1
00:00:04,760 --> 00:00:07,720
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim

2
00:00:07,800 --> 00:00:11,080
Speaker 1: Fox along with my co host Lisa Abramowitz. Each day

3
00:00:11,119 --> 00:00:14,360
Speaker 1: we bring you the most important, noteworthy, and useful interviews

4
00:00:14,400 --> 00:00:16,560
Speaker 1: for you and your money, whether at the grocery store

5
00:00:16,800 --> 00:00:19,960
Speaker 1: or the trading floor. Find the Bloomberg P L Podcast

6
00:00:20,000 --> 00:00:29,440
Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. We want

7
00:00:29,440 --> 00:00:32,199
Speaker 1: to break down a little bit more the merger with

8
00:00:32,360 --> 00:00:35,680
Speaker 1: the g E unit, the oil unit, and Baker Hughes.

9
00:00:35,720 --> 00:00:39,360
Speaker 1: And here we have with us Rick Clough, Industrials reporter

10
00:00:39,440 --> 00:00:43,040
Speaker 1: for UH for Bloomberg. UM, I want to talk about

11
00:00:43,440 --> 00:00:45,839
Speaker 1: just the mechanics of this because I know that we

12
00:00:45,920 --> 00:00:48,720
Speaker 1: kind of got an explanation earlier, but I really haven't

13
00:00:48,720 --> 00:00:51,360
Speaker 1: wrapped my head around the entity that they're creating and

14
00:00:51,400 --> 00:00:54,800
Speaker 1: what that's going to give them going forward. You know,

15
00:00:54,840 --> 00:00:57,120
Speaker 1: I think we're all still kind of trying to figure

16
00:00:57,160 --> 00:01:00,280
Speaker 1: this out because I didn't get it at all. It

17
00:01:00,360 --> 00:01:04,679
Speaker 1: was yeah, it'll be a new publicly traded company. Um,

18
00:01:04,720 --> 00:01:07,560
Speaker 1: it'll be sixty two point five percent owned by g E.

19
00:01:07,720 --> 00:01:11,280
Speaker 1: And and the way that they're characterizing it is, UH,

20
00:01:11,480 --> 00:01:13,640
Speaker 1: it will be the new Baker Hughes. They've also called

21
00:01:13,640 --> 00:01:16,360
Speaker 1: it Baker Hughes a g company, So UM in a

22
00:01:16,400 --> 00:01:20,319
Speaker 1: sense it's a it's a subsidiary, but will UM function

23
00:01:20,400 --> 00:01:24,320
Speaker 1: as as a standalone company. And it really combines UM

24
00:01:24,440 --> 00:01:27,959
Speaker 1: the operations UM gees oil and gas business along with

25
00:01:28,000 --> 00:01:31,920
Speaker 1: Baker Hughes and and creates a bigger player in in

26
00:01:31,920 --> 00:01:34,720
Speaker 1: the oil market and one with a real broad range

27
00:01:34,760 --> 00:01:38,160
Speaker 1: of product and service offerings. Hey Brick, can you explain

28
00:01:38,920 --> 00:01:42,000
Speaker 1: who is going to own that piece of Baker Hughes

29
00:01:42,240 --> 00:01:45,000
Speaker 1: And why wouldn't they just sell the whole thing to

30
00:01:45,120 --> 00:01:48,040
Speaker 1: ge if she is going to be in over six owner.

31
00:01:48,320 --> 00:01:51,720
Speaker 1: You know, I I can't entirely explain it, but but

32
00:01:51,920 --> 00:01:53,400
Speaker 1: you know, I think part of it had to do

33
00:01:53,520 --> 00:01:57,800
Speaker 1: with gees appetite here too. UM. You know they they

34
00:01:57,880 --> 00:02:00,920
Speaker 1: I think we're reluctant to do a full acquisition. They

35
00:02:00,960 --> 00:02:03,160
Speaker 1: they said recently that that was never on the table.

36
00:02:03,520 --> 00:02:06,160
Speaker 1: And UM, you know for them, they while they could

37
00:02:06,240 --> 00:02:09,119
Speaker 1: do a really big deal, UM, I think they're they're

38
00:02:09,120 --> 00:02:11,320
Speaker 1: trying to be really disciplined with M and A. And

39
00:02:11,680 --> 00:02:15,160
Speaker 1: you know they've got an activist shareholder in Nelson Peltz's

40
00:02:15,400 --> 00:02:18,600
Speaker 1: Trium Fund fund Management in there. UM so and you

41
00:02:18,600 --> 00:02:21,280
Speaker 1: know that helps keep them disciplined. But but you know,

42
00:02:21,360 --> 00:02:25,000
Speaker 1: Jeff Emil, earlier in his his tenure as CEO of

43
00:02:25,000 --> 00:02:28,400
Speaker 1: of ge UM took some criticism for UM, some of

44
00:02:28,400 --> 00:02:31,360
Speaker 1: the lack of discipline that some investors saw with UH,

45
00:02:31,720 --> 00:02:35,360
Speaker 1: with their M and A strategy and so UM. You know,

46
00:02:35,440 --> 00:02:38,079
Speaker 1: I think lately they've been trying to just be a

47
00:02:38,160 --> 00:02:41,000
Speaker 1: little better about that. Well. I mean, ge sort of

48
00:02:41,040 --> 00:02:43,600
Speaker 1: has had an identity issue for a while, right, and

49
00:02:43,639 --> 00:02:47,240
Speaker 1: it's trying to rebrand itself as the future and more

50
00:02:47,280 --> 00:02:49,920
Speaker 1: of a tech company. I mean, how does this allow

51
00:02:50,000 --> 00:02:52,160
Speaker 1: them to do that or does this factor in to

52
00:02:52,280 --> 00:02:55,440
Speaker 1: sort of that strategy. Absolutely, they're they're trying very hard

53
00:02:55,480 --> 00:02:57,960
Speaker 1: to rebrand themselves and into their credit. There really does

54
00:02:57,960 --> 00:03:00,880
Speaker 1: seem to be some substance behind this. UM. They want

55
00:03:00,919 --> 00:03:04,840
Speaker 1: to become the digital industrial company, as they describe it

56
00:03:04,919 --> 00:03:07,680
Speaker 1: and UH, and that's been a transformation that's been underway

57
00:03:07,720 --> 00:03:10,680
Speaker 1: for a number of years now. They've been UM on

58
00:03:10,720 --> 00:03:15,640
Speaker 1: the one hand, really focusing on building heavy duty industrial equipment,

59
00:03:16,080 --> 00:03:19,200
Speaker 1: you know, getting rid of some UM finance businesses and

60
00:03:19,360 --> 00:03:23,640
Speaker 1: consumer focus ones and focusing on things like like jet

61
00:03:23,639 --> 00:03:26,320
Speaker 1: engines and gas turbines. And then at the same time,

62
00:03:26,320 --> 00:03:30,480
Speaker 1: they've been building a software business, and uh, that's really

63
00:03:30,520 --> 00:03:33,919
Speaker 1: to enhance the the equipment that they sell, putting sensors

64
00:03:33,919 --> 00:03:36,840
Speaker 1: and that kind of thing on it and helping improve

65
00:03:37,080 --> 00:03:40,400
Speaker 1: productivity and efficiency. And so this really fits into that.

