WEBVTT - Calm Knuckles: SEC, ETF, SPOT 0:00:03.120 --> 0:00:09.560 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:11.400 --> 0:00:14.360 Hello and welcome to The Money Stuff Podcast, your weekly 0:00:14.360 --> 0:00:18.680 podcast where we talk about stuff related to money. I'm 0:00:18.680 --> 0:00:20.639 Matt Levine and I write the Money Stuff column for 0:00:20.680 --> 0:00:21.480 Bloomberg Opinion. 0:00:21.640 --> 0:00:24.040 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:24.079 --> 0:00:25.640 an anchor for Bloomberg Television. 0:00:25.840 --> 0:00:26.920 What do we got today, Kitty? 0:00:27.400 --> 0:00:30.560 We're going to talk about SEC raids and how to 0:00:30.600 --> 0:00:33.800 trade them. We're going to talk about private credit ETFs, 0:00:33.880 --> 0:00:36.840 question mark, and we're going to talk about Spotify arbitrage. 0:00:37.000 --> 0:00:45.320 Yes, excellent, sec raids. 0:00:46.000 --> 0:00:48.400 I'm a little bit surprised. Were your SEC jacket? 0:00:48.520 --> 0:00:50.440 I know I should have. I wrote about this, like 0:00:50.920 --> 0:00:54.640 amazing paper about what happens on the SEC visits a company, 0:00:54.840 --> 0:00:57.200 and I mentioned that I own an SEC raid jacket 0:00:57.200 --> 0:00:59.920 that I joke about wearing but never wear. 0:01:00.120 --> 0:01:01.440 And you didn't even bring. 0:01:01.240 --> 0:01:02.680 It in, did you know? I read about this and 0:01:02.720 --> 0:01:05.880 then reader emailed to say that an sec red jacket 0:01:05.959 --> 0:01:09.240 was his Halloween costume. That's funny, but he didn't have one, 0:01:09.319 --> 0:01:11.520 and he didn't actually know that they even existed, so 0:01:11.560 --> 0:01:14.280 he just like got a blue windpricker and like got 0:01:14.400 --> 0:01:17.240 yellow tape and put SEC on the back and wore 0:01:17.280 --> 0:01:20.040 it to like Halloween parties with the finance pro friends, 0:01:20.080 --> 0:01:22.440 to be scary. Yeah, that was a really good idea. 0:01:22.840 --> 0:01:23.520 I have a real one. 0:01:23.560 --> 0:01:25.759 It'd be kind of funny if he paired that with 0:01:25.880 --> 0:01:29.959 just fangs. That's it's the whole costume. That's cool. Well, 0:01:31.200 --> 0:01:33.760 if you used the fact that you own an SEC 0:01:33.840 --> 0:01:36.320 jacket is like a cute little setup to talk about. 0:01:36.840 --> 0:01:40.160 Maybe a tradable signal. Maybe not that amazing paper. Watching 0:01:40.160 --> 0:01:41.720 the Watchdogs, yes. 0:01:41.560 --> 0:01:45.000 Watching the watch dogs tracking SEC increase using geolocation data. 0:01:45.040 --> 0:01:47.720 What they find is that when the SEC visits a 0:01:47.720 --> 0:01:50.920 public company, that probably means there's something bad, right, and 0:01:50.920 --> 0:01:52.080 so it's a negative signal. 0:01:52.160 --> 0:01:54.640 It's not just a chat, like just a coffee meeting. 0:01:55.320 --> 0:01:58.400 In aggregate, statistically it's a bad sign And so like 0:01:58.640 --> 0:02:01.960 you get Adnorrambal returns of like negative one point four 0:02:02.000 --> 0:02:04.040 to one point nine percent over the three months after 0:02:04.040 --> 0:02:08.040 the SEC visit, whether or not there's a subsequent announcement 0:02:08.080 --> 0:02:11.080 of an SEC investigation, even if they just do an 0:02:11.120 --> 0:02:14.120 informal visit, there's some negative signal there. They also have 0:02:14.480 --> 0:02:18.600 some really fun findings about the insider trading around. Yeah, 0:02:18.760 --> 0:02:20.639 usually the sea of a company and the SEC comes 0:02:20.639 --> 0:02:23.799 and visits. Should you sell the stock because that's bad 0:02:23.840 --> 0:02:26.079 news or should you not sell the stock because that's 0:02:26.120 --> 0:02:29.440 insider trading? Yeah, the answer is most people. There seems 0:02:29.440 --> 0:02:31.520 to be a chilling effect where people tend not to sell, 0:02:31.800 --> 0:02:33.639 but like when it's really bad news, they do sell. 0:02:33.720 --> 0:02:35.400 Well, I have to say so. The stat that you 0:02:35.480 --> 0:02:38.800 highlighted was that insiders are sixteen percent less likely to 0:02:38.840 --> 0:02:41.920 sell into two weeks surrounding an SEC visit relative to 0:02:41.960 --> 0:02:44.840 periods with no visits. I'm kind of surprised it wasn't 0:02:44.880 --> 0:02:47.679 like eighty five percent or ninety percent. I feel like 0:02:47.720 --> 0:02:49.639 if the SEC was knocking on the door, maybe I 0:02:49.639 --> 0:02:51.800 would just sit tight for a moment, right. 