Speaker 1: Well can a trillions.
Speaker 2: I'm Joel Webert and I'm Eric Belchernis.
Speaker 3: Eric.
Speaker 4: There's this universe that we've really never talked about on
Speaker 4: trillions because there haven't been ETFs to really talk about.
Speaker 4: But it's called private credit. Private credit is kind of
Speaker 4: post financial crisis. It has only gotten bigger. There's a
Speaker 4: lot of non bank institutions that are big names. They
Speaker 4: have a ton of money. The growth has been really interesting,
Speaker 4: and now it looks like they're starting to I the
Speaker 4: ETF world.
Speaker 2: Yeah, I always think of private credit and private equity,
Speaker 2: which I think collectively are in the ballpark of thirteen trillion,
Speaker 2: as sort of like the stuff only people in the
Speaker 2: know can get, you know, like the party, the real party.
Speaker 2: That's the institutional Yeah, that's in the back by the pool,
Speaker 2: not the party for the plubs. And so a lot
Speaker 2: of these firms our intermediaries in this area, and the
Speaker 2: end user is typically large institutions, acid owners who have
Speaker 2: a ton of money, pensions, endowments, hedge funds. There's been
Speaker 2: a couple news items in the past year that show
Speaker 2: a lot of people trying to democratize this.
Speaker 3: Whoever can bridge the.
Speaker 2: Gap between all that private stuff and the retail investor
Speaker 2: is probably going to make out big time. So the
Speaker 2: incentive to bridge that gap is there and enter ETFs.
Speaker 2: Everybody likes their stuff in ETFs. So there's this sort
Speaker 2: of race for the prize right now with these issuers,
Speaker 2: including black Rock, to say, how can we get this
Speaker 2: it's a paradox. How can we get this totally i
Speaker 2: liquid thing into this vehicle that is very liquid? And
Speaker 2: this is the puzzle that the issuers are trying to solve.
Speaker 2: And there is an interesting design put forward in the
Speaker 2: past couple of weeks by State Street and Apollo, which
Speaker 2: really was earth shattering. I've talked to people in the
Speaker 2: and this got people buzzing. You know, we saw a
Speaker 2: couple of filings right after. So there's going to be
Speaker 2: this sort of race. I'll ave the bitcoin race to
Speaker 2: get there first.
Speaker 1: All right.
Speaker 4: To help us talk about that race, we're gonna be
Speaker 4: joined by vil Donna Hirik, an ETF reporter with Bloomberg News,
Speaker 4: this time on trillions saving private assets.
Speaker 1: To Donna, welcome to trillions.
Speaker 5: Am I allowed to laugh?
Speaker 1: Yes, yes you are.
Speaker 5: That was Eric's idea.
Speaker 4: You know, first of all, we just want to say
Speaker 4: first time officially on the show. We've talked about you
Speaker 4: and your reporting before, so thanks for being here and
Speaker 4: looking forward to having you on.
Speaker 2: By the way, it's not possible this is your first time.
Speaker 1: I am yeah, just after that's good.
Speaker 2: Sort of like you know, like what is the universe
Speaker 2: expanding into? I can't get my mind around that. I
Speaker 2: can't get my mind around the fact that you haven't
Speaker 2: been on, Like it just doesn't make sense.
Speaker 5: I've known you for almost seven years now.
Speaker 3: Thanks for the So.
Speaker 1: We're paying it forward.
Speaker 4: We're going to hear from you much more often now,
Speaker 4: So talk to us about this race and what it
Speaker 4: looks like so far.
Speaker 5: I actually really like Eric's comparison to the bitcoiny tf
Speaker 5: hrase because so we have this filing from Apollo and
Speaker 5: State Street. Everybody's trying to figure out how to make
Speaker 5: private assets which aren't liquid, which are not liquid, so
Speaker 5: they're illequid.
Speaker 3: Exactly.