66
00:03:41,040 --> 00:03:45,400
Speaker 1: I just want to note that Tryan Capital Tryan Fund Management,

67
00:03:45,440 --> 00:03:49,080
Speaker 1: which is the Nelson Pelts investment in the vehicle, has

68
00:03:49,080 --> 00:03:53,840
Speaker 1: over seventy four and a half million shares of GE

69
00:03:54,200 --> 00:03:56,520
Speaker 1: and that equals about an eight tenths of a percent

70
00:03:56,640 --> 00:04:01,120
Speaker 1: stake in the company. And that's a pretty big stay

71
00:04:01,160 --> 00:04:03,240
Speaker 1: when you're talking about a company as big as GE

72
00:04:03,360 --> 00:04:06,000
Speaker 1: and number number eleven, Yeah, you know on the on

73
00:04:06,040 --> 00:04:08,440
Speaker 1: the Bloomberg Hts there you go. And we actually just

74
00:04:08,720 --> 00:04:11,600
Speaker 1: reached out to them, um just before I walked in here,

75
00:04:11,600 --> 00:04:14,840
Speaker 1: and and they are on board with this this move,

76
00:04:14,920 --> 00:04:17,919
Speaker 1: They support it, and they said they applaud gee. Is

77
00:04:17,920 --> 00:04:20,920
Speaker 1: that because the Baker Hughes will then trade or the

78
00:04:20,960 --> 00:04:24,320
Speaker 1: new company that will then trade acts almost like a

79
00:04:25,120 --> 00:04:27,760
Speaker 1: stub or a proxy for the old Baker Hughes because

80
00:04:27,800 --> 00:04:29,839
Speaker 1: they thought maybe they could actually get more of the market.

81
00:04:29,920 --> 00:04:31,960
Speaker 1: Wasn't so terrible, you know, that could be part of it?

82
00:04:32,000 --> 00:04:34,920
Speaker 1: And uh, and really I think too. This is this

83
00:04:34,960 --> 00:04:37,520
Speaker 1: is a way for g E to play a possible

84
00:04:37,520 --> 00:04:40,000
Speaker 1: rebound in the market without having to do a full

85
00:04:40,000 --> 00:04:42,799
Speaker 1: acquisition and and put all that cash on the line.

86
00:04:42,920 --> 00:04:45,000
Speaker 1: What is this stew for Baker Hughes, You know, for

87
00:04:45,080 --> 00:04:48,719
Speaker 1: Baker Hughes, this this allows them, much like ge allows

88
00:04:48,760 --> 00:04:52,360
Speaker 1: them to broaden their product offerings. They the way that

89
00:04:52,400 --> 00:04:55,240
Speaker 1: this is really being UM described is a way for

90
00:04:55,279 --> 00:04:59,520
Speaker 1: them to UM take advantage of gees growing a software

91
00:04:59,520 --> 00:05:02,719
Speaker 1: business and UM they've got what they call predicts, they're

92
00:05:02,800 --> 00:05:05,560
Speaker 1: operating system that they're trying to roll out across all

93
00:05:05,640 --> 00:05:08,960
Speaker 1: kinds of different machines. But uh UM, but that's something

94
00:05:09,040 --> 00:05:12,560
Speaker 1: that they really want to incorporate into UM, the products

95
00:05:12,560 --> 00:05:15,760
Speaker 1: and the service offerings, and so that will allow them

96
00:05:15,800 --> 00:05:18,919
Speaker 1: to really compete on on on a more level footing

97
00:05:18,920 --> 00:05:23,200
Speaker 1: with the companies like Haliburton and schlumberj. G E is

98
00:05:23,200 --> 00:05:26,480
Speaker 1: going to contribute seven point four billion dollars to fund

99
00:05:26,520 --> 00:05:30,000
Speaker 1: a special dividend that will go to the Baker Hughes stockholders.

100
00:05:30,000 --> 00:05:32,880
Speaker 1: That dividend is worth seventeen and a half dollars to share.

101
00:05:33,680 --> 00:05:36,960
Speaker 1: What happens to the g shareholder? Do we know? Uh,

102
00:05:37,000 --> 00:05:39,520
Speaker 1: you know, I don't know if all the all of

103
00:05:39,560 --> 00:05:42,440
Speaker 1: that has been announced yet, but um, you know, if

104
00:05:42,440 --> 00:05:44,960
Speaker 1: it's any indication that the stocks stock was up a

105
00:05:44,960 --> 00:05:48,360
Speaker 1: bit uh um this morning. Um, I think about four

106
00:05:48,360 --> 00:05:50,279
Speaker 1: tents of a percent right now. And you know for

107
00:05:50,360 --> 00:05:53,920
Speaker 1: GE that that's not bad. Uh even a one percent

108
00:05:54,440 --> 00:05:57,920
Speaker 1: changes pretty unusual. Well, I should just point out that

109
00:05:58,040 --> 00:06:01,600
Speaker 1: GE shares have are down at out almost four percent

110
00:06:01,880 --> 00:06:05,479
Speaker 1: on the year, whereas Baker Hughes shares, thank you to

111
00:06:05,640 --> 00:06:09,080
Speaker 1: the rally in oil prices, they're up more than twenty

112
00:06:09,320 --> 00:06:14,000
Speaker 1: seven So they're dipping a little bit, is showing a

113
00:06:14,040 --> 00:06:18,159
Speaker 1: notable jump. Yeah, and actually with G shares, a lot

114
00:06:18,240 --> 00:06:21,320
Speaker 1: of the decline has come into the last quarter or so.

115
00:06:21,839 --> 00:06:24,240
Speaker 1: I want to thank you very much. Rick Cleff, Industrials

116
00:06:24,240 --> 00:06:28,560
Speaker 1: reporter for Bloomberg News. I'm him Fox Alone with Pisa Abramo.

