WEBVTT - Kalshi's Court Fights, Regulating Prediction Markets 0:00:02.520 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business 0:00:10.480 --> 0:00:14.400 Week Daily reporting from the magazine that helps global leaders 0:00:14.400 --> 0:00:18.280 stay ahead with insight on the people, companies, and trends 0:00:18.360 --> 0:00:23.360 shaping today's complex economy. Plus global business finance and tech 0:00:23.440 --> 0:00:27.320 news as it happens. The Bloomberg Business Week Daily Podcast 0:00:27.640 --> 0:00:32.400 with Carol Masser and Tim Stenebeck on Bloomberg Radio Well. 0:00:32.479 --> 0:00:35.239 Last week, New York state authorities sued the prediction markets 0:00:35.240 --> 0:00:39.120 company Calshi for allegedly running an illegal, unlicensed gambling operation 0:00:39.200 --> 0:00:42.080 in the state, marking another legal hurdle for an industry 0:00:42.120 --> 0:00:44.240 that's one support from the Trump administration. 0:00:44.360 --> 0:00:47.040 That's right. That suit, filed Friday and State Court in Manhattan, 0:00:47.040 --> 0:00:51.120 alleges that Calshi's prediction market exposes state residents, including those 0:00:51.200 --> 0:00:53.920 under the legal gambling age of twenty one, to quote 0:00:54.080 --> 0:00:57.080 serious personal and financial risk. This is coming from the 0:00:57.080 --> 0:00:59.760 New York Attorney General, Letitia James, putting that out in 0:00:59.800 --> 0:01:00.400 a statement. 0:01:00.640 --> 0:01:03.200 We've got with us Robert Denaald's head of enforcement and 0:01:03.280 --> 0:01:05.440 legal counsel at Calshe. He joins us here in the 0:01:05.480 --> 0:01:08.479 Bloomberg Business Week Studio. Bobby, welcome. I want to jump 0:01:08.560 --> 0:01:12.720 right in to this suit because Letitia James, the Attorney General, says, quote, 0:01:12.959 --> 0:01:16.479 no matter what they call themselves, prediction markets like calshe 0:01:16.520 --> 0:01:20.360 are gambling platforms, plain and simple. By ignoring our laws, 0:01:20.520 --> 0:01:23.040 cal she is running an illegal operation and harming New 0:01:23.120 --> 0:01:26.760 Yorkers in the process. What is your response to this 0:01:26.840 --> 0:01:30.080 claim that cal she is running an illegal gambling operation. 0:01:31.080 --> 0:01:33.520 I mean, as both a New Yorker and a lawyer, 0:01:33.720 --> 0:01:37.120 I'm alarmed by the overreaching sentiment that's coming from the 0:01:37.160 --> 0:01:42.560 Attorney General's office. So CALSH is a licensed, federally regulated exchange. 0:01:43.120 --> 0:01:46.760 By her logic, any federally regulated exchange that's operating with 0:01:46.800 --> 0:01:49.560 a federal license and overseen by a federal regulator can 0:01:49.600 --> 0:01:53.480 suddenly be subject to the whims of state criminal enforcement 0:01:53.640 --> 0:01:57.280 if the Attorney general of a particular state wakes up 0:01:57.280 --> 0:02:00.880 and decides one day that these contracts actually come within 0:02:00.960 --> 0:02:04.600 New York state gambling law. That's not how any exchange 0:02:04.640 --> 0:02:07.160 in US history has ever operated. Right, So we have 0:02:07.640 --> 0:02:09.360 we're here at Bloomberg. You guys talk about the New 0:02:09.440 --> 0:02:13.200 York Stock Exchange NASDAQ, other exchanges, all of them could 0:02:13.240 --> 0:02:15.919 be potentially affected by the breath and scope of the 0:02:15.960 --> 0:02:20.839 New York Attorney General's approach and legal theory in terms 0:02:20.880 --> 0:02:23.360 of how she believes she can regulate and bring to 0:02:23.440 --> 0:02:26.040 heal federally licensed exchanges here in New York State. 0:02:26.080 --> 0:02:28.160 Bobby, are you saying you're the exact same things as 0:02:28.200 --> 0:02:30.360 the New York Stock Exchange or the NASDAK markets. That 0:02:30.360 --> 0:02:34.320 you're saying you're the exact same thing apples to apples. 