Speaker 5: They do not trade as as often as the SEC
Speaker 5: would need them to be trading in order for the
Speaker 5: SEC to say that they are liquid. Because what the
Speaker 5: SEC says is something is illiquid if you cannot sell
Speaker 5: it within seven days, and with a lot of this stuff,
Speaker 5: that would be really hard to do with the bitcoiny
Speaker 5: tf hrase, it took years and years. It took longer
Speaker 5: than a decade before Blackrock came out with their filing
Speaker 5: and said, Okay, we're going to have this survey. It
Speaker 5: was called the Surveillance Sharing Agreement, and everybody said, huh, okay,
Speaker 5: Blackrock figured out a way to potentially make the BITCOINYTF
Speaker 5: happen the same type of thing. How and here with
Speaker 5: Apollo in State Street where they came out with their
Speaker 5: filing and people said, Okay, potentially this is a way
Speaker 5: to make the SEC happy when it comes to providing
Speaker 5: quote unquote ill liquid stuff to the broader public in
Speaker 5: the ETF wrapper because as Eric said, everybody wants ETFs.
Speaker 5: Everybody wants the retail share of this because retail just
Speaker 5: hasn't been able to buy into this stuff. And I said,
Speaker 5: quote unquote illiquid because we can talk about how actually
Speaker 5: this filing is structured and whether or not it will
Speaker 5: make the SEC happy before.
Speaker 1: We do that.
Speaker 4: What else happened after this Apollo State Street announcement, Well, there.
Speaker 2: Was just a lot of questions on Okay, what's the
Speaker 2: trick here, because there has been a couple like quote
Speaker 2: private ETFs. But what they tend to do is they
Speaker 2: invest in closed then funds or BDCs which have connections
Speaker 2: to private credit. But that's using that's a indirect. Then
Speaker 2: there's ones that say, okay, we're private dec we will
Speaker 2: invest in microcap stocks that have similar characteristics. So everything
Speaker 2: so far has been indirect. This is the first one
Speaker 2: saying we're gonna give you the real deal. And we
Speaker 2: know from the bitcoin race people don't want the derivative
Speaker 2: or the indirect. They want it the real way.
Speaker 1: I want what they get.
Speaker 2: Yeah, I want the same thing, and so the apollo
Speaker 2: is the is the difference here. They're huge in this industry,
Speaker 2: their name is on the label, and they're gonna basically
Speaker 2: make a market in the private credit portion of the portfolio.
Speaker 2: They promise to buy it back if there's a selloff.
Speaker 2: That's that's I mean, that's a liquidity backstop. That's major.
Speaker 2: And that's the puzzle that State Street has solved. Now
Speaker 2: how much is actually private credit? This is a baby step,
Speaker 2: but I think people will respond favorably this because remember,
Speaker 2: all the advisors out there can't really get this. So
Speaker 2: they can say to their clients, hey, I'm getting I'm
Speaker 2: getting you to the real party.
Speaker 1: Yeah.
Speaker 2: Yeah, And then they're gonna get it through this ETF,
Speaker 2: which anybody can get, but they'll they're gonna make a
Speaker 2: show of it, and it's it's gonna work.
Speaker 1: Has anybody ever attempted anything like that backs up before?
Speaker 4: No.
Speaker 2: I mean, the only thing that was somewhat similar in
Speaker 2: my view is the non transparent active structure where some
Speaker 2: of them were in like brought blind trusts and some
Speaker 2: were even proxy portfolios, and market maker sort of had
Speaker 2: to figure their way out not having all the information
Speaker 2: or having it fed to them in certain ways, and
Speaker 2: they work fine. And one other thing I'll say about
Speaker 2: why I think this will be no big deal is that,
Speaker 2: let's just say, even the fifteen percent that's completely a
Speaker 2: liquid goes completely a liquid. The ETF still trades, and
Speaker 2: in March twenty twenty, when COVID happened, there was a
Speaker 2: ticker called hyd which was Vanak High Yield Municipal Bond,
Speaker 2: And to me, this is the canary in the coal mind.
Speaker 2: It traded at a twenty nine percent discount to nav
Speaker 2: sometimes and today it's taken in a billion dollars since then,
Speaker 2: and it trades just as much. In other words words,
Speaker 2: I think people really have a lot of trust that
Speaker 2: the ETF industry will not do them wrong. And then
Speaker 2: if the price is a little below NAV, that is
Speaker 2: the best price I can get based on the incentive
Speaker 2: to arbitrage, and possibly they'll even go the NAV probably
Speaker 2: isn't even right. Then they trust the ETF that much,
Speaker 2: and HYD to me proves it. So I think the
Speaker 2: audience is certainly ready. It's the question is the SEC
Speaker 2: approves it or not. But I think it's a really
Speaker 2: good idea, and I like the idea of getting Apollo
Speaker 2: into the industry, you know, to have them involved is
Speaker 2: also maybe it's a.