117
00:06:28,640 --> 00:06:41,719
Speaker 1: It's this is Bloomberg, Another day, another group of deals

118
00:06:41,760 --> 00:06:45,640
Speaker 1: for Alex Sherman our Technology, media and telecom mergers and

119
00:06:45,800 --> 00:06:50,000
Speaker 1: acquisitions reporter for Bloomberg News, and Alex can be followed

120
00:06:50,000 --> 00:06:55,400
Speaker 1: on Twitter at Sherman four nine four nine stags under

121
00:06:55,440 --> 00:06:59,040
Speaker 1: his live You know the results of many many big

122
00:07:00,160 --> 00:07:04,520
Speaker 1: or having a three year old than a seven month Alright, alright,

123
00:07:04,560 --> 00:07:08,039
Speaker 1: so Strman four nine four nine, let's start with Level

124
00:07:08,160 --> 00:07:12,160
Speaker 1: three and century Link. That's the go there first. Yeah. Sure,

125
00:07:12,200 --> 00:07:13,640
Speaker 1: so this is a it's a big deal. These are

126
00:07:13,640 --> 00:07:17,320
Speaker 1: big companies. Um century Link is buying Slash merging with

127
00:07:17,760 --> 00:07:21,280
Speaker 1: Level three. It's a cash stock deal. The total value

128
00:07:21,280 --> 00:07:23,280
Speaker 1: of this, if you include dead is about thirty four

129
00:07:23,320 --> 00:07:26,160
Speaker 1: billion dollars. So this is yet another large deal in

130
00:07:26,200 --> 00:07:29,160
Speaker 1: the telecom industry. What I think is interesting about this one, PAM,

131
00:07:29,280 --> 00:07:33,320
Speaker 1: is that it comes on the heels of the two

132
00:07:33,360 --> 00:07:37,640
Speaker 1: biggest players in the world of telecommunications, at least sort

133
00:07:37,680 --> 00:07:42,000
Speaker 1: of the the world of let's say telephonic telecommunications, meaning

134
00:07:42,000 --> 00:07:44,760
Speaker 1: A T and T and Verizon. They both did notable

135
00:07:44,800 --> 00:07:47,760
Speaker 1: deals this year Verizon buying Yahoo, a T and T

136
00:07:48,000 --> 00:07:50,960
Speaker 1: just recently buying Time Warner, and now century Link and

137
00:07:51,080 --> 00:07:54,120
Speaker 1: Level Three not going in the same direction there of

138
00:07:54,160 --> 00:07:57,920
Speaker 1: buying sort of the flashy consumer facing media business. Instead.

139
00:07:58,000 --> 00:08:02,440
Speaker 1: This is very much sort of a boring, routine business

140
00:08:02,480 --> 00:08:06,280
Speaker 1: to business business services type deal where these two companies

141
00:08:06,320 --> 00:08:09,000
Speaker 1: are going to combine and basically what it allows them

142
00:08:09,040 --> 00:08:11,160
Speaker 1: to do is sell their products that they sell the

143
00:08:11,200 --> 00:08:15,760
Speaker 1: other businesses, whether they're sort of security products or uh,

144
00:08:15,800 --> 00:08:20,360
Speaker 1: you know, almost like internet infrastructure type products to each other.

145
00:08:20,440 --> 00:08:23,400
Speaker 1: So it makes their customer bases much larger. And really

146
00:08:23,680 --> 00:08:26,400
Speaker 1: this deal is all about taxes. Each company comes with

147
00:08:26,880 --> 00:08:30,040
Speaker 1: enormous net operating losses. Century Link about six billion and

148
00:08:30,080 --> 00:08:33,400
Speaker 1: net operating losses. Level three Communications about ten billion and

149
00:08:33,480 --> 00:08:36,000
Speaker 1: net operating losses. Why do they have so many n

150
00:08:36,000 --> 00:08:37,880
Speaker 1: O l s. Well, if you've been following Donald Trump,

151
00:08:37,880 --> 00:08:40,240
Speaker 1: you might know this. Uh. If if you do bad business,

152
00:08:40,320 --> 00:08:42,080
Speaker 1: you get n O l's. They laid a lot of

153
00:08:42,120 --> 00:08:45,400
Speaker 1: fiber uh many years ago. They lost a lot of

154
00:08:45,400 --> 00:08:47,280
Speaker 1: money on it. But the benefit, of course is that

155
00:08:47,280 --> 00:08:50,199
Speaker 1: you get tax benefits. So shareholders for both of these

156
00:08:50,200 --> 00:08:54,439
Speaker 1: companies should be happy today to some degree at least

157
00:08:54,559 --> 00:08:56,199
Speaker 1: in that they get to put their n O l

158
00:08:56,280 --> 00:08:58,560
Speaker 1: s to use with this merger. Man you really get

159
00:08:58,559 --> 00:09:00,960
Speaker 1: my heart pumping, you know, with the boring business deal

160
00:09:00,960 --> 00:09:04,319
Speaker 1: and all about taxes. I'm just you know, over here hyperventilating.

161
00:09:04,320 --> 00:09:06,840
Speaker 1: I will say, there was a story, uh in the

162
00:09:06,880 --> 00:09:09,480
Speaker 1: New York Post that I thought was really compelling about

163
00:09:09,520 --> 00:09:11,960
Speaker 1: different companies. But but you know, it has to do

164
00:09:11,960 --> 00:09:14,400
Speaker 1: with merger. So we're gonna throw it at you Uh,

165
00:09:14,480 --> 00:09:16,560
Speaker 1: the story is saying that Goldman Sachs is trying to

166
00:09:16,559 --> 00:09:19,800
Speaker 1: persuade Apple to come in and make a rival bid

167
00:09:19,960 --> 00:09:23,040
Speaker 1: for Time. Now we're talking now, we're not talking boring

168
00:09:23,160 --> 00:09:27,080
Speaker 1: business deals exactly. So you know, as we recall, A

169
00:09:27,200 --> 00:09:31,000
Speaker 1: T and T has a bid uh billion dollar agreement

170
00:09:31,120 --> 00:09:34,440
Speaker 1: already to acquire Time Warner. Okay, first of all, do

171
00:09:34,440 --> 00:09:37,520
Speaker 1: you believe this story? And second of all, uh, why

172
00:09:37,559 --> 00:09:41,040
Speaker 1: would they? What's why? So? I love this story because

173
00:09:41,200 --> 00:09:45,880
Speaker 1: I mean this story is like writing dog bites man. Yes,

174
00:09:46,040 --> 00:09:48,840
Speaker 1: Goldman Sax is pitching Apple. Goldman Sax missed out on

175
00:09:48,840 --> 00:09:51,600
Speaker 1: the deal. This is a little inside baseball he supposed

176
00:09:51,600 --> 00:09:54,440
Speaker 1: for people that don't follow this very closely, meaning the

177
00:09:54,480 --> 00:09:57,559
Speaker 1: world of deals. But Goldman Sachs was not an advisor

178
00:09:57,640 --> 00:09:59,120
Speaker 1: on the A T and T Time Warner deal, the

179
00:09:59,160 --> 00:10:01,800
Speaker 1: biggest deal of the year. So that is bad news

180
00:10:01,840 --> 00:10:04,280
Speaker 1: for Goldman Sachs. So they're trying to figure out is

181
00:10:04,320 --> 00:10:07,440
Speaker 1: there any possible way we can interrupt this deal because

182
00:10:07,440 --> 00:10:09,480
Speaker 1: if they convince Apple to make a bid for Time Warner,

183
00:10:09,679 --> 00:10:12,640
Speaker 1: that means they get paid. That's how Goldman does business.