0:02:51.880 --> 0:02:55.640 Because like, arguably that's material news, and if you're still selling, 0:02:56.040 --> 0:02:59.120 it does seem risky. But you know it's not that 0:02:59.520 --> 0:03:01.720 because like maybe they're coming to chat, right, like you don't. 0:03:01.520 --> 0:03:04.000 Know, Ye, well, maybe it's that pension for risk that 0:03:04.240 --> 0:03:06.640 got you from the SEC in the first place. 0:03:06.760 --> 0:03:09.160 Right, The causation can go their way, right, You're you're 0:03:09.200 --> 0:03:12.080 the person who's you know, they're visiting you about your 0:03:12.080 --> 0:03:16.520 insider training. Keep insider trading. Yeah, so that is interesting, 0:03:16.560 --> 0:03:19.000 but it's not as interesting as the methodology of the paper, 0:03:19.000 --> 0:03:22.440 which is like amazing. It's basically like, your phone has 0:03:22.440 --> 0:03:24.320 two hundred as on it, and like one hundred of 0:03:24.360 --> 0:03:27.760 them track your location, and ninety nine of all times, 0:03:27.800 --> 0:03:30.440 at all times, and ninety nine of those sell your 0:03:30.560 --> 0:03:34.280 location to a data vendor that then sells it to 0:03:34.320 --> 0:03:35.880 hedge funds. Right, that's what your phone is. 0:03:35.880 --> 0:03:38.440 That's all right, that's why I never turn off my location. 0:03:38.520 --> 0:03:40.360 I want the hedge funds to have that data. 0:03:40.400 --> 0:03:43.520 And the hedge funds appreciate that. Yeah, and they use 0:03:43.560 --> 0:03:47.760 it as far as I can tell, mostly to figure 0:03:47.800 --> 0:03:50.960 out what stores are getting a lot of foot traffic. Yeah, 0:03:51.160 --> 0:03:53.560 that's the main U said. This sort of thing is like, oh, 0:03:53.560 --> 0:03:55.800 there's a lot of foot traffic to this retailer, so 0:03:55.840 --> 0:03:56.720 we should buy that retailer. 0:03:56.960 --> 0:03:59.520 Not just like Katie want to just salad today and 0:03:59.600 --> 0:04:01.040 usually she goes to Sweet Green. 0:04:01.560 --> 0:04:06.680 You know, my understanding is that this data is pretty anonymized. 0:04:06.880 --> 0:04:09.280 They don't have like Katie's data. They have like you know, 0:04:09.320 --> 0:04:14.000 how many people went to Sweet Green. But if you 0:04:14.080 --> 0:04:17.240 get all the data, you can like kind of recreate 0:04:17.279 --> 0:04:19.840 who's Katie. Right. You can look at the phone that 0:04:19.920 --> 0:04:22.240 is at the Bloomberg headquarters a lot and at the 0:04:22.279 --> 0:04:25.760 horse Barn a lot. Yeah, I'm pretty sure this is Katy. 0:04:25.960 --> 0:04:27.640 It never goes downtown, right. 0:04:28.080 --> 0:04:31.200 And so what the authors here did is they got 0:04:31.240 --> 0:04:33.560 all the cell phone data and they figured out which 0:04:33.640 --> 0:04:37.520 phones belonged to SEC employees by looking at like which 0:04:37.520 --> 0:04:40.120 phones were like mostly in SEC offices. And if your 0:04:40.160 --> 0:04:42.440 phone is mostly in SC office, you're an SECM player. 0:04:42.520 --> 0:04:45.120 And then if it goes to a corporate headquarters, then 0:04:45.400 --> 0:04:47.040 the SEC was visiting that company. 0:04:47.160 --> 0:04:49.560 Well, let's just read this. You put it in the column. 