Speaker 4: Big Wall Street name to not be in the mix
Speaker 4: they'll done. And we should actually be pretty clear about this.
Speaker 4: We don't totally know the mechanics about how these things
Speaker 4: will work. But what do we think that this Apollo
Speaker 4: State Street ETF would hold.
Speaker 5: So the perspectus says it would be eighty percent investment
Speaker 5: grade stuff and twenty percent potentially high yield stuff. However,
Speaker 5: and this is another one of those outstandings questions. State
Speaker 5: Street it looks like is able to say XYZ is
Speaker 5: investment grade, so they are able to do that, and
Speaker 5: it's unclear whether or not you'd actually have a ratings
Speaker 5: agency involved to be able to say, okay, yes, this
Speaker 5: is investment grade. So another outstanding question on that front.
Speaker 1: Who else has expressed interest in joining the race?
Speaker 5: So there's a couple of other filers. One is an
Speaker 5: issuer named Bond Blocks. They filed for Colo ETF, which
Speaker 5: actually is a little bit different from what we were
Speaker 5: talking about with Apollo and State Street. But I really
Speaker 5: would say the Apollo and State Street ETF is the
Speaker 5: big one, not only because they were the first ones
Speaker 5: to put out the filing, but also because we're talking
Speaker 5: about two really big Wall Street names. And I want
Speaker 5: to go back to what Eric was saying about the
Speaker 5: fifteen percent. So the SEC requires illiquidtive investments to be
Speaker 5: capped at fifteen percent for a fund. Thinking, according to
Speaker 5: some analysts and strategists and people who are watching this
Speaker 5: race is that State Treed and Apollo might not necessarily
Speaker 5: need to be sticking to the fifteen percent cap, because
Speaker 5: if they were needing to stick to the fifteen percent cap,
Speaker 5: they would have already filed and launched such a product
Speaker 5: by now. And I actually want to give some analysts
Speaker 5: at morning Star credit for this. The way that they
Speaker 5: were looking at the prospectus and analyzing it is that
Speaker 5: they are thinking that really stay treat and Apollo might
Speaker 5: not need to be sticking to that cap. Of course,
Speaker 5: we just still have just the one filing so far,
Speaker 5: so we'll probably be learning more information in due time.
Speaker 2: So this is something I missed, and I got to
Speaker 2: give Brian Moriarty and Ryan Jackson, who are morning Star.
Speaker 2: They wrote a great piece on this. I learned a lot,
Speaker 2: to be honest, I thought the fifteen percent was all
Speaker 2: they could do, but I see your point point. If
Speaker 2: they can say that it's liquid because Apollo's there, then
Speaker 2: you can go beyond the fifteen percent.
Speaker 3: Exactly. You have to remember that like every day, the.
Speaker 2: Japan ETF has its underlyings frozen like every single day.
Speaker 2: Then there's been cases like Egypt where the Arabs spring,
Speaker 2: the Egyptian stock market closed for three or four months.
Speaker 3: And EGPT traded on.
Speaker 2: So even if eighty percent of it was private and
Speaker 2: got a little rough or even frozen again, it would
Speaker 2: trade like a cloth then fund. But if Apollo's going
Speaker 2: to step in and give a market, that wouldn't even happen.
Speaker 2: So I guess it's a leap of faith. But Polo
Speaker 2: is a huge firm and oother thing. If the question is,
Speaker 2: well they buy it back in a crisis, right? First
Speaker 2: of all, I've known that ETF investors tend to not
Speaker 2: go they're pretty diamond handsish. They tend to not sell
Speaker 2: a lot when the price goes down or maybe ten
Speaker 2: percent of people, so no big deal. But let's just
Speaker 2: say eighty percent ran for the door. Apollo might be
Speaker 2: smart enough to know that's when you should buy it.
Speaker 2: You know, institutions know you want to buy STUFE when it's.
Speaker 1: In a fire sale.
Speaker 2: So they may be happy to take the private credit
Speaker 2: all retail's hands after it has a downturn and buy
Speaker 2: it on the cheap.