184
00:10:12,720 --> 00:10:15,920
Speaker 1: So yes, I'm sure they're pitching Apple to buy Time Warner.

185
00:10:16,000 --> 00:10:19,120
Speaker 1: They're probably also pitching Apple to buy Disney. They're probably

186
00:10:19,120 --> 00:10:21,640
Speaker 1: also pitching Apple to buy Netflix. They want Apple to

187
00:10:21,640 --> 00:10:24,480
Speaker 1: buy something because they are very close to Apple. So

188
00:10:24,559 --> 00:10:26,520
Speaker 1: I don't know exactly what the news value of this

189
00:10:26,559 --> 00:10:28,920
Speaker 1: story is. We do not know that Apple is actually

190
00:10:29,000 --> 00:10:31,600
Speaker 1: making a bid for Time Warner. They have long shied

191
00:10:31,679 --> 00:10:34,200
Speaker 1: away from buying content. I can tell you that the

192
00:10:34,240 --> 00:10:38,320
Speaker 1: advisors and people at Time Warner do not expect Apple

193
00:10:38,400 --> 00:10:40,920
Speaker 1: to bid for Time Warner. Uh So, as far as

194
00:10:40,920 --> 00:10:43,360
Speaker 1: we can tell, uh, you know, don't get your hopes

195
00:10:43,440 --> 00:10:45,760
Speaker 1: up on this one. I absolutely love the quote in

196
00:10:45,800 --> 00:10:48,920
Speaker 1: this story. They are freaking out trying to convince Apple

197
00:10:49,000 --> 00:10:51,240
Speaker 1: to come in. Well, Alex, once you, once you frame

198
00:10:51,240 --> 00:10:53,360
Speaker 1: it the way you just did, I can understand why,

199
00:10:53,400 --> 00:10:55,959
Speaker 1: because they are freaking out about their bonuses and justifying

200
00:10:56,120 --> 00:10:57,800
Speaker 1: why they did not get this. And look, this has

201
00:10:57,840 --> 00:10:59,760
Speaker 1: been a little bit of a rocky run for Goldman,

202
00:10:59,800 --> 00:11:02,000
Speaker 1: say Actus. They weren't on the century Link Level three

203
00:11:02,040 --> 00:11:04,440
Speaker 1: deal either, which is another big deal in sort of

204
00:11:04,440 --> 00:11:07,520
Speaker 1: that broader world. They were, however, on Qualcom XP which

205
00:11:07,520 --> 00:11:10,360
Speaker 1: was announced last week, which was a forty seven billion

206
00:11:10,400 --> 00:11:13,280
Speaker 1: dollar deal. So in in in my world of tech,

207
00:11:13,360 --> 00:11:16,000
Speaker 1: media telecom call it one for three for Goldman, which

208
00:11:16,040 --> 00:11:20,800
Speaker 1: to their standards is definitely not up to their standards. Wow,

209
00:11:21,200 --> 00:11:23,720
Speaker 1: that was a lot of information right there. I was

210
00:11:23,800 --> 00:11:26,520
Speaker 1: just getting on the century Link a level three. You

211
00:11:27,520 --> 00:11:31,559
Speaker 1: wanted to go to the boring business story and taxes,

212
00:11:31,880 --> 00:11:33,920
Speaker 1: you know, I just wanted I looked at how much

213
00:11:33,960 --> 00:11:37,680
Speaker 1: debt both companies have, and uh, you know, I'm looking

214
00:11:37,720 --> 00:11:40,679
Speaker 1: at this deal and as Alex says, you know, combining

215
00:11:40,800 --> 00:11:45,000
Speaker 1: two businesses that have a lot of sixteen billion in

216
00:11:45,280 --> 00:11:49,920
Speaker 1: tax loss carry forwards. Correct, correct, Yeah, and you're talking

217
00:11:49,960 --> 00:11:53,880
Speaker 1: about century Link is about an eighteen billion dollar a

218
00:11:53,960 --> 00:11:59,280
Speaker 1: year company Level three excluding debt, right yeah, yeah, and

219
00:11:59,400 --> 00:12:02,720
Speaker 1: the level three is about an eight billion dollar company.

220
00:12:02,800 --> 00:12:04,719
Speaker 1: Just wanted to get the perspective here. That's a lot

221
00:12:04,720 --> 00:12:06,920
Speaker 1: of debt, but we'll see what happens. Exactly a ton

222
00:12:06,960 --> 00:12:09,160
Speaker 1: of debt. And look, it's not that uncommon for a

223
00:12:09,160 --> 00:12:11,120
Speaker 1: lot of these sort of legacy telecom companies to have

224
00:12:11,160 --> 00:12:13,640
Speaker 1: a lot of debt. As I mentioned, they laid a

225
00:12:13,640 --> 00:12:15,679
Speaker 1: lot of fiber down earlier on and that costs a

226
00:12:15,679 --> 00:12:19,280
Speaker 1: lot of money. Alex Sherman, it is always a pleasure

227
00:12:19,320 --> 00:12:21,560
Speaker 1: when you join us. Thank you so much. Alex Sherman,

228
00:12:21,920 --> 00:12:26,880
Speaker 1: our crack Ace fabulous deals mergers reporter, thank you for

229
00:12:26,960 --> 00:12:39,400
Speaker 1: joining us. Should Janet Yellen keep her job after a

230
00:12:39,520 --> 00:12:43,800
Speaker 1: new president is elected? Perhaps some people say yes, but

231
00:12:43,920 --> 00:12:46,640
Speaker 1: our guest Brendan Brown, who's the chief economist and head

232
00:12:46,640 --> 00:12:50,680
Speaker 1: of economic research at Mitsubishi ufj A Securities, doesn't think

233
00:12:51,040 --> 00:12:54,240
Speaker 1: that she will retain her job. He is here to

234
00:12:54,360 --> 00:12:58,400
Speaker 1: explain why. Thank you for being with us. Well, it

235
00:12:58,440 --> 00:13:02,680
Speaker 1: lot's going to tend on how the bubble in asset

236
00:13:02,760 --> 00:13:06,800
Speaker 1: markets go. Whoever's president in January next year will be

237
00:13:07,040 --> 00:13:11,559
Speaker 1: inheriting bubble across the whole range of asset markets for

238
00:13:11,640 --> 00:13:18,120
Speaker 1: the first time since Herbert Hoover in coming into part

239
00:13:18,360 --> 00:13:22,880
Speaker 1: inheriting the big asset price inflation from the previous administration.

240
00:13:23,679 --> 00:13:27,880
Speaker 1: Now likelihood is for asset price inflation UM goes into

241
00:13:28,080 --> 00:13:31,000
Speaker 1: its final stage of deflation at some point who can

242
00:13:31,040 --> 00:13:32,880
Speaker 1: tell in the next year or two, and I think

243
00:13:33,000 --> 00:13:35,840
Speaker 1: that's when the key political choices have to be made.

