WEBVTT - FBI Acting Director McCabe "Has No Chance," Eli Lake Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.520 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Has 0:00:32.560 --> 0:00:36.199 President Trump had his Nicksonian moment? To weigh in? I 0:00:36.200 --> 0:00:38.840 want to bring an Eli Lake, a Bloomberg View columnist 0:00:39.440 --> 0:00:43.120 who has written extensively about the latest dramas in the 0:00:43.240 --> 0:00:48.800 President Trump administration. Eli, first take, I know a lot 0:00:48.800 --> 0:00:51.640 of people have compared what President Trump just did with 0:00:51.720 --> 0:00:54.800 James Comey, uh but firing him as the FBI director 0:00:55.120 --> 0:00:58.880 to some of the developments under former President Nixon, who 0:00:59.000 --> 0:01:03.720 was imp How is this similar and how is this different? Well, 0:01:03.760 --> 0:01:06.640 it's similar in that James Tomy was the head of 0:01:06.680 --> 0:01:09.400 the Bureau and was that was conducting an investigation in 0:01:09.480 --> 0:01:13.680 the president as Archibald Cox was a special prosecutor looking 0:01:13.680 --> 0:01:18.760 into Watergate. But that's really where the similarities end. Um. 0:01:18.920 --> 0:01:21.039 First of all, in Watergate, we always knew what the 0:01:21.080 --> 0:01:24.760 crime was. It was a third rate break in followed 0:01:24.760 --> 0:01:28.679 by a series of cover ups and lying. In the 0:01:28.760 --> 0:01:32.000 case of Russia Gate, for lack of a better word, 0:01:32.400 --> 0:01:34.920 we're not even sure what the underlying crime is at 0:01:34.959 --> 0:01:38.000 this point, uh, And it looks like there's a cover up, 0:01:38.000 --> 0:01:40.360 but it's like a cover up without a crime. And 0:01:40.480 --> 0:01:42.440 the second of all, one of the things that Nixon 0:01:42.480 --> 0:01:45.399 did and why the Watergate break in was so troubling, 0:01:45.840 --> 0:01:48.720 was that he was using because he used former CIA 0:01:48.840 --> 0:01:54.480 officers and people involved with Cuba operations for that break 0:01:54.480 --> 0:01:57.160 in as part of a kind of dirty tricks group 0:01:57.680 --> 0:01:59.880 in UH that that did things on behalf of the 0:02:00.040 --> 0:02:02.320 of the White House. So he was using the power 0:02:02.720 --> 0:02:06.880 of the surveillance state against his political opposition. You could 0:02:07.000 --> 0:02:10.160 argue that with the leak um of Flynn's conversations with 0:02:10.240 --> 0:02:12.560 Kiss leak and a couple other things like that, the 0:02:12.600 --> 0:02:15.480 power of the surveillance state was has been used against 0:02:15.560 --> 0:02:20.720 Trump uh to weaponize the allegation about Russia. UM. So 0:02:20.840 --> 0:02:25.160 that's another important distinction. UM. But the one thing that's 0:02:25.240 --> 0:02:27.840 very similar is that you know, in some ways what 0:02:27.919 --> 0:02:29.760 happened with Nixon and what happened with Trunk is that 0:02:30.040 --> 0:02:34.080 these were both sort of violating traditional political norms. I 0:02:34.160 --> 0:02:36.160 had written a column and said Comey was the most 0:02:36.200 --> 0:02:39.280 powerful man in Washington because I couldn't imagine after he 0:02:39.320 --> 0:02:44.600 announced an ongoing counor intelligence probe into the Trump campaign Russia, 0:02:44.960 --> 0:02:47.079 that the president would fire him. I thought it would 0:02:47.080 --> 0:02:50.520 be politically suicidal. Look what I know, um, well, I 0:02:50.520 --> 0:02:52.480 mean we haven't seen the full fallout, but I think 0:02:52.480 --> 0:02:54.800 that that this is the question you if it is 0:02:54.840 --> 0:02:58.040 not political suicide, If if it was inaccurate to say 0:02:58.080 --> 0:03:01.440 that this is such a dire political move that President 0:03:01.440 --> 0:03:04.760 Trump would not embark upon it. What does this mean 0:03:05.080 --> 0:03:09.520 for the independence of the law enforcement branch, especially at 0:03:09.520 --> 0:03:11.920 a time when a G. Jeff Sessions turned General Jeff 0:03:11.960 --> 0:03:14.360 Sessions has said that he would recuse himself, you