0:04:49.600 --> 0:04:52.960 But for listeners who haven't read the newsletter, a smartphone 0:04:53.000 --> 0:04:55.159 is assumed to belong to an SEC employee if it 0:04:55.240 --> 0:04:58.080 is quote paying for at least twenty unique workday hours 0:04:58.120 --> 0:05:01.480 within one SEC location during the month, and the accumulated 0:05:01.520 --> 0:05:04.239 time in the SEC building is greater than in any 0:05:04.279 --> 0:05:07.120 other buildings in the respective month. I do like to 0:05:07.160 --> 0:05:09.440 imagine though, that they're tracking janitors. 0:05:09.680 --> 0:05:11.680 Maybe, but the point is that those genders are then 0:05:11.720 --> 0:05:12.440 also visiting. 0:05:12.640 --> 0:05:14.480 Maybe they're freelancing. I don't know. 0:05:14.800 --> 0:05:18.839 Okay, okay, but statistically it works out to be a 0:05:18.920 --> 0:05:19.640 useful signal. 0:05:19.760 --> 0:05:20.320 This is true. 0:05:20.600 --> 0:05:23.479 So there's so much to say about this methodology. One 0:05:23.480 --> 0:05:26.000 thing about it is I've talked a lot of my 0:05:26.080 --> 0:05:30.120 column about how the SEC gets mad at banks for 0:05:30.240 --> 0:05:33.120 letting their employees talk about business on their personal cell 0:05:33.120 --> 0:05:36.760 phones and finds them hundreds of millions of dollars. This 0:05:37.000 --> 0:05:41.560 is like SEC employees' personal cell phones providing tradable signals 0:05:41.600 --> 0:05:44.800 too well to academics, right, And I think this is 0:05:44.880 --> 0:05:47.560 very funny that the personal cell phone usage of the 0:05:47.600 --> 0:05:51.000 SAC continues to be like a funny little mindfield an 0:05:51.040 --> 0:05:53.520 agency that is finding banks for using personal cell phones. 0:05:53.560 --> 0:05:56.480 I will note that it was a pretty short time period. 0:05:56.480 --> 0:06:00.280 They were collecting data from January twenty nineteen to your 0:06:00.279 --> 0:06:02.560 A twenty twenty, so you know, a little bit over 0:06:02.600 --> 0:06:02.920 a year. 0:06:03.000 --> 0:06:05.920 But still, Yeah, the paper came out like this year, 0:06:05.960 --> 0:06:08.599 and the data is from four or five years ago, 0:06:08.960 --> 0:06:11.600 so it's not tradable in the sense. 0:06:11.400 --> 0:06:13.920 That you know, well, the data is. 0:06:14.920 --> 0:06:17.400 If you had it in real time, and like these vendors, 0:06:17.480 --> 0:06:20.000 they do sell the data in kind of real time. 0:06:20.040 --> 0:06:24.960 So like my question was, can and do hedge funds 0:06:25.600 --> 0:06:26.800 trade on this signal? 0:06:27.040 --> 0:06:27.720 Yeah? 0:06:27.760 --> 0:06:30.680 And I asked people the email if they did, and 0:06:30.720 --> 0:06:34.280 no one said they did. My impression is that most 0:06:34.279 --> 0:06:36.159 hedge funds do not try to get the data that 0:06:36.240 --> 0:06:38.359 is like can we identify Katie? Or like can we 0:06:38.400 --> 0:06:41.720 identify SEC employees? They get like how many people were 0:06:41.720 --> 0:06:43.880 in the building? Right, Like they're getting you know, aggregated 0:06:43.920 --> 0:06:47.440 data and not like trying to individual identify people. And 0:06:47.480 --> 0:06:50.320 so this is probably not a signal that anyone actually 0:06:50.360 --> 0:06:53.279 trades on. Also, it's not like so strong a signal. 0:06:53.279 --> 0:06:55.560 You know, it's like one point nine percent of normally 0:06:55.600 --> 0:06:57.799 turns over three months. That's like, yeah, it's. 0:06:57.680 --> 0:07:01.360 Like, well, I was wondering why that would exist at 0:07:01.360 --> 0:07:03.920 all if people weren't trading on it. You know, it's 0:07:03.960 --> 0:07:04.960 like a chicken in the egg thing. 0:07:05.040 --> 0:07:05.880 Why what the data? 0:07:06.040 --> 0:07:08.359 No, Like, why you would get those abnormal returns? Like 0:07:08.400 --> 0:07:13.040 why is an informal SEC visit bad? Necessarily? What was interesting, 0:07:13.080 --> 0:07:15.040 if I understanding this correctly, is that you had that 0:07:15.640 --> 0:07:19.600 abnormal performance even if no formal investigation was announced. 