244
00:13:36,640 --> 00:13:40,880
Speaker 1: Does the next administration then just do the same as

245
00:13:40,920 --> 00:13:44,840
Speaker 1: the last time, reinflating negative interest rates trying to create

246
00:13:44,880 --> 00:13:48,360
Speaker 1: another big asset price inflation, or do they take fair

247
00:13:48,400 --> 00:13:51,920
Speaker 1: copybook from what happened with Paul Volca being brought into

248
00:13:51,960 --> 00:13:55,319
Speaker 1: a fight by by Carter. Okay, just going back a

249
00:13:55,360 --> 00:13:57,679
Speaker 1: little bit. I mean you said that there's been a

250
00:13:57,800 --> 00:13:59,880
Speaker 1: bubble in assets, and a lot of people would have

251
00:14:00,160 --> 00:14:03,160
Speaker 1: with you when you say that, what are you referring

252
00:14:03,240 --> 00:14:05,280
Speaker 1: to and what are you looking at? And how much

253
00:14:05,320 --> 00:14:08,600
Speaker 1: does it have to deflate what I'm talking about when

254
00:14:08,679 --> 00:14:12,240
Speaker 1: when I speak about asset price inflation is an not

255
00:14:12,400 --> 00:14:15,920
Speaker 1: as a pre inflation bubbles bubbles, okay, as an empowerment

256
00:14:16,240 --> 00:14:20,760
Speaker 1: of irrational forces by an extreme form of monetary experimentation,

257
00:14:21,000 --> 00:14:23,320
Speaker 1: such as we've had in the last few years. That

258
00:14:23,440 --> 00:14:26,800
Speaker 1: empowerment of irrational forces, whether it comes under a so

259
00:14:26,960 --> 00:14:31,840
Speaker 1: called hunt for yield in confamine a lot of speculative storytelling,

260
00:14:32,960 --> 00:14:36,040
Speaker 1: huge carry trades in a whole range of assets, whether

261
00:14:36,200 --> 00:14:40,080
Speaker 1: from into credit or into currencies or into liquid assets.

262
00:14:40,480 --> 00:14:42,640
Speaker 1: I think we can see that across a whole span

263
00:14:42,800 --> 00:14:46,920
Speaker 1: of asset markets at this point. Brendan brand I, I

264
00:14:47,040 --> 00:14:48,960
Speaker 1: just want to give people a little bit of your background,

265
00:14:49,080 --> 00:14:55,680
Speaker 1: because it is extensive. You've written about currency and credit

266
00:14:55,840 --> 00:14:59,520
Speaker 1: as well as bubbles. I believe the euro crash, the

267
00:15:00,040 --> 00:15:04,800
Speaker 1: locations of monetary failure in Europe that's also your author

268
00:15:04,880 --> 00:15:09,080
Speaker 1: of and you've got monetary chaos in Europe fourteen to

269
00:15:09,280 --> 00:15:14,400
Speaker 1: nineteen thirty one. Do you think that we're repeating patterns?

270
00:15:14,640 --> 00:15:17,760
Speaker 1: Is this rhyming with anything that you've studied in the past,

271
00:15:18,280 --> 00:15:20,920
Speaker 1: I would come I would combine two statements here in

272
00:15:21,200 --> 00:15:24,560
Speaker 1: financial history, there's nothing new under the sun. But also

273
00:15:24,720 --> 00:15:28,280
Speaker 1: a sample size of history is very small, so yes,

274
00:15:28,520 --> 00:15:32,520
Speaker 1: I can point to similar situations in the past, but

275
00:15:32,640 --> 00:15:35,120
Speaker 1: for sample size is small, so I would never make

276
00:15:35,200 --> 00:15:38,960
Speaker 1: a prediction of the past repeating itself. But we can't

277
00:15:39,000 --> 00:15:42,240
Speaker 1: learn from the past. And there are lots of episodes

278
00:15:42,280 --> 00:15:45,080
Speaker 1: of a surprise inflation. And what I would say with

279
00:15:45,280 --> 00:15:50,400
Speaker 1: all of these is that the deflation goes through a

280
00:15:50,560 --> 00:15:53,680
Speaker 1: mid late phase and then a final phase. In the

281
00:15:53,800 --> 00:15:57,120
Speaker 1: mid late phase, what you get is froth continues to

282
00:15:57,160 --> 00:16:00,560
Speaker 1: build up in some markets whilst it was same time,

283
00:16:00,880 --> 00:16:04,320
Speaker 1: it's drained away from others, and the central bank tries

284
00:16:04,400 --> 00:16:07,160
Speaker 1: to keep things going by making a new injection. And

285
00:16:07,200 --> 00:16:08,920
Speaker 1: I think that's the stage we're at. So we've had

286
00:16:09,000 --> 00:16:13,720
Speaker 1: the implosion of the oil energy asset bubble, We've had

287
00:16:13,720 --> 00:16:16,760
Speaker 1: an implosion of some of the emerging market currencies, the

288
00:16:16,840 --> 00:16:18,880
Speaker 1: fed at the beginning of this year, took out the

289
00:16:18,960 --> 00:16:21,480
Speaker 1: yell in put, took out a selling yell, took out

290
00:16:21,520 --> 00:16:23,200
Speaker 1: a second yell and put at the time of the

291
00:16:23,240 --> 00:16:27,400
Speaker 1: eu Brexit. So it's it's had for luck of Napoleon's

292
00:16:27,840 --> 00:16:29,960
Speaker 1: Napoleon looked for in his generals. It's managed to keep

293
00:16:30,040 --> 00:16:32,720
Speaker 1: the asset price inflation going in a key election year

294
00:16:33,160 --> 00:16:35,640
Speaker 1: and hope, hopefully from that point I view, would get

295
00:16:36,080 --> 00:16:40,080
Speaker 1: Hillary Clinton re elected. But that luck, from what we

296
00:16:40,120 --> 00:16:42,720
Speaker 1: can see in history, is not going to continue forever. Well,

297
00:16:42,840 --> 00:16:45,840
Speaker 1: so what assets specifically do you think is the most

298
00:16:45,920 --> 00:16:49,320
Speaker 1: inflated and the most ripe for a precipitous fall at

299
00:16:49,360 --> 00:16:52,440
Speaker 1: this point. Well, clearly, we've had a lot of the

300
00:16:52,680 --> 00:16:58,320
Speaker 1: carry trade into long government bonds, that that is where

301
00:16:58,520 --> 00:17:01,880
Speaker 1: we've seen a lot of this search or hunt for yield.