0:02:33.919 --> 0:02:37.240 Then what I am saying is that federal law dictates 0:02:37.280 --> 0:02:40.000 that that is the case. When a federal law like 0:02:40.000 --> 0:02:43.040 the Commodity Exchange Act exists and provides for a way 0:02:43.120 --> 0:02:45.519 for an entity to get licensed by something like the 0:02:45.560 --> 0:02:49.119 Commodity Futures Trading Commission or the Securities Exchange Commission, that 0:02:49.200 --> 0:02:53.640 licensure and that federal regulation is what governs that marketplace. Now, 0:02:53.840 --> 0:02:57.280 if states want to litigate with that regulator on a 0:02:57.360 --> 0:02:59.680 case by case basis about what types of contracts might 0:02:59.680 --> 0:03:02.120 imply some state laws, that's one question, and that's some 0:03:02.120 --> 0:03:05.000 of the lawsuits we've seen over the last year on sports. 0:03:05.200 --> 0:03:08.680 But this is much more far reaching. This is claiming 0:03:08.720 --> 0:03:11.720 that that license means nothing, and if you don't hold 0:03:11.760 --> 0:03:14.600 a New York license, you're running a criminal operation. And 0:03:14.639 --> 0:03:16.080 you need to be run out of the state. And 0:03:16.480 --> 0:03:19.000 I think it's important to ground this sort of in 0:03:19.160 --> 0:03:22.240 history of disruptive sort of new players in marketplaces. Right, 0:03:22.440 --> 0:03:25.800 call She's new, but this sort of licensed to regime 0:03:25.840 --> 0:03:29.440 has existed for many decades. We've seen similar playbooks used 0:03:29.440 --> 0:03:32.400 against companies like Uber and Airbnb, where states try to 0:03:32.440 --> 0:03:35.360 throw their weight around and bring crazy cases to block 0:03:35.600 --> 0:03:38.880 what customers want as a reasonable alternative. We think that 0:03:38.880 --> 0:03:41.360 that's a pretty similar playbook to what the Attorney General 0:03:41.440 --> 0:03:42.000 is following here. 0:03:42.280 --> 0:03:44.800 So why shouldn't Kyle she seek a license from the 0:03:44.840 --> 0:03:46.880 New York State Gaming Commission? Why wouldn't you do that? 0:03:47.160 --> 0:03:49.920 So it really goes to the way that the business operates. 0:03:50.320 --> 0:03:53.480 We are a federally licensed exchange that requires us to 0:03:53.560 --> 0:03:57.600 run open markets that are available nationwide. Our users set 0:03:57.640 --> 0:04:00.520 the price, traders set the price. We match in an 0:04:00.560 --> 0:04:03.560 open marketplace with one another. We are not on the 0:04:03.560 --> 0:04:06.680 other side of individuals trading. We don't run a casino 0:04:06.720 --> 0:04:09.320 where people can come in and drink and play card games. 0:04:09.440 --> 0:04:11.360 We don't run a sports book where we profit when 0:04:11.400 --> 0:04:14.280 people lose. What we do is run open marketplaces where 0:04:14.400 --> 0:04:17.960 users define the price point, and that type of financial product. 0:04:17.960 --> 0:04:20.560 Even if it touches on topics that is similar to 0:04:20.640 --> 0:04:23.200 a topic touched on by a sportsbook, the way that 0:04:23.200 --> 0:04:27.479 that product operates is typically what governs what regulations apply. 0:04:28.440 --> 0:04:33.279 So even though people keep coming at you and say gambling, gambling, gambling, 0:04:34.279 --> 0:04:35.640 that's why you're not gambling. 0:04:36.240 --> 0:04:39.080 So I think it's important to define exactly what they 0:04:39.120 --> 0:04:41.640 mean when they say gambling. To me, gambling is when 0:04:41.680 --> 0:04:43.520 you go up against the house, when you go to 0:04:43.560 --> 0:04:45.640 a place that controls whether you're going to win or lose. 0:04:45.680 --> 0:04:47.840 They're going to chase losers, they're going to maximize their 0:04:47.839 --> 0:04:50.560 ability to limit winners. They're not going to run like 0:04:50.600 --> 0:04:54.680 a true business. But where in exchange exists and individuals 0:04:54.720 --> 0:04:56.920 are setting price with one another, I think that it 0:04:56.960 --> 0:05:00.240 operates under a different regulatory framework. And it's not to 0:05:00.240 --> 0:05:03.400 say that a whole panoply of different topics can be 0:05:03.480 --> 0:05:07.480 touched on by different regulated products. So we see concerns 0:05:07.480 --> 0:05:10.680 in options trading or leverage trading, retail traders moving into 0:05:10.720 --> 0:05:13.880 markets that are traditionally regulated markets at the federal level. 