0:07:19.920 --> 0:07:24.000 You could tell stories, right like they're aggressive with their accounting, 0:07:24.240 --> 0:07:26.280 and the SEC says, knock it off, and they stop 0:07:26.320 --> 0:07:28.160 being aggressive with their accounting, and their next you know, 0:07:28.200 --> 0:07:31.160 earnings report is disappointing because they've stopped fudging them right 0:07:31.280 --> 0:07:33.160 right right, you know stuff like that, or just like 0:07:33.240 --> 0:07:35.720 they're a badly managed company, which is why the SEC 0:07:35.840 --> 0:07:38.120 is visiting them, and that bad management ends up affecting 0:07:38.120 --> 0:07:41.360 their performance. Yeah, but like I don't think people trade 0:07:41.400 --> 0:07:44.160 on this, lagneal, but it is interesting because heedgehones. Do 0:07:44.200 --> 0:07:46.840 you use self one location data and self on location 0:07:46.920 --> 0:07:49.600 data is like controversial, right, people get mad. You know, 0:07:49.680 --> 0:07:52.040 your phone now probably asks you like will you left 0:07:52.040 --> 0:07:53.680 this app track you which you didn't like used to 0:07:53.680 --> 0:07:56.240 do as much like now it's like Apple is trying 0:07:56.280 --> 0:07:58.320 to provide apps from tracking you unless you want them to, 0:07:58.960 --> 0:07:59.880 which you do for them. 0:08:00.800 --> 0:08:01.840 I always say yes. 0:08:02.240 --> 0:08:06.480 And you know, people have like periodic like privacy worries 0:08:06.480 --> 0:08:10.120 about these things, And if you're a hedge fund, you're 0:08:10.160 --> 0:08:12.520 putting a lot of effort into compliance. You're putting a 0:08:12.560 --> 0:08:14.120 lot of effort into making sure that you're buying this 0:08:14.240 --> 0:08:17.400 data from vendors who sort of ultimately have user permission 0:08:17.640 --> 0:08:20.480 to track their location, and that it's anonymized in the 0:08:20.520 --> 0:08:22.120 right way so that no one is going to later 0:08:22.160 --> 0:08:24.760 accuse you of insider trading or of like violating people's 0:08:24.760 --> 0:08:27.800 privacy or anything like that. And you know, you worry 0:08:27.840 --> 0:08:31.600 about the regulatory environment changing and like getting harder to 0:08:31.760 --> 0:08:34.640 use this sort of self in location data. And one 0:08:34.640 --> 0:08:37.200 thing that might cause that to happen is the SEC 0:08:37.920 --> 0:08:41.040 finding their personal phones being tracked to like create a 0:08:41.040 --> 0:08:43.400 tradable signal. The SEC might get annoyed by that. They 0:08:43.440 --> 0:08:45.760 might say, so we should cry down on these vendors. 0:08:45.880 --> 0:08:49.520 Maybe don't build your whole business on the availability of 0:08:49.559 --> 0:08:50.200 this data. 0:08:50.320 --> 0:08:52.160 Yeah, but I think that this is a big source 0:08:52.200 --> 0:08:54.760 of like alternative data for chants to actually trade on. 0:08:55.200 --> 0:08:58.120 And now, obviously don't build your business on like SEC 0:08:58.200 --> 0:09:00.280 self fund data, but nobody does. That's just going to 0:09:00.280 --> 0:09:03.160 make paper. But the academic paper that draws awkward attention 0:09:03.240 --> 0:09:04.520 to location. 0:09:04.240 --> 0:09:07.000 Data, well, I was going to say, even if no 0:09:07.040 --> 0:09:08.920 one has emailed you to say that they're trading on it, 0:09:08.960 --> 0:09:12.760 there's an ETF for everything, Like some interesting indie little 0:09:12.800 --> 0:09:13.880 issuer might be reading this. 0:09:14.080 --> 0:09:17.000 People do try to trade on SEC investigations, people like 0:09:17.040 --> 0:09:20.280 FOIA SEC investigations to sort of see what's being investigated 0:09:20.280 --> 0:09:22.240 and use that as a signal. And this is like 0:09:22.840 --> 0:09:27.120 a sort of much more real time, weaker but interesting signal. 