302
00:17:02,560 --> 00:17:05,159
Speaker 1: We've had it into the investment grade corporate bond market,

303
00:17:06,440 --> 00:17:10,440
Speaker 1: including a lot of emerging market paper um. And we

304
00:17:10,640 --> 00:17:13,080
Speaker 1: we've had it into some areas of real estate, whether

305
00:17:13,119 --> 00:17:15,720
Speaker 1: it's commercial real estate and in some hot hot spots

306
00:17:15,760 --> 00:17:20,679
Speaker 1: around the world. But what triggers the decline, the precipitous decline,

307
00:17:20,720 --> 00:17:24,440
Speaker 1: not this three loss and global buds into so what

308
00:17:24,560 --> 00:17:29,480
Speaker 1: triggers are precipitous decline. It could be a credit event um.

309
00:17:30,200 --> 00:17:37,480
Speaker 1: It could be some surprise slow down in economic activity um.

310
00:17:38,600 --> 00:17:42,760
Speaker 1: And it could be the unwinding of the government bond

311
00:17:43,520 --> 00:17:47,719
Speaker 1: bubble in itself with more more speculation that was going

312
00:17:47,800 --> 00:17:50,879
Speaker 1: to be a very significant rise in rates UM. And

313
00:17:50,960 --> 00:17:53,000
Speaker 1: then you can look at the exogenous factors and the

314
00:17:53,119 --> 00:17:55,360
Speaker 1: chance factors. It's it's it's it's a whole. It's a whole.

315
00:17:55,520 --> 00:17:57,920
Speaker 1: It's a whole range of possibilities. You know. I feel

316
00:17:57,960 --> 00:17:59,840
Speaker 1: if I was just to take one example, and it's

317
00:17:59,880 --> 00:18:03,800
Speaker 1: a it's a long way back in history, um, but

318
00:18:03,920 --> 00:18:06,800
Speaker 1: it's a very similar monetary experiment to today with the

319
00:18:06,880 --> 00:18:09,080
Speaker 1: thirty four to thirty six period under Roosevelt, with a

320
00:18:09,160 --> 00:18:12,520
Speaker 1: big monetary expansion, similar monetary based interest rate, stock at zero,

321
00:18:12,720 --> 00:18:16,720
Speaker 1: long term interest rate manipulation, very strong asset markets, and

322
00:18:16,800 --> 00:18:20,359
Speaker 1: then suddenly from summer thirty seven to autumn you get

323
00:18:20,400 --> 00:18:23,960
Speaker 1: a precipitous four in the market and the onset of

324
00:18:24,000 --> 00:18:27,680
Speaker 1: a recession which is even more severe than so very

325
00:18:27,800 --> 00:18:30,800
Speaker 1: very is a precedent for that. There's also a precedent

326
00:18:30,920 --> 00:18:34,119
Speaker 1: for what comes after that, which is why I asked

327
00:18:34,119 --> 00:18:36,920
Speaker 1: you at the very beginning, do you see or hear

328
00:18:37,600 --> 00:18:42,240
Speaker 1: rather rhymes to history as to global conflicts and what

329
00:18:42,400 --> 00:18:44,560
Speaker 1: people can do to protect themselves. I think by the

330
00:18:44,640 --> 00:18:47,000
Speaker 1: biggest question I have about all of this is the

331
00:18:47,160 --> 00:18:50,440
Speaker 1: politics central bankers. Essentially, I put there by the politicians

332
00:18:50,520 --> 00:18:53,040
Speaker 1: to run a particular policy which is to their liking.

333
00:18:53,560 --> 00:18:56,280
Speaker 1: We now have the Obama fed essentially, with everyone appointed

334
00:18:56,280 --> 00:18:59,800
Speaker 1: by Obama running a particular monetary philosophy. The question is

335
00:19:00,000 --> 00:19:04,159
Speaker 1: and when this experiment is seen to fail. And I

336
00:19:04,280 --> 00:19:05,920
Speaker 1: know there's a lot of central bankers around to say

337
00:19:05,960 --> 00:19:07,840
Speaker 1: that policy has been successful, but really I think it's

338
00:19:07,880 --> 00:19:09,480
Speaker 1: a joke to say what policy has been successful? And

339
00:19:09,560 --> 00:19:11,800
Speaker 1: we haven't even seen the end of one business cycle

340
00:19:11,880 --> 00:19:13,960
Speaker 1: to know how it all ends up, and whether the

341
00:19:14,320 --> 00:19:17,600
Speaker 1: lower income people suffer eventually a huge erosion and our pensions.

342
00:19:17,840 --> 00:19:20,320
Speaker 1: You know, all these people saying that the lower income

343
00:19:20,359 --> 00:19:22,760
Speaker 1: people have gained because we're employed for leaving out as

344
00:19:23,080 --> 00:19:26,880
Speaker 1: altogether what their pensions are going to be. But there

345
00:19:26,960 --> 00:19:32,000
Speaker 1: will be a big political choice when this experiment fails

346
00:19:32,160 --> 00:19:35,760
Speaker 1: as to what comes next. The best outcome would be

347
00:19:35,960 --> 00:19:38,639
Speaker 1: if a's a car to there who brings in a

348
00:19:39,359 --> 00:19:44,159
Speaker 1: new head of a fed um who would follow a

349
00:19:44,280 --> 00:19:47,960
Speaker 1: return to a sound money policy. But I don't know whether,

350
00:19:48,160 --> 00:19:50,840
Speaker 1: but the alternative would be somebody coming in who just

351
00:19:51,000 --> 00:19:54,760
Speaker 1: wants and appointing somebody who just intensified the present. I

352
00:19:54,840 --> 00:19:56,600
Speaker 1: want to thank you very much for putting us into

353
00:19:56,640 --> 00:19:59,600
Speaker 1: perspective for us. Brentan Brown as executive Director, chief of

354
00:19:59,680 --> 00:20:05,400
Speaker 1: carna Is m u f G Securities. This is Bloomberg,

355
00:20:18,280 --> 00:20:21,879
Speaker 1: all right, let's solve the issue of understanding passive versus

356
00:20:22,040 --> 00:20:25,919
Speaker 1: active investment strategies. Mark Levin joins us. He's the chairman

357
00:20:25,920 --> 00:20:29,000
Speaker 1: of the Illinois State Board of Investment, and he joins

358
00:20:29,080 --> 00:20:31,520
Speaker 1: us from the windy city of Chicago. Mark, thank you

359
00:20:31,640 --> 00:20:33,680
Speaker 1: very much for being with us. Thank you for having me.

360
00:20:34,119 --> 00:20:36,440
Speaker 1: Just tell us a little bit about the Illinois State

361
00:20:36,520 --> 00:20:39,399
Speaker 1: Board of Investment, how big it is, your role in it,

362
00:20:39,640 --> 00:20:42,600
Speaker 1: and how many people are recipients of your work, and

363
00:20:42,920 --> 00:20:48,200
Speaker 1: just give us some context. Sure, of course, um, we are.