0:05:14.080 --> 0:05:16.440 I think some of the same concerns exist for those markets. 0:05:16.480 --> 0:05:19.000 And if you read the lawsuit closely, a ton of 0:05:19.040 --> 0:05:21.560 the definitions and the language and the descriptions that Attorney 0:05:21.560 --> 0:05:26.400 General James's office uses could easily be transposed onto Robinhood, 0:05:26.720 --> 0:05:30.840 crypto trading, derivatives trading, any sort of trading activity that 0:05:30.839 --> 0:05:34.039 the Attorney General suddenly decides poses a customer threat to 0:05:34.080 --> 0:05:35.479 individuals who want to participate in. 0:05:35.560 --> 0:05:38.159 I mean there is In April she did sue coinbase 0:05:38.200 --> 0:05:41.480 and Gemini for running illegal gambling platforms. There were some 0:05:42.120 --> 0:05:43.640 like why do you think call she was signaled out 0:05:43.680 --> 0:05:47.240 in this typical or this this iteration of the lawsuit. 0:05:47.640 --> 0:05:50.200 You'd have to ask the Governor's office why you know 0:05:50.279 --> 0:05:53.599 call She's was signal signaled out. I think the truth 0:05:53.680 --> 0:05:55.760 is there are a number of prediction markets that would 0:05:55.760 --> 0:05:57.960 be affected by this approach. There's a number of other 0:05:58.040 --> 0:06:00.560 exchanges that would be affected. There are a number of 0:06:00.960 --> 0:06:05.200 like robin Hood's based in New York, right, no big polymarket, 0:06:05.240 --> 0:06:07.080 they're all based in New York, none of whom have 0:06:07.120 --> 0:06:09.599 been subject to the Attorney General's focused So I don't 0:06:09.600 --> 0:06:11.200 know if that's coming. I don't know if you'd have 0:06:11.240 --> 0:06:13.720 to ask her office, but certainly, you know, we're a 0:06:13.800 --> 0:06:17.400 bit alarmed that the Attorney general is seeing the scope 0:06:17.440 --> 0:06:22.360 of New York gambling law applying to potentially federal derivatives exchanges. 0:06:22.480 --> 0:06:25.880 But I do think about exchanges. Do you think about 0:06:25.920 --> 0:06:28.440 the composition of the bets that are on? Like if 0:06:28.480 --> 0:06:31.839 we're going to use the gambling analogy, that keeps getting 0:06:32.080 --> 0:06:35.000 kind of lobbied at you. I mean, if I think 0:06:35.000 --> 0:06:38.760 about exchange, there is incredible oversight, you know, and there's 0:06:38.920 --> 0:06:42.279 rules and so that there isn't you know, trades that 0:06:42.320 --> 0:06:45.320 are happening that are not legit are fair or right? 0:06:45.960 --> 0:06:49.240 You know, if if gambling is as you say, there 0:06:49.279 --> 0:06:53.520 is no house right, it's just two parties figuring out something. 0:06:53.880 --> 0:06:57.240 Where is the oversight and concern about the composition of 0:06:57.279 --> 0:07:00.400 the bets being made and making sure that they are true? 0:07:00.400 --> 0:07:02.720 Because I think that's where you get into gambling. If 0:07:02.720 --> 0:07:04.760 anybody can kind of put up a bet and another 0:07:04.800 --> 0:07:07.000 person can take the side, and who knows if those 0:07:07.040 --> 0:07:09.279 two sides didn't get together to figure out this bet, 0:07:09.320 --> 0:07:11.640 like you know what I'm saying. So for that to 0:07:11.720 --> 0:07:14.560 me is where you get into the gambling. It's a 0:07:14.600 --> 0:07:16.400 little it feels a little loose. 0:07:16.640 --> 0:07:19.560 Sure, I don't think it's loose at all. So I 0:07:19.600 --> 0:07:22.840 think that when you're just to sort of zero in 0:07:22.840 --> 0:07:25.400 on some of the nuance that you just said. Gambling 0:07:25.560 --> 0:07:27.640 is when there is the house. What you do on 0:07:27.720 --> 0:07:30.040 an exchange is where there is no house. There are 0:07:30.040 --> 0:07:33.160 two counterparties in a particular market agreeing on a price 0:07:33.240 --> 0:07:35.960 together and executing what we characterize as a swap, what 0:07:36.040 --> 0:07:39.600 the CEA qualifies as a swap. Those types of trades 0:07:39.720 --> 0:07:43.400 are heavily regulated under CFTC regulation. There are hundreds of regulations. 