Speaker 1: You know.
Speaker 2: So there's a couple we don't know they're thinking here.
Speaker 2: The question morning Star Rose, and I don't know the
Speaker 2: answer totally is what does Apollo get out of this?
Speaker 2: Do they get a cut of the expense ratio.
Speaker 1: As some people the restrant? I mean, they're taking a
Speaker 1: ton of risk here.
Speaker 2: Yeah, so maybe, but do they really need that money?
Speaker 2: You know the private business that they're all yeah, you know,
Speaker 2: millionaires and billionaires.
Speaker 3: Do they really need this?
Speaker 2: Somebody theorized that Apollo was doing this so they could
Speaker 2: dump the less desirable stuff onto retail, sort of like
Speaker 2: exit liquidity. But I would hope that State Street being
Speaker 2: a fiduciary and being part of this, and their name
Speaker 2: comes first. By the way, would you know, make sure
Speaker 2: that they're a check and balance on that. This is
Speaker 2: again a question that has no answer yet because you
Speaker 2: can't get these people to talk about their filings until
Speaker 2: the ATF comes out.
Speaker 5: Yeah, so there's those questions plus a bunch of other ones,
Speaker 5: and we have critics sort of pointing to a bunch
Speaker 5: of the gaps in knowledge in terms of what we
Speaker 5: know how this ETF would potentially work, and we're likely
Speaker 5: to find out more information as time goes on. What
Speaker 5: we do know is just looking at the prospectus, is
Speaker 5: Apollo would be originating and pricing the stuff, It would
Speaker 5: be selling it to Stage Street, and then it would
Speaker 5: also be buying it back if Stage Treat asks it to.
Speaker 5: And then the filing also mentions a daily limit in
Speaker 5: terms of what Apollo would be buying back, and we
Speaker 5: actually just don't know what that amount would be, whether
Speaker 5: or not it would be a dollar amount or a percentage. So,
Speaker 5: for instance, if they're buying back a million dollars worth
Speaker 5: of stuff or ten million dollars worth of stuff, what
Speaker 5: happens if the fund grows to a billion dollars in
Speaker 5: assets and then Apollo is buying back just one million. Still,
Speaker 5: So those are some of the outstanding questions, And again
Speaker 5: I want to give credit to morning Star for pointing
Speaker 5: this one out as well as they did in one
Speaker 5: of their analysis pieces recently.
Speaker 1: To be clear, here, they've filed, Now how long are
Speaker 1: we waiting? How long was bitcoin? The Bitcoin raise?
Speaker 3: Well, this is different because it's not a thirty three act,
Speaker 3: it's a.
Speaker 1: General Well we're just saying worst case scenario.
Speaker 2: Yeah, okay, best case scenario seventy five days minus ten,
Speaker 2: which we already went through, so like sixty five days
Speaker 2: that would be if it gets approved. When you file something,
Speaker 2: the SEC either says something and you have to rejigger
Speaker 2: the filing or they say nothing and it just goes.
Speaker 3: It goes through. So my guess is the SEC will
Speaker 3: call them and work something out. Maybe they'll have to
Speaker 3: tweak stuff, but.
Speaker 2: If the SEC is fine as is, it will just
Speaker 2: launch in sixty five days or so, and there we go.
Speaker 4: So when this happens, we will be talking about it again.
Speaker 4: I'm very curious about how they answer some of these
Speaker 4: technical questions.
Speaker 2: One thing that should be pointed out is that up
Speaker 2: until now, when people had this idea of private credit
Speaker 2: or private equity, they've gone to these interval funds, which
Speaker 2: are like mutual funds, but you can only get in
Speaker 2: and out like quarterly or every half year, and they thought, Okay,
Speaker 2: this is the better vehicle for this type of ill
Speaker 2: liquid investment.
Speaker 3: The problem is nobody wants this.
Speaker 2: It's like putting music in an eight track cassette tape, like, yeah,
Speaker 2: it could be the best song, but like, no one's
Speaker 2: gonna go just the vehicle to deliver it is so bad.
Speaker 2: Interval funds the average fee is like one point five percent.
Speaker 2: The fees are so high in these things. The returns
Speaker 2: aren't great.
Speaker 3: I'm, you know, not to say what.