0:09:27.160 --> 0:09:28.920 It's just still Yeah. 0:09:28.960 --> 0:09:31.120 I don't see people paying for this data. 0:09:31.160 --> 0:09:33.320 I want to see it. How much does this state 0:09:33.360 --> 0:09:36.000 of cost? We should do like the money stuff investigation 0:09:36.600 --> 0:09:40.360 and try to trade on it. It sounds fun. It's 0:09:40.400 --> 0:09:57.960 still out there. Moving on, moving on to ETFs that 0:09:58.360 --> 0:10:00.520 don't exist but might one day. At least this one 0:10:00.559 --> 0:10:05.320 has plans private credit ETF. So we were just talking 0:10:05.360 --> 0:10:08.240 about this sort of in a thought experiment type of way. 0:10:08.280 --> 0:10:09.200 How would this work? 0:10:09.520 --> 0:10:09.960 That's real. 0:10:10.120 --> 0:10:14.480 The big brains that Apollo have a plan, Apollo. Yeah, 0:10:14.480 --> 0:10:18.360 I did, the big brains at Apollo. I'm screaming. The 0:10:18.400 --> 0:10:20.600 big brains at Apollo have a plan. 0:10:20.880 --> 0:10:24.000 We're keeping all better. Yeah, they have a plan. And 0:10:24.000 --> 0:10:25.760 the plan is they're a teammate with State Street to 0:10:25.880 --> 0:10:29.200 make an ETF that is like mostly public credit and 0:10:29.240 --> 0:10:31.760 some private credit. I think, yeah, I understanding. 0:10:32.200 --> 0:10:36.680 There's many interesting things about this. I find the partnership 0:10:36.840 --> 0:10:40.280 interesting just from like an ETF industry perspective. It's public 0:10:40.320 --> 0:10:42.800 and private credit. We had talked a bit about how 0:10:42.880 --> 0:10:47.400 there was that fifteen percent limit on a liquid securities 0:10:47.679 --> 0:10:50.199 Give me the mount Levine take, because you actually haven't 0:10:50.200 --> 0:10:51.240 written about this yet. 0:10:51.400 --> 0:10:54.520 I haven't this is a podcast exclusive. Okay, So you 0:10:54.520 --> 0:10:58.040 mentioned the liquidity role, right, Like typical sec mutual funds, 0:10:58.080 --> 0:11:00.680 including ETFs I have to have none more than fifteen 0:11:00.679 --> 0:11:04.320 percent of their assets in I liquid securities, and private 0:11:04.360 --> 0:11:08.800 credit is probably an ill liquid security, probably in the 0:11:08.880 --> 0:11:11.000 sense that like you can't it doesn't. It's not like 0:11:11.040 --> 0:11:14.240 a really you know, liquid trading market. I liquid means 0:11:14.240 --> 0:11:15.840 something like we take you more than seven days to 0:11:15.840 --> 0:11:17.960 sell it without affecting the market, and we just have 0:11:18.040 --> 0:11:19.719 like an initial filing. And so I don't exactly know 0:11:19.760 --> 0:11:21.600 what they're doing, but what they've done here is they've 0:11:21.640 --> 0:11:25.320 said Apollo has a trading desk to trade private credit. 0:11:25.559 --> 0:11:27.320 Just first of all, fascinating, like that's kind of a 0:11:27.320 --> 0:11:29.800 new thing. But their trading desk is going to give 0:11:30.360 --> 0:11:36.240 firm inter day bids to the ETF. So all the 0:11:36.320 --> 0:11:39.040 private credit stuff that the ETF holds, which it presumably 0:11:39.080 --> 0:11:42.120 bought from Apollo, apollow will buy it back and they 0:11:42.280 --> 0:11:44.120 give you a bid to buy it back every day, 0:11:44.320 --> 0:11:45.800 and the ATF can sell it every day. And I 0:11:45.840 --> 0:11:48.800 think that the point of that is to satisfy the 0:11:48.840 --> 0:11:52.079 liquidity requirement, because what they say is, you know, if 0:11:52.080 --> 0:11:55.000 apollow will buy it back instantly. Then that makes it 0:11:55.040 --> 0:11:58.200 liquid and so we can fulfill the ETF rules. I 0:11:58.200 --> 0:12:01.240 think that works. It's a little cheap, it's a little weird. 0:12:01.520 --> 0:12:03.880 Well, I have to say, I'm really interested to see. 0:12:04.080 --> 0:12:06.079 First of all, we have to get at the launch. 