0:07:43.400 --> 0:07:45.320 You're saying, all the trades that are happening on Kowshi 0:07:45.360 --> 0:07:47.720 will be heavily regulated and over set, and we understand 0:07:47.720 --> 0:07:48.400 the two sides. 0:07:48.480 --> 0:07:51.640 They are currently heavily regulated and being overseen. I meet 0:07:51.640 --> 0:07:54.160 with the CFTC's Enforcement division. That's my line of work 0:07:54.200 --> 0:07:56.680 at Kaushi. I lead our exchange enforcement. I meet with 0:07:56.720 --> 0:07:59.840 their Enforcement division multiple times a week. But separately, they 0:07:59.840 --> 0:08:03.840 have other divisions division Market Oversight, other divisions that oversee 0:08:03.880 --> 0:08:06.840 the implementation of markets so that they are structurally fair 0:08:07.240 --> 0:08:11.680 for the participants operating in them, and that oversight requires calls. 0:08:11.680 --> 0:08:14.040 She as an exchange, but all prediction market exchanges to 0:08:14.080 --> 0:08:16.520 work very closely with the CFTC on the products that 0:08:16.560 --> 0:08:19.400 they offer, they have to self certify them to the CFDC, 0:08:19.640 --> 0:08:23.120 who can revoke approval for those products. And the CFTC 0:08:23.200 --> 0:08:25.520 recently came out with a two hundred and sixty seven 0:08:25.520 --> 0:08:28.640 page rule making that was specific toward prediction market contracts. 0:08:28.640 --> 0:08:30.920 So I think you know it isn't correct to say 0:08:30.920 --> 0:08:32.679 these aren't currently heavily regulated. 0:08:32.920 --> 0:08:35.360 We're speaking with Bobby Denald. He's head of enforcement and 0:08:35.400 --> 0:08:37.559 legal counsel at Kalsh. He joins us here in the 0:08:37.559 --> 0:08:39.960 Bloomberg BusinessWeek studio. I want to shift gears and talk 0:08:39.960 --> 0:08:42.360 about some other recent news. It seems like you're really 0:08:42.360 --> 0:08:44.559 playing whack a mole at this point with these lawsuits, 0:08:44.559 --> 0:08:47.560 Like obviously it's keeping you busy. Also keeping you busy 0:08:47.600 --> 0:08:50.679 as enforcement and former Congressman George Santos agreed to pay 0:08:50.679 --> 0:08:53.200 more than thirty five thousand dollars to settle allegations that 0:08:53.240 --> 0:08:56.120 he manipulated a wager on your platform about whether he'd 0:08:56.120 --> 0:08:58.440 attend the twenty twenty six State of the Union. Isn't 0:08:58.480 --> 0:09:00.560 your responsibility to police that? Or are you the one 0:09:00.600 --> 0:09:03.080 who recognized that and flagged it? 0:09:03.320 --> 0:09:05.280 Yes, it is our responsibility to police that. 0:09:05.320 --> 0:09:07.880 Do you have the resources? Like this is one example, 0:09:07.880 --> 0:09:10.680 but do you have the resources to find every single 0:09:10.720 --> 0:09:13.600 one of them that allegedly has insider information? 0:09:13.880 --> 0:09:17.160 So I pause there and say, that's not our standard 0:09:17.240 --> 0:09:19.160 at the New York Stock Exchange, and that's not our 0:09:19.200 --> 0:09:21.720 standard in the securities and equities markets. What we expect 0:09:22.040 --> 0:09:25.560 our federally regulated exchanges to do is to have reasonable 0:09:25.559 --> 0:09:29.600 procedures to detect insider trading, market manipulation, et cetera. Calls 0:09:29.600 --> 0:09:32.600 she has very robust and in fact, more robust than 0:09:32.679 --> 0:09:37.160 stock exchanges policing measures to prevent and detect insider trade. 0:09:37.240 --> 0:09:40.160 We do have twenty four to seven market surveillance. We 0:09:40.240 --> 0:09:43.640 use a surveillance vendor, but also in the coming days 0:09:43.640 --> 0:09:46.520 are going to announce an expansion of our surveillance systems. 