364
00:20:48,920 --> 00:20:51,680
Speaker 1: We're one of the three. Uh. We manage money for

365
00:20:51,760 --> 00:20:54,600
Speaker 1: one of the three sort of the big three. Um,

366
00:20:54,680 --> 00:20:58,480
Speaker 1: Illinois state pension funds. So there is a pension fund

367
00:20:58,560 --> 00:21:02,200
Speaker 1: for teachers Illinois teachers. There's a pension fund for state

368
00:21:02,280 --> 00:21:06,040
Speaker 1: university workers. We don't manage that money. UM. That's and

369
00:21:06,160 --> 00:21:09,920
Speaker 1: those those are thirty five and roughly sixteen seventeen billion

370
00:21:09,920 --> 00:21:13,440
Speaker 1: dollars in assets. Those two funds our fund. We manage

371
00:21:13,840 --> 00:21:18,240
Speaker 1: assets for the state employees, the legislators, and the judges.

372
00:21:18,680 --> 00:21:23,480
Speaker 1: And um UH and our assets in our defined benefit

373
00:21:23,720 --> 00:21:27,480
Speaker 1: pension plan, our sixteen billion dollars, there's a hundred and

374
00:21:27,560 --> 00:21:33,359
Speaker 1: twenty thousand UM both retired and current workers who are

375
00:21:33,480 --> 00:21:38,479
Speaker 1: beneficiaries of our pension. We also UM it's actually got

376
00:21:38,680 --> 00:21:41,600
Speaker 1: got some press more recently. UM we also manage a

377
00:21:41,760 --> 00:21:46,920
Speaker 1: four billion dollar deferred comp plan, which is really you know,

378
00:21:47,160 --> 00:21:49,879
Speaker 1: quite similar to a four O one KUM which you

379
00:21:49,920 --> 00:21:52,720
Speaker 1: know your your listeners would be more familiar with. UM.

380
00:21:53,320 --> 00:21:56,080
Speaker 1: So there's about four four billion dollars of assets in

381
00:21:56,200 --> 00:21:59,960
Speaker 1: that and we've got about fifty I believe the numbers

382
00:22:00,040 --> 00:22:06,359
Speaker 1: fifty two of our dwod UH of the unred beneficiaries

383
00:22:06,359 --> 00:22:10,200
Speaker 1: of our pageanceys, fifty two of them participate in our

384
00:22:10,640 --> 00:22:13,080
Speaker 1: DC plan. Okay, well, let's let's get right into this.

385
00:22:13,160 --> 00:22:15,240
Speaker 1: I am so glad you hear, Mark Levine. Let me

386
00:22:15,320 --> 00:22:17,080
Speaker 1: tell you, I think that it is so interesting what

387
00:22:17,200 --> 00:22:20,359
Speaker 1: you did. You voted on September five to convert the

388
00:22:20,440 --> 00:22:22,560
Speaker 1: four O one K type of plan to an all

389
00:22:22,720 --> 00:22:26,000
Speaker 1: index fund UH lineups. So in other words, that's the

390
00:22:26,119 --> 00:22:28,760
Speaker 1: four billion dollars for one case ile plan. This is

391
00:22:28,800 --> 00:22:31,399
Speaker 1: a big shift, especially at a time when a lot

392
00:22:31,440 --> 00:22:34,399
Speaker 1: of people say, you know, yeah, maybe active management has underperformed,

393
00:22:34,440 --> 00:22:38,600
Speaker 1: but going forward they could potentially outperform, given if there

394
00:22:38,680 --> 00:22:40,879
Speaker 1: is a rising rate situation, or given how crowded some

395
00:22:40,960 --> 00:22:43,439
Speaker 1: of the bets have gotten. So so justify it. Why

396
00:22:43,480 --> 00:22:48,920
Speaker 1: do you think passive is the way to go going forward? Sure? Sure, um,

397
00:22:49,160 --> 00:22:53,600
Speaker 1: what you know, we went we we we were not.

398
00:22:53,720 --> 00:22:56,760
Speaker 1: We were far from the most complicated, sort of worst

399
00:22:56,880 --> 00:23:01,359
Speaker 1: run um DC plan going in. Okay, we had a

400
00:23:01,680 --> 00:23:04,639
Speaker 1: we had about I believe it was seventeen seventeen or

401
00:23:04,680 --> 00:23:07,960
Speaker 1: eighteen choices for the participants and um, but let me

402
00:23:08,000 --> 00:23:10,200
Speaker 1: tell you what. That's a lot of complexity right there.

403
00:23:10,880 --> 00:23:13,240
Speaker 1: And our view, Look, we have one goal at the

404
00:23:13,280 --> 00:23:17,680
Speaker 1: only State Board investment and that's investment excellence. Okay. Our

405
00:23:17,800 --> 00:23:22,760
Speaker 1: view is that complexity is an obstacle to excellence, and

406
00:23:22,960 --> 00:23:26,160
Speaker 1: so everything we do, whether it's in that the DC

407
00:23:26,280 --> 00:23:28,240
Speaker 1: plan that you just asked about or our pension plan,

408
00:23:28,680 --> 00:23:32,800
Speaker 1: we're always striving to simplify. We're always striving to simplify.

409
00:23:33,040 --> 00:23:37,680
Speaker 1: Now it's particularly true on the DC side where UM,

410
00:23:38,119 --> 00:23:42,320
Speaker 1: where participants get to pick and choose what they invest in, right,

411
00:23:42,400 --> 00:23:44,200
Speaker 1: and so there's a lot of risk. There's you have

412
00:23:44,320 --> 00:23:48,920
Speaker 1: so many choices that they're gonna particularly like chase returns.

413
00:23:48,960 --> 00:23:52,080
Speaker 1: You know, whoever performed best last year. There's always tendency

414
00:23:52,119 --> 00:23:54,320
Speaker 1: to revert to the mean. Of course with active management.

415
00:23:54,920 --> 00:23:58,639
Speaker 1: So you know, we kind of decided, let's let's really

416
00:23:58,960 --> 00:24:02,520
Speaker 1: take all of the complexity or as much as we

417
00:24:02,600 --> 00:24:06,120
Speaker 1: possibly can, and so we took out active management. UM.

418
00:24:06,560 --> 00:24:08,600
Speaker 1: Now it's also true that the active managers that we

419
00:24:08,680 --> 00:24:11,600
Speaker 1: had there weren't adding value. I mean they were you know,

420
00:24:11,720 --> 00:24:14,480
Speaker 1: charging fees and underperforming benchmarks over you know, sort of

421
00:24:14,560 --> 00:24:17,399
Speaker 1: lengthy time periods. Can you tell us who they were?

422
00:24:17,880 --> 00:24:21,919
Speaker 1: Which ones? Uh? I mean I can. Yeah, we had

423
00:24:22,000 --> 00:24:24,760
Speaker 1: the zero price was was the largest they actually managed

424
00:24:24,880 --> 00:24:30,320
Speaker 1: a a life cycle um option for for our participants.