0:12:06.280 --> 0:12:09.200 Talking to people, it seems like there is confidence that 0:12:09.440 --> 0:12:12.440 this will launch, but with any first of its kind 0:12:12.559 --> 0:12:15.400 sort of fund, there's always questions over whether the sec 0:12:15.480 --> 0:12:17.960 will green lighted. I am curious to see if it launches, 0:12:18.040 --> 0:12:20.640 how much of it actually is private credit, because you 0:12:20.679 --> 0:12:22.920 take a look at some of the details, at least 0:12:22.920 --> 0:12:26.319 eighty percent of the fund's assets will be in investment 0:12:26.360 --> 0:12:30.000 grade either public or private securities. As much as twenty 0:12:30.000 --> 0:12:32.280 percent may be allocated to high yield bond. So it 0:12:32.320 --> 0:12:37.319 could just turn into it's eighty percent high grade public 0:12:37.520 --> 0:12:40.080 debt and then twenty percent high old bonds. 0:12:40.280 --> 0:12:43.280 Yeah, there are a lot of regular stock mutual funds 0:12:43.280 --> 0:12:46.320 that are tech focused then like have one little holding 0:12:46.360 --> 0:12:49.199 of like a startup private stock. But yeah, ninety nine 0:12:49.200 --> 0:12:51.560 percent public equities. You can imagine this being that there's 0:12:51.600 --> 0:12:53.319 like a little sprinkling of private credit. 0:12:53.400 --> 0:12:55.600 Yeah. Ron Barren's funds, I mean he has at least 0:12:55.640 --> 0:12:58.880 one mutual fund that's all public and then just SpaceX. 0:13:00.040 --> 0:13:02.240 Two points with this one is it's easy to get 0:13:02.559 --> 0:13:07.240 retail exchange traded private credit exposure. It is called the BDC. 0:13:07.679 --> 0:13:09.880 Right, people find that unsatisfying, though I. 0:13:11.640 --> 0:13:14.839 Know that I don't enough. A BDC is a business 0:13:14.880 --> 0:13:18.000 development company. It's a publicly traded pot of private credit. 0:13:18.440 --> 0:13:21.360 It feels like buying micro strategy for bitcoin exposure. 0:13:21.360 --> 0:13:25.800 Though no, it's not feel like it. I don't think 0:13:25.800 --> 0:13:28.600 it does. That's what the BBC is a private credit fund. 0:13:29.000 --> 0:13:32.560 That's what it is. It's a exchange traded, publicly available 0:13:33.280 --> 0:13:36.960 fund that holds private credit loans. The difference between it 0:13:37.040 --> 0:13:39.520 and an ETF is that a BDC is closed. Then 0:13:39.720 --> 0:13:42.200 you can't take your money out. There's an arbitraged mechanism, 0:13:42.360 --> 0:13:44.640 and so it won't necessarily trade it net asset value, 0:13:44.679 --> 0:13:48.680 but mostly pretty close. I think. So I don't fully 0:13:48.760 --> 0:13:50.880 understand the need for an ETF. I think some of 0:13:50.920 --> 0:13:53.600 it is like feed driven. Some of it is like 0:13:53.720 --> 0:13:56.520 just the ETF is the popular product, and so a 0:13:56.559 --> 0:13:59.120 BDC feels weird and different than the ETF, feels like 0:13:59.600 --> 0:14:02.520 an easy thing to hold in your portfolio. I suspect 0:14:02.520 --> 0:14:06.040 part of it is like market maker driven. I suspect 0:14:06.080 --> 0:14:08.600 that like the jan Straits of the world love trade 0:14:08.600 --> 0:14:10.400 and ETFs and so like they're like, hey, we could 0:14:10.400 --> 0:14:12.400 do it private credit ETF and so there's some like 0:14:13.000 --> 0:14:15.240 desire for that, whereas the BDC is more of an 0:14:15.320 --> 0:14:18.560 orphan in like the market structure world. But still it's weird, 0:14:18.600 --> 0:14:20.840 right because like a BDC is this it's a retail 0:14:21.160 --> 0:14:22.040 private credit fund. 0:14:22.120 --> 0:14:24.440 Yeah, I don't know. It does feel unsatisfying. Well, I 0:14:24.440 --> 0:14:27.160 mean maybe because I'm totally ETF pilled, But why. 0:14:26.960 --> 0:14:28.760 Does it feel like? Tell me what is wrong with 0:14:28.760 --> 0:14:29.800 a BDC in your mind? 0:14:29.960 --> 0:14:31.160 It just feels like a proxy. 