0:09:47.280 --> 0:09:49.760 And we police these markets both in real time and 0:09:49.800 --> 0:09:52.600 in retrospect, and we work with the CFTC to investigate 0:09:52.640 --> 0:09:55.880 specific markets and detect anomalous activity in those markets. We 0:09:55.920 --> 0:09:59.040 did detect the trading activity by mister Santos. We conducted 0:09:59.240 --> 0:10:02.040 an investigation that involved an interview with mister Santos, and 0:10:02.080 --> 0:10:05.080 we referred the entire matter and the evidence that we 0:10:05.120 --> 0:10:08.160 collected to the CFTC, which allowed them to pursue enforcement 0:10:08.400 --> 0:10:12.640 but separately in the derivatives and commodities space. These exchanges, 0:10:12.880 --> 0:10:15.679 like ours, have a responsibility to also bring enforcement actions 0:10:15.760 --> 0:10:18.320 directly against the users who participate on them. And so 0:10:18.679 --> 0:10:22.800 we pursue direct exchange enforcement in areas where individuals come 0:10:22.800 --> 0:10:25.600 on and violate our CFTC approved exchange rules. 0:10:25.640 --> 0:10:28.440 And how since that's happening, and how many investigations are 0:10:28.440 --> 0:10:30.679 you triggering, like on a daily basis or a weekly. 0:10:30.440 --> 0:10:35.040 Basis, So we sort of estimate quarterly, and volumes upticked 0:10:35.080 --> 0:10:37.640 quite a bit. So the investigations have upticked quite a bit, 0:10:37.679 --> 0:10:39.480 but somewhere between one hundred and fifty and two hundred 0:10:39.480 --> 0:10:42.679 and fifty a quarter become material investigations. We make a 0:10:42.760 --> 0:10:44.600 number of referrals. I think a year to date we've 0:10:44.600 --> 0:10:47.160 probably made about forty or fifty referrals to the CFTC. 0:10:47.840 --> 0:10:50.600 These matters take time, though the legal process. Everybody deserves 0:10:50.679 --> 0:10:53.320 due process rights, yep. So we afford people do process. 0:10:53.360 --> 0:10:56.840 We've settled or brought disciplinary actions in a number of cases. 0:10:56.920 --> 0:10:58.520 We were going to continue to do so. By the 0:10:58.640 --> 0:11:02.120 end of the year, you'll see a meaningful number of actions. 0:11:02.440 --> 0:11:05.040 I put for context, the sec in the last year 0:11:05.040 --> 0:11:08.480 of the Biden administration bought thirty five insider trading actions, 0:11:08.800 --> 0:11:11.680 So you know, I think the expectation somewhere in the 0:11:11.679 --> 0:11:12.720 ballpark of that number. 0:11:12.880 --> 0:11:14.760 Do you think that there's some markets that are listed 0:11:14.760 --> 0:11:17.920 on KYSHI that are more susceptible to manipulation than others? 0:11:18.760 --> 0:11:22.560 I think, much like insider trading in the traditional securities 0:11:22.559 --> 0:11:25.320 and equities markets, there are certain paradigms that exist that 0:11:25.360 --> 0:11:28.240 create more likelihood for insider or manipulation risk. 0:11:28.920 --> 0:11:29.720 Like mentioned markets. 0:11:29.760 --> 0:11:33.240 Perhaps you know, I think mentioned markets are a unique category. 0:11:34.400 --> 0:11:37.720 I don't know that they're necessarily more susceptible to insider risk, 0:11:37.800 --> 0:11:39.920 but I can see the context or argument for saying 0:11:39.960 --> 0:11:42.920 they maybe are more susceptible to manipulation. Where one person 0:11:42.960 --> 0:11:45.200 controls what word they say. On the counter of that, 0:11:45.720 --> 0:11:48.280 there's a small pool of people who could possibly be 0:11:48.440 --> 0:11:51.120 capable of manipulating that market. Because we're in exchange that 0:11:51.160 --> 0:11:55.240 collects user information, we follow KYC know your customer rules 0:11:55.240 --> 0:11:57.640 for every single individual trading on the exchange, we have 0:11:57.640 --> 0:11:59.880 a pretty good idea of who's taking positions in certain 0:12:00.040 --> 0:12:02.680 markets that allows us to police mention markets just like 0:12:02.720 --> 0:12:03.800 we police allmark. 0:12:03.520 --> 0:12:07.160 You're talking about calshy public companies, right, I just are no. 0:12:07.400 --> 0:12:08.400 I mean, yeah, that's part of it. 0:12:08.440 --> 0:12:10.719 I mean it's the new just ye sixty seconds, I 0:12:10.760 --> 0:12:15.520 know we've got to run it's interesting earnings updates, KPI forecasts, earnings. 0:12:15.240 --> 0:12:16.880 Comments, what you feel I do? 0:12:17.040 --> 0:12:20.000 And I'm thinking, God, does this replace ultimately the earnings 0:12:20.080 --> 0:12:22.640 estimates that we follow? Is that the goal? Just quickly? 