Speaker 2: They should benchmarked against, but I just sorted through them,
Speaker 2: and I'm like, I can sort of see why people
Speaker 2: don't want interval funds. Kathy Wood has one for ARC
Speaker 2: that she does private equity investing in that's an interval fund,
Speaker 2: and nobody really cares. And this came out around the
Speaker 2: arc hype. So I think when people say, well, this
Speaker 2: should be in a different fund, I'm like, I don't know.
Speaker 2: ETFs are where it's at. So I do see the
Speaker 2: need to get it in here. And again, what people
Speaker 2: won't mention, and it has not been mentioned even in
Speaker 2: the Morning's article, is trust. You know, people underrate how
Speaker 2: much investors trust the ETF world because take out some
Speaker 2: of these senior loan ETFs like BKLN. Some of these
Speaker 2: things don't settle for like a month, and in the
Speaker 2: high yield HyG is so super popular, most of those
Speaker 2: bonds don't trade every day. So we have a lot
Speaker 2: of experience putting in liquid stuff into an ETF and
Speaker 2: everybody seems fine with it in order. And when I
Speaker 2: say fine, they trust arbitrage to do its thing and
Speaker 2: deliver them a price that's about fair minus.
Speaker 3: What the arb person needs to make a little money
Speaker 3: for themselves.
Speaker 4: But one of the things that's providing trust here is
Speaker 4: the name State Street, which is a name that everybody knows.
Speaker 4: In ETF world. We often talk about, you know, is
Speaker 4: there a zone here that vanguard or the black rocks
Speaker 4: of the world can't touch if if State Street and
Speaker 4: Apollo show so that you can do this, how protected
Speaker 4: is this space? Is there going to be a feeding
Speaker 4: frenzy and you're going to see the Vanguards and the
Speaker 4: black Rocks come in and try and find partners.
Speaker 2: It's interesting Vanguard did partner with the private equity firm
Speaker 2: because they Vanguard's also an advisor, but they didn't put
Speaker 2: a fund out that was private equity. But Vanguard has
Speaker 2: tiptoed in this area for sure. I don't see them
Speaker 2: doing anything like this. They don't need this, you know,
Speaker 2: the fisher jumping in the boat. They're not structured the
Speaker 2: same as everybody else. Blackrock is like always.
Speaker 3: On the hunt for new revenue streams. I mean they
Speaker 3: are relentless. They die for every loose ball.
Speaker 2: I bet there are whiteboard meetings at Blackrock as we
Speaker 2: speak trying to figure this out. Blackrock recently brought Prequin,
Speaker 2: which a lot of people thought was to get into
Speaker 2: this business, and I think was it Larry Fink or
Speaker 2: somebody at Blackrock said we want to democratize private markets.
Speaker 5: The other interesting thing is that it is State Street
Speaker 5: and they have a new head of ETFs Anapaglia, and
Speaker 5: it seems like they're taking a bit of a shift
Speaker 5: towards the type of stuff that they're willing to put out.
Speaker 5: So since she's joined the firm, they actually have put
Speaker 5: out filings or even put out crypto ETFs, so it
Speaker 5: looks like they're looking to do more with that. They
Speaker 5: also partnered with Galaxy, a crypto firm that used to
Speaker 5: work with in Vesco where she came from, and now
Speaker 5: we have this filing as well, So it seems like
Speaker 5: they are looking to like Eric mentioned with Blackrock, they're
Speaker 5: going after revenue. Potentially We're seeing sort of changes at
Speaker 5: State Street as well, like State treat is known for spy, right,
Speaker 5: so there's sort of new innovative stuff that they're looking
Speaker 5: to do.
Speaker 2: Yeah, and Pagalley is a great point because she is
Speaker 2: a a go getter, she's an ETF person, and if
Speaker 2: they're giving her the keys to run the business, I
Speaker 2: could see I get why they did this. I could
Speaker 2: see more of this kind of stuff coming down the line.
Speaker 2: You know that matters because we've seen companies where in
Speaker 2: ETF person with that kind of verve is driving the
Speaker 2: boat versus when they leave and then they put somebody
Speaker 2: from like another department or the mutual fun area. It
Speaker 2: all just slows down and it's all prevent defense again.
Speaker 2: But an it to me is aggressively an offensive minded
Speaker 2: persons industry.