0:14:31.240 --> 0:14:33.360 It just feels not as lot a proxy. It's a 0:14:33.400 --> 0:14:36.080 pot of private credit assets. There's nothing proxy about it. 0:14:36.080 --> 0:14:38.280 It is simply a pot of private credit assets. 0:14:38.320 --> 0:14:42.240 I know I'm not alone because if that answered the 0:14:42.320 --> 0:14:45.200 desire in the marketplace. And maybe it's a misguide. 0:14:45.280 --> 0:14:49.360 Because the name is business development company. Yeah, sounds like 0:14:49.400 --> 0:14:51.120 a need a company that develops businesses. 0:14:51.240 --> 0:14:53.520 It needs a rebrand, right if you just call it 0:14:53.560 --> 0:14:56.040 a exchange would you be happier if you called it 0:14:56.080 --> 0:14:58.880 an exchange traded closed end private credit fund? 0:14:58.920 --> 0:15:01.800 Are you still just allergic to the words closed in Yeah. 0:15:01.960 --> 0:15:05.080 I mean again, like I'm ETF pilled, so I need 0:15:05.120 --> 0:15:06.520 the I need the openness. 0:15:06.880 --> 0:15:08.760 Okay, here's the other thing I want to say about 0:15:08.760 --> 0:15:10.520 this though. You know, we talked about Bill Ackman's closed 0:15:10.560 --> 0:15:12.680 then fund he should do an ETF, and I was like, well, 0:15:12.720 --> 0:15:16.080 you know, he wants long term capital so that he 0:15:16.080 --> 0:15:18.880 can make long term investments. I've written a lot about 0:15:18.880 --> 0:15:22.000 private credit in the last few months, and one thing 0:15:22.000 --> 0:15:24.520 I always say about private credit is that it is 0:15:25.440 --> 0:15:28.560 a better funding structure for making loans than banking, is right, 0:15:28.680 --> 0:15:31.760 Banks have short term funding, Banks take deposits. It's possible 0:15:31.760 --> 0:15:34.360 to have a run on bank deposits, and so if 0:15:34.360 --> 0:15:36.920 banks are making like liquid long term loans and funding 0:15:36.920 --> 0:15:39.320 them with short term deposits, that's a risky business to 0:15:39.320 --> 0:15:42.160 be in private credit. Meanwhile, Like raises money from insurance 0:15:42.160 --> 0:15:44.800 companies and it's a fairly safe funding source for their 0:15:44.840 --> 0:15:48.400 long term loans. If Apollo is offering to buy back 0:15:48.440 --> 0:15:51.480 it's private credit assets every day, like that turns it 0:15:51.600 --> 0:15:54.320 into runnable funding. If they have an ETF that they 0:15:54.320 --> 0:15:57.000 promise to buy back the assets every day, like if 0:15:57.000 --> 0:15:59.640 something goes wrong, investors can take all their money out 0:15:59.760 --> 0:16:01.760 and follow off the buio back and then have to 0:16:01.840 --> 0:16:05.520 raise new funding. So it is a much riskier funding 0:16:05.520 --> 0:16:08.680 source for private credit than like the traditional you know, 0:16:08.760 --> 0:16:13.280 insurance company, wealthy individual, whatever, like long term locked up money. 0:16:13.600 --> 0:16:16.080 So in that sense, it's very different from a BDC. 0:16:16.200 --> 0:16:20.080 R BDC's are permanent capital. ETFs are kind of runnable capital. 0:16:20.400 --> 0:16:22.280 I just got a buzz. Maybe we don't want to 0:16:22.280 --> 0:16:24.080 include this, but I just got a buzz because there 0:16:24.160 --> 0:16:27.480 was just another filing for private credit ETF. Oh there 0:16:27.480 --> 0:16:31.720 you get at like two thirty pm on Thursday for 0:16:32.160 --> 0:16:36.400 the bond blocks Private Credit Clo ETF. Reading from the prospectus, 0:16:36.800 --> 0:16:40.320 the fund is a newly organized, actively managed exchange traded 0:16:40.360 --> 0:16:44.320 fund that will invest, under normal circumstances, at least eighty 0:16:44.360 --> 0:16:46.960 percent of its net assets in private credit. Colos may 0:16:46.960 --> 0:16:48.880 invest up to twenty percent of its net assets in 0:16:48.920 --> 0:16:53.240 broadly syndicated bank loans, broadly syndicated bank loans clos, high 0:16:53.280 --> 0:16:57.120 yield bonds, investment grade bonds, and cash. So the demand 0:16:57.360 --> 0:17:01.000 