0:12:22.800 --> 0:12:24.920 I think there's two goals. I think the first goal 0:12:25.040 --> 0:12:27.080 is what we find is so many people are using 0:12:27.120 --> 0:12:30.160 Kashi as a resource just to obtain information. Seventy five 0:12:30.160 --> 0:12:32.320 percent of people who visit the platform are there just 0:12:32.520 --> 0:12:35.240 to look to learn. They're not there to trade. And 0:12:35.320 --> 0:12:37.200 so this is a resource for people who might be 0:12:37.200 --> 0:12:38.920 on a trading desk, people who might be in a 0:12:38.960 --> 0:12:42.360 financial position where they want to analyze these really subtopic 0:12:43.080 --> 0:12:46.600 financial questions about a particular KPI. But you know, of course, 0:12:46.840 --> 0:12:49.640 we are seeing academic research that shows these are somehow 0:12:49.640 --> 0:12:53.640 and sometimes more accurate than our traditional metrics and financial markets, 0:12:53.640 --> 0:12:55.959 and so it's exciting to develop further in that space. 0:12:56.000 --> 0:12:57.840 Please come back and talk more about this, because I 0:12:57.880 --> 0:13:00.960 am fascinated about kind of where this goes and who 0:13:00.960 --> 0:13:03.280 will all be on it, Bobby, Thank you so much. 0:13:04.600 --> 0:13:07.400 Stay with us. More from Bloomberg Business Week Daily coming 0:13:07.440 --> 0:13:08.360 up after this. 0:13:12.840 --> 0:13:16.720 You're listening to the Bloomberg Business Week Daily Podcast. Catch 0:13:16.800 --> 0:13:19.440 us live weekday afternoons from two to five e's during 0:13:19.679 --> 0:13:23.600 Listen on Applecarplay and Android Auto with the Bloomberg Business app, 0:13:23.760 --> 0:13:26.319 or watch us live on YouTube. 0:13:26.760 --> 0:13:26.960 Hey. 0:13:27.080 --> 0:13:29.920 G Square raised two point three billion dollars for its 0:13:29.920 --> 0:13:33.400 seventh flagship fund. It is targeting investments in growth stage 0:13:33.400 --> 0:13:37.880 technology firms, as founder Larry Ashbrook predicts a coming reset 0:13:38.000 --> 0:13:40.079 in valuations, which is something we want to dig into. 0:13:40.320 --> 0:13:42.160 Yeah, the firm has started building out the fund with 0:13:42.200 --> 0:13:46.040 stakes and companies that we talk about all the time, anthropic, 0:13:46.200 --> 0:13:47.960 polymarket and scale and more. 0:13:48.160 --> 0:13:50.679 Yeah, let's get to it. We welcome Larry Ashbrook. He's 0:13:50.679 --> 0:13:52.840 founder and managing partner of g Square. He is out 0:13:52.880 --> 0:13:56.360 there in our Bloomberg New Chicago bureau. Welcome. Welcome. Also, 0:13:56.840 --> 0:13:59.400 excuse me with us is our Bloomberg News senior IPO 0:13:59.480 --> 0:14:03.240 reporter Bailly Lips Shelties here in studio. Hey, Larry, want 0:14:03.240 --> 0:14:04.720 to kick it off with you. First of all, welcome, 0:14:04.800 --> 0:14:07.960 So great to have you here on Bloomberg tell Us 0:14:07.960 --> 0:14:10.960 about this fun the companies you are targeting the strategy, 0:14:11.160 --> 0:14:13.880 and I'm also curious are there more new names to 0:14:13.920 --> 0:14:16.200 come or do you just want to double down on 0:14:16.240 --> 0:14:17.800 some of the investments you've already made. 0:14:18.760 --> 0:14:21.600 Well, first of all, thanks for having me. It's honored 0:14:21.600 --> 0:14:24.320 to be here on behalf of our fifty employees around 0:14:24.320 --> 0:14:26.880 the world. We're humbled that you included us today in 0:14:26.920 --> 0:14:27.720 your broadcast. 0:14:28.520 --> 0:14:28.920 Thank you. 0:14:29.720 --> 0:14:32.600 Yeah, it's exciting for us. It's exciting for us to 0:14:32.680 --> 0:14:36.360 be here. The two point three billion, it's the latest 0:14:36.400 --> 0:14:40.720 of our flagship vehicles really to do the same thing 0:14:40.800 --> 0:14:43.040 we've been doing for the past fifteen years, which is 0:14:43.080 --> 0:14:48.160 support great companies in their growth stage, mostly through secondary 0:14:48.160 --> 0:14:53.120 transactions and saving some capital to help with primary in 0:14:53.160 --> 0:14:56.720 their growth phase, and really helping them manage their cap 0:14:56.760 --> 0:14:59.920 tables as they stay private longer. And we're excited about 0:15:00.080 --> 0:15:02.640 the companies we have in the portfolio and the opportunities 0:15:02.640 --> 0:15:03.320 set in front of us. 0:15:03.480 --> 0:15:06.160 Yeah, Larry, just walk us through if you can quickly 0:15:06.280 --> 0:15:08.680 kind of the notion of this growth in the secondary 0:15:08.680 --> 0:15:11.720 market and what that actually means when G squared can 0:15:11.720 --> 0:15:14.440 partner with a company like an anthropic and are you 0:15:14.480 --> 0:15:18.400 providing access to employees to see some liquidity or is 0:15:18.400 --> 0:15:21.080 it early stage investors who's selling what you're buying. 