex products is you put one hundred
Speaker 2: million dollars with them over ten years, they say your
Speaker 2: money can triple very good returns. At the same time,
Speaker 2: they will also generate five hundred and eighty seven million
Speaker 2: dollars in capital losses over that ten year period. That
Speaker 2: is a lot of money to be able to write
Speaker 2: off capital gains and other parts of your portfolio. You
Speaker 2: can see their lure for the richer. You can see
Speaker 2: the lure for so many people wanting to go into
Speaker 2: a strategy like this. Yeah, legal, for the most part,
Speaker 2: seems to be. No one's really said it's illegal. We
Speaker 2: have had noises from the Trump Treasury, from the Trump
Speaker 2: administration saying some of these trade and some of these
Speaker 2: more aggressive tactics seem to be potentially abusive, but nothing
Speaker 2: that anyone has really offered out there that closes these
Speaker 2: loopholes or has outried banned them. But at the same time,
Speaker 2: they are quite effective and as our own Matt Levine
Speaker 2: once said, it's very hard to beat the market, much
Speaker 2: easier to beat the irs. With that pitch, you can
Speaker 2: attract a lot of money, and that in part has
Speaker 2: propelled EQR to become the world's largest hetch fund because
Speaker 2: in the last few years these strategies have soaked in,
Speaker 2: soaked up a lot of investments.
Speaker 3: Not easy for everyone to beat the irs. No, And
Speaker 3: I will say another part of the story, great part of.
Speaker 1: The story too, is just Cliff Astnas's view about taxes
Speaker 1: and what he said about them. It's just fascinating. A
Speaker 1: profile of him as well.
Speaker 3: Check it out. It is the most read story in
Speaker 3: the Bloomberg. I'm sure I'm not bored anymore, no story,
Speaker 3: I promise. He is our chief Wall Street correspondent.