at least from issuers is out there. Even know BDCs, 0:17:01.080 --> 0:17:04.800 to your very real point, they exist. They exist also 0:17:05.160 --> 0:17:07.439 it feels like there was a response. There's clearly a 0:17:07.480 --> 0:17:09.439 response from this issue or bond blocks. It feels like 0:17:09.440 --> 0:17:12.080 there was a response from Blackrock to this because people 0:17:12.119 --> 0:17:13.840 have been waiting for this. I mean, we've talked about 0:17:13.840 --> 0:17:15.920 it on the podcast before, like who's going to figure 0:17:15.920 --> 0:17:19.040 out how to put private assets in a publicly traded ETF. 0:17:19.080 --> 0:17:23.440 We know that black we know that Blackrock has ambitions there, 0:17:23.480 --> 0:17:26.879 and on Thursday they didn't announce that they were doing that, 0:17:26.960 --> 0:17:31.280 but they did announce this partnership with partners Group. They're 0:17:31.320 --> 0:17:34.719 teaming up to offer retail investors a variety of private 0:17:34.760 --> 0:17:37.320 markets through a single portfolio. They want to create like 0:17:37.359 --> 0:17:42.600 this one stop portfolio to private equity, private credit, real assets. 0:17:42.840 --> 0:17:45.800 It's not an ETF though, no, because it's not true retail. 0:17:45.840 --> 0:17:48.960 It's like a model portfolio for like qualified investors. Yeah, 0:17:49.040 --> 0:17:50.760 you need to have like, no, for two million dollars 0:17:50.760 --> 0:17:51.159 in assets. 0:17:51.400 --> 0:17:52.120 Yeah. 0:17:52.160 --> 0:17:54.800 And it's just like if you are a customer of 0:17:54.800 --> 0:17:57.880 a wealth manager, like they'll happily put you into like 0:17:58.240 --> 0:18:02.120 a private credit fund or whatever, and now black Rock 0:18:02.200 --> 0:18:05.240 will help them put you into a portfolio of private 0:18:05.240 --> 0:18:07.520 credit funds in one place. But it's not an ETF. 0:18:07.560 --> 0:18:09.679 It's not like it's not like a true retail thing 0:18:09.720 --> 0:18:10.160 you can buy. 0:18:11.040 --> 0:18:13.600 Yeah, you can't click a button and then buy it. 0:18:13.600 --> 0:18:16.240 It is interesting though, just it feels like, especially in 0:18:16.280 --> 0:18:19.600 the ETF market, there's an arms race for any white space, 0:18:19.680 --> 0:18:22.880 and here's the white space. I do think it's interesting 0:18:22.880 --> 0:18:27.760 that Apollo partnered with State Street. It does suggest that 0:18:27.880 --> 0:18:31.399 like Apollo isn't all in on the ETF industry, that 0:18:31.440 --> 0:18:33.400 they didn't want to you know, high. 0:18:34.040 --> 0:18:37.600 They don't care, I know, I know, but they want 0:18:37.600 --> 0:18:41.679 like funding for their giant portfolio of private credit. Right 0:18:42.080 --> 0:18:43.639 if State Street comes to them is like, we'll give 0:18:43.680 --> 0:18:46.000 you retail funding, they'll take it, right. They're not like, ooh, 0:18:46.080 --> 0:18:49.680 the one basis point fees on ets we want that juicy. 0:18:49.720 --> 0:18:51.600 It is interesting that they went with State Street though, 0:18:51.600 --> 0:18:53.760 I mean, State Street obviously is home to the oldest 0:18:53.800 --> 0:18:56.560 and biggest ETF, but they've kind of been slipping in 0:18:56.600 --> 0:19:02.040 the ranks. Who does States But Goldman Sachs, for example, 0:19:02.160 --> 0:19:06.200 has this accelerator platform which is like a white label, 0:19:06.240 --> 0:19:08.520 but not quite a white label that some big names 0:19:08.520 --> 0:19:11.119 have come through. I'm kind of surprised that Apollo went 0:19:11.160 --> 0:19:13.680 with State Street versus going through a white label such 0:19:13.720 --> 0:19:16.920 as Goldman's. But that's just a little bit of industry chatter. 0:19:17.119 --> 0:19:35.119 Does not it does not matter to end investors at all. 0:19:35.200 --> 0:19:39.159 Let me just check my phone. I'm sorry, everything's so 0:19:39.240 --> 0:19:42.800