0:15:21.960 --> 0:15:25.080 Yeah, it's all the above, really, and that's changed over 0:15:25.160 --> 0:15:29.080 fifteen years. Early days, it was heavy focused on employee shares. 0:15:30.440 --> 0:15:33.960 I think as the market has evolved and secondaries have 0:15:34.080 --> 0:15:38.400 become a global asset class with the companies staying private longer, 0:15:38.520 --> 0:15:40.760 more and more of what we're doing is helping other 0:15:40.960 --> 0:15:46.440 managers and other gps manage their liquidity by taking stakes 0:15:46.440 --> 0:15:49.960 in their portfolio companies to help them return capital to 0:15:50.000 --> 0:15:52.400 investors and help the company stay private longer. And so 0:15:52.440 --> 0:15:54.840 it's a combination of those things. It's everything from one 0:15:54.880 --> 0:15:57.840 off individual secondaries when the companies have a need to 0:15:57.920 --> 0:16:01.360 change a life scenario to keep that employee engaged and 0:16:01.400 --> 0:16:03.960 involved so they don't leave to go to another business, 0:16:04.000 --> 0:16:07.640 all the way through broad employee tenders where you're making 0:16:07.680 --> 0:16:09.800 a bona fide offer at one time and a lot 0:16:09.800 --> 0:16:14.720 of capital upfront and the shares are bought in that way, 0:16:14.960 --> 0:16:20.040 all the way through to preferred managers buying the stakes 0:16:20.040 --> 0:16:22.400 that they invested early. And what we've seen is a 0:16:22.400 --> 0:16:25.760 trend since twenty twenty is actually about seventy percent of 0:16:25.760 --> 0:16:28.520 the deployment on the secondary market has been in preferred shares, 0:16:28.880 --> 0:16:32.080 So that's been a fundamental shift in the marketplace as 0:16:32.160 --> 0:16:35.160 companies stay private longer and the stress on the GPLP 0:16:35.320 --> 0:16:39.680 relationship is amplified with funds getting to late in life 0:16:39.720 --> 0:16:44.280 with little capital returned. Other managers need to return capital. 0:16:44.320 --> 0:16:47.040 So we've been there to support their portfolio companies and 0:16:47.040 --> 0:16:49.560 it's the sport. What they need to do is GPS, 0:16:50.240 --> 0:16:53.880 and we're lucky to be where we're at and excited 0:16:53.880 --> 0:16:54.800 about what's to come. 0:16:55.000 --> 0:16:58.000 Well before the deployment of money comes, the fundraising comes, 0:16:58.040 --> 0:17:01.080 and you just closed your seventh round two point three 0:17:01.400 --> 0:17:03.680 or seventh fund rather two point three billion dollars in 0:17:03.800 --> 0:17:08.280 that fund, Larry, compared to the other funds that you've raised, 0:17:08.359 --> 0:17:10.800 What was it like raising money in this environment? 0:17:10.920 --> 0:17:12.240 Was it easy? Was it hard? 0:17:12.280 --> 0:17:14.320 I know people say it's never easy to raise money, 0:17:14.400 --> 0:17:16.359 but there is a lot of money out there right now. 0:17:17.800 --> 0:17:21.840 I think broadly in secondaries, the broader market has woken 0:17:21.960 --> 0:17:25.480 up a bit. It's it's now a bona fide asset 0:17:25.520 --> 0:17:29.760 class that's covered. Companies see the validity of it. Other managers, 0:17:29.920 --> 0:17:33.600 primary focused managers see the validity of it, and LPs 0:17:33.680 --> 0:17:37.800 around the world have a desire to be involved in 0:17:37.880 --> 0:17:40.280 secondaries because it provides a bit of a margin of 0:17:40.320 --> 0:17:43.080 safety in growth investments by the way the capital is 0:17:43.160 --> 0:17:47.920 deployed and this fundraise for us, anytime