Speaker 4: There's there's new blood at Vanguard too, so this whole
Speaker 4: space will be an interesting one to watch.
Speaker 2: To me, it's just different because you've got this major
Speaker 2: player in the space providing liquidity backstop in Apollo that
Speaker 2: is huge. And State Street, by the way, has had
Speaker 2: success in the past. They did this State Street Double
Speaker 2: Line ETF with Jeff Gunlock and that was successful. Gunlock
Speaker 2: now launches Double Line on his own, but that was,
Speaker 2: you know, his first foray. So State Street has done
Speaker 2: this in the past teaming up with somebody. So I'm excited, Joel.
Speaker 2: You know, I I just spent a long time on
Speaker 2: the planet Crypto and ready to move. Yeah, or new
Speaker 2: planet was a new universe because I got out before
Speaker 2: they got me.
Speaker 3: Yeah, yeah, they almost got me. They almost got me.
Speaker 5: You're gonna get Twitter hate for them.
Speaker 2: Sometimes when I when I've gained so many these crypto
Speaker 2: followers that when I tweet about like fixed income or
Speaker 2: something like, yo, what's this?
Speaker 3: Do you know?
Speaker 5: What they would call you in crypto land tourists.
Speaker 2: Yeah, they called me they called me in James, the
Speaker 2: Bloomberg boys. Ois, they call me a suit they call
Speaker 2: me a boomer. I've heard it all trad five bro.
Speaker 2: All those are true?
Speaker 5: And how much of it is true?
Speaker 3: Yeah? Wall Street The other guy called me elite Wall
Speaker 3: Street guy.
Speaker 1: Yeah.
Speaker 3: I'm like, all right, I like that.
Speaker 5: All right, So you're giving you're giving up the crypto
Speaker 5: space is the headline.
Speaker 2: No, I told people it would be percentage of it
Speaker 2: would be a ten percent of my life.
Speaker 3: It went it was like ninety. But it was always
Speaker 3: going to diversify away credit. It's hard to leave it
Speaker 3: alone because they're still growing assets.
Speaker 1: You've changed bild.
Speaker 4: I got one more question for you, which is that
Speaker 4: we often ask I guess on trillions, what is your
Speaker 4: favorite ETF ticker?
Speaker 5: Oh? My god, I love tickers. Do I have a favorite.
Speaker 5: I'm obsessed with tickers because I think that there really
Speaker 5: are people who sit at issuers, who sit around and
Speaker 5: think about what is going to be the best ticker
Speaker 5: to attract retail or whoever else. And then you have
Speaker 5: some like really serious players and they'll come out with
Speaker 5: a really good catchy ticker. I know what Eric's is. Tok, right,
Speaker 5: that's your favorite ticker. No, you've tweeted about it before.
Speaker 1: It is. It is a great top tier tier one ticker.
Speaker 3: Yeah, it's a good one.
Speaker 5: So you you really have me on the spot. But
Speaker 5: so for example, b.
Speaker 1: R r r burr, Yeah, money printer goes burr money printer.
Speaker 5: That's a really good one. That's for one of the
Speaker 5: bitcoiny tfs. But then you had black Rock recently come
Speaker 5: out with like an infrastructure fund and the ticker is
Speaker 5: made m A D E made And you know.
Speaker 4: It's so simple though, it's like so good's good.
Speaker 2: Well they have Jay Jacobs who is a global x
Speaker 2: and they are tickers specialists.
Speaker 5: Yeah, they I just I love tickers.
Speaker 3: Can I think about it, I'll get I'm back with another.
Speaker 5: This is me assuring that I'm coming back.
Speaker 1: You've paid it forward. Yeah, exactly, So, don and thanks
Speaker 1: so much for joining us on trillions.
Speaker 5: Don't have to say anything. Oh, thanks for having me.
Speaker 4: Thanks for listening to trillions until next time. You can
Speaker 4: find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or.
Speaker 1: Wherever else you'd like.
Speaker 5: To listen.
Speaker 1: We'd love to hear from you. We're on Twitter. I'm
Speaker 1: at Joel Webber Show. He's at Eric Baltren's.
Speaker 4: This episode of Trillions was produced by Magnus Hendrickson Bye
Speaker 5: Fo