425
00:24:30,640 --> 00:24:34,960
Speaker 1: Fidelity manage a Bella's Index fund Um and so was

426
00:24:35,359 --> 00:24:40,760
Speaker 1: names like that, William Blair, um invest Goo uh and

427
00:24:41,000 --> 00:24:42,720
Speaker 1: and a few others. But so in other words, this

428
00:24:42,800 --> 00:24:44,720
Speaker 1: wasn't this wasn't like the hedge fund complex, and the

429
00:24:44,800 --> 00:24:47,760
Speaker 1: fees weren't that crazily high? This is so is it?

430
00:24:47,840 --> 00:24:51,359
Speaker 1: It's it more about simplifying the portfolio and less about

431
00:24:51,400 --> 00:24:54,280
Speaker 1: the fees or is it sort of equal? Yeah? And

432
00:24:54,680 --> 00:24:58,360
Speaker 1: you might be aware that about seven eight months ago

433
00:24:58,440 --> 00:25:00,960
Speaker 1: we took a hatchet to our um to a hedge

434
00:25:00,960 --> 00:25:06,080
Speaker 1: fund portfolio on the pension side. Now you're you're exactly right.

435
00:25:06,119 --> 00:25:08,680
Speaker 1: I mean, you know that the two percent of assets

436
00:25:09,520 --> 00:25:13,919
Speaker 1: of all returns uh compensation model of the hedge funds

437
00:25:14,160 --> 00:25:17,760
Speaker 1: UM fortunately hasn't come anywhere near the DC side, and

438
00:25:17,880 --> 00:25:20,960
Speaker 1: I believe that's really pretty much across the industry. Um.

439
00:25:21,160 --> 00:25:24,080
Speaker 1: So these were more modest these but the problem was,

440
00:25:25,000 --> 00:25:27,359
Speaker 1: you know, look the fees you know, in a zero

441
00:25:27,680 --> 00:25:31,880
Speaker 1: interest rate environment, there are you know, we can't expect

442
00:25:32,440 --> 00:25:36,879
Speaker 1: you know, massive returns out of equities, right so um right,

443
00:25:37,000 --> 00:25:42,159
Speaker 1: So basis points of fees is quite material, But that

444
00:25:42,480 --> 00:25:46,200
Speaker 1: wasn't the driving force. The driving force was to make

445
00:25:46,680 --> 00:25:50,640
Speaker 1: the lives of our participants easier by getting fewer choices

446
00:25:50,840 --> 00:25:55,040
Speaker 1: is actually better than more choices. Mark. Having said that,

447
00:25:55,240 --> 00:25:57,159
Speaker 1: I'm wondering if you could give us a glimpse of

448
00:25:57,280 --> 00:26:00,879
Speaker 1: what it was like to go through the process of

449
00:26:01,080 --> 00:26:06,680
Speaker 1: simplifying your investment strategy as you've done. Okay, Um, so

450
00:26:06,920 --> 00:26:11,200
Speaker 1: initially there, yeah, actually, if you don't mind sort of

451
00:26:11,720 --> 00:26:14,480
Speaker 1: shift over just for a sect to the to the

452
00:26:14,920 --> 00:26:20,479
Speaker 1: to the pension side. Initially, Look, pension funds are political animals, right.

453
00:26:20,960 --> 00:26:25,840
Speaker 1: The trustees that that governed pension funds tend to be

454
00:26:26,000 --> 00:26:30,040
Speaker 1: you know, elected by unions or state office wide holders, um,

455
00:26:30,200 --> 00:26:33,520
Speaker 1: governor appointments, which is actually how how you know, how

456
00:26:33,600 --> 00:26:36,280
Speaker 1: I got on the board. So there is a political

457
00:26:36,359 --> 00:26:38,520
Speaker 1: element to it. And when we and we our board

458
00:26:38,560 --> 00:26:41,440
Speaker 1: had a lot of turnover last year. So when we

459
00:26:42,680 --> 00:26:46,040
Speaker 1: and I was elected chairman in September, and the first

460
00:26:46,119 --> 00:26:50,080
Speaker 1: thing that I did once I was elected chairman was

461
00:26:50,680 --> 00:26:55,399
Speaker 1: start to try to simplify the portfolio by you know,

462
00:26:55,800 --> 00:26:59,600
Speaker 1: by removing or you know by sort of you know,

463
00:26:59,720 --> 00:27:04,520
Speaker 1: ask staff to to to look at removing our active

464
00:27:04,560 --> 00:27:09,200
Speaker 1: managers that weren't adding value. Okay, So now the guys

465
00:27:09,320 --> 00:27:11,840
Speaker 1: who let's say we're on the board before I got there,

466
00:27:12,440 --> 00:27:14,680
Speaker 1: they you know, kind of looked askance at what we

467
00:27:14,760 --> 00:27:16,280
Speaker 1: were doing. It's like, you know, are you just did

468
00:27:16,480 --> 00:27:18,400
Speaker 1: did they give you ten seconds? Because that's all I'm

469
00:27:18,400 --> 00:27:20,879
Speaker 1: going to give you sorry, you got ten seconds to

470
00:27:21,000 --> 00:27:25,159
Speaker 1: rapid Okay, okay, okay, sorry. So it's sort of this

471
00:27:25,359 --> 00:27:28,040
Speaker 1: view of replacing our guys with your guys. And once

472
00:27:28,119 --> 00:27:31,840
Speaker 1: they saw what we were really bringing, passive managers and

473
00:27:31,880 --> 00:27:34,280
Speaker 1: so we weren't bringing. There was no our guys. There

474
00:27:34,359 --> 00:27:37,080
Speaker 1: was just good basic kind of management where we get

475
00:27:37,160 --> 00:27:40,080
Speaker 1: market returns. There aren't investment managers these. It's really better

476
00:27:40,160 --> 00:27:43,560
Speaker 1: for anyone. The hostility level really went down. Mark Levine,

477
00:27:43,600 --> 00:27:47,040
Speaker 1: Thank you very much, Chairman, Illinois State Board of Investment.

478
00:27:47,720 --> 00:27:59,399
Speaker 1: This is Bloomberg. Thanks for listening to the Bloomberg P

479
00:27:59,480 --> 00:28:02,119
Speaker 1: and L pot Cast. You can subscribe and listen to

480
00:28:02,200 --> 00:28:07,399
Speaker 1: interviews at iTunes, SoundCloud, or whatever podcast platform you prefer.

481
00:28:07,720 --> 00:28:10,960
Speaker 1: I'm Pim Fox. I'm out there on Twitter at Pim Fox.

482
00:28:11,320 --> 00:28:14,000
Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one

483
00:28:14,280 --> 00:28:17,000
Speaker 1: before the podcast. You can always catch us worldwide on

484
00:28:17,080 --> 00:28:17,840
Speaker 1: Bloomberg Radio.