you set off 0:17:47.920 --> 0:17:50.359 to raise capital, it's hard. I like to tell our 0:17:50.400 --> 0:17:53.320 team all the time, Raising money's hard, deploying it's easy, 0:17:53.400 --> 0:17:57.600 and selling it's hard. A year in it's the quickest 0:17:57.600 --> 0:18:00.840 we've raised capital. Our target was just you know, for 0:18:00.960 --> 0:18:02.639 us in this scale and size and the contrary to 0:18:02.640 --> 0:18:05.280 portfolio we need about a billion dollars per fund, plus 0:18:05.280 --> 0:18:07.760 our SMAs and co investments to be meaningful to a 0:18:07.800 --> 0:18:12.000 certain set of companies getting very large stakes here, we 0:18:12.000 --> 0:18:14.399 were able to kind of get twice the size and 0:18:15.280 --> 0:18:17.240 half the time it took us in the prior vintages. 0:18:17.240 --> 0:18:19.640 And I think it's a lot of things, but mostly 0:18:19.680 --> 0:18:22.040 a testament to our portfolio management team that did a 0:18:22.040 --> 0:18:25.320 fantastic job coming out of the COVID environment we were 0:18:25.320 --> 0:18:29.000 in and the pullback, and when everybody was running out 0:18:29.080 --> 0:18:30.960 the front door, we were running in sort of speaking, 0:18:31.000 --> 0:18:35.160 deploying money at really really great prices, and that those 0:18:35.680 --> 0:18:38.960 historical funds have done well and raising capital at scale 0:18:38.960 --> 0:18:40.080 has gotten easier for us. 0:18:40.400 --> 0:18:42.639 But Larry, walk us through how you're thinking about this 0:18:42.720 --> 0:18:46.119 current market already deploying in the seventh fund. You have anthropic, 0:18:46.240 --> 0:18:49.200 poly market and scale three companies that when I talk 0:18:49.280 --> 0:18:51.960 to folks in the private ecosystem, are quite pricey and 0:18:52.000 --> 0:18:54.360 there's a lot of competition for access to that. How 0:18:54.359 --> 0:18:56.840 are you thinking about whether or not this is a 0:18:56.880 --> 0:18:59.719 market that's maybe run too far, too fast, and how 0:18:59.760 --> 0:19:02.679 you're thinking about deploying capital now and what that means 0:19:02.720 --> 0:19:05.480 through the end of this year and into next. Yeah. 0:19:05.720 --> 0:19:07.440 I like to tell our LPs our job is to 0:19:07.440 --> 0:19:10.520 get involved in the stars of tomorrow today and do 0:19:10.680 --> 0:19:14.960 that before their household names, and when they become household names, 0:19:14.960 --> 0:19:16.800 we know we've done our job right. And I think 0:19:16.800 --> 0:19:22.359 in those three examples we took contrarying views, got involved early, 0:19:22.440 --> 0:19:28.640 they have grown to fantastic levels and valuation. I think 0:19:28.680 --> 0:19:30.879 the way we were thinking about the next chapter of 0:19:30.920 --> 0:19:34.440 deployment in our seventh fund is we expect some macro 0:19:34.560 --> 0:19:37.560 headwinds in the fall and into the winter months and 0:19:37.600 --> 0:19:41.480 maybe early spring, going through some midterm election cycles in 0:19:41.520 --> 0:19:45.359 the US, and some volatility and we're watching the macro 0:19:46.000 --> 0:19:50.240 indicators very closely, and we think that there's a higher 0:19:50.400 --> 0:19:53.280 likelihood than not that we see some interest rate hikes, 0:19:53.600 --> 0:19:56.600 which on the secondary market, the fundamental drivers are the 0:19:56.680 --> 0:19:59.879 ten year yield and the federal funds rate along with 0:20:00.000 --> 0:20:01.920 the equity risk premiums in the public market. 0:20:02.000 --> 0:20:02.760 So as you have an. 0:20:02.640 --> 0:20:06.639 Elevated interest rate environment in a low equity risk premium, 0:20:06.760 --> 0:20:10.000 secondaries tend to do well. And we think we're going 0:20:10.040 --> 0:20:13.720 to enter a market that's more similar to the twenty 0:20:13.720 --> 0:20:16.480 twenty three time period than what we've experienced in the 0:20:16.520 --> 0:20:19.800 past year or so, and we're going to be prepared 0:20:19.840 --> 0:20:21.760 to do the best work we can for our LPs. 0:20:22.080 --> 0:20:25.080 You speak of stars, and I feel like with AI 0:20:25.119 --> 0:20:28.200