know, 0:03:14.400 --> 0:03:17.520 as as Senator Schumer was saying he would recuse himself 0:03:17.520 --> 0:03:20.480 from the Russia probe. And then to make a move 0:03:20.600 --> 0:03:23.400 like this and recommend that James Comey be fired as 0:03:23.440 --> 0:03:27.639 FBI director, I mean, does this concern you? I don't 0:03:27.680 --> 0:03:32.240 think we're there yet. The acting FBI director is a 0:03:32.240 --> 0:03:37.400 guy named Andrew McCabe. His wife received a significant amount 0:03:37.400 --> 0:03:40.440 of campaign contributions from Terry mccauugh the current Democratic governor 0:03:40.480 --> 0:03:43.280 of Virginia and longtime Clinton associate and head of the 0:03:43.360 --> 0:03:48.000 d n C UM that would suggest to me that, um, 0:03:48.040 --> 0:03:50.840 you know that you're the first of all, the Russia 0:03:50.880 --> 0:03:53.320 probe isn't going away, and second of all, the FBI 0:03:53.480 --> 0:03:56.960 will continue to you know, do its investigations. And finally, 0:03:57.000 --> 0:03:59.200 I mean, I think another big difference on water game 0:03:59.280 --> 0:04:02.000 is that you know, you could you could, you could 0:04:02.040 --> 0:04:04.800 be critical of elements of Archibald Cox, but really there 0:04:04.880 --> 0:04:07.440 is a substantive case against Jim Comey that Democrats have 0:04:07.520 --> 0:04:10.640 made and Republicans have made that is it arguable? I 0:04:10.680 --> 0:04:14.720 think so? Um, in that respect, I mean there was 0:04:14.880 --> 0:04:18.039 cause in the case of Comy, um most recently that 0:04:18.120 --> 0:04:22.480 he misled Congress last week when he testified about whom 0:04:22.480 --> 0:04:27.440 Abideen and Anthony Meaner's computer. Um, So in that respect, 0:04:27.680 --> 0:04:29.800 you know, you could say it's a long time coming. 0:04:29.880 --> 0:04:34.040 It's just you know, he was investigating Trump or not Trump, 0:04:34.080 --> 0:04:36.480 but I guess he was. Trump said he was assured 0:04:36.560 --> 0:04:38.960 he was not under investigation, but he was certainly investigating 0:04:38.960 --> 0:04:41.479 his search, which, which, by the way, I mean, Eli, 0:04:41.560 --> 0:04:43.440 we would be remiss if we didn't point out how 0:04:43.480 --> 0:04:47.960 odd it was for President Trump to even flick at 0:04:48.000 --> 0:04:52.960 the investigation in his letter to a former FBI director, 0:04:53.040 --> 0:04:57.159 James Comey. Now, I mean, I don't what's so strange 0:04:57.200 --> 0:05:00.479 about that is, if that's if, assuming it's true, why 0:05:00.480 --> 0:05:04.479 didn't Comey say that when he announced the investigation. Yeah, 0:05:04.760 --> 0:05:06.880 there are a lot of don't understand it. Well, one 0:05:06.880 --> 0:05:09.440 thing I wanted to get back to with the FBI 0:05:09.480 --> 0:05:16.599 acting director McCabe being a respected bureau employee. First of all, 0:05:16.760 --> 0:05:19.800 is he likely to be the successor, the permanent successor 0:05:19.839 --> 0:05:24.440 to James Comey? And also not a chance? Okay? Why 0:05:24.680 --> 0:05:27.000 because I think I've heard that they want to get 0:05:27.040 --> 0:05:28.880 rid of McCabe as well, and that they are looking 0:05:28.920 --> 0:05:31.680 to I mean, Trump himself said he's gonna nominate somebody new, 0:05:32.279 --> 0:05:34.000 So he's not. So McCabe is going to be the 0:05:34.000 --> 0:05:38.000 acting director. But keep in mind there's an active investigation. 0:05:38.920 --> 0:05:43.000 The active investigation continues, McCabe is going to be the 0:05:43.000 --> 0:05:47.120 acting director, and we can expect I would imagine a 0:05:47.160 --> 0:05:50.960 long political fight over the nomination of the next FBI director. 0:05:51.000 --> 0:05:54.719 It's gonna consume Washington. It's got to pass the smell 0:05:54.800 --> 0:05:58.400 test for Senate Republicans who distanced themselves from the decision 0:05:58.480 --> 0:06:01.520 she fired Comey, and it's got a past the smell 0:06:01.560 --> 0:06:04.920 test from Democrats who are really out for blood at 0:06:04.920 --> 0:06:06.960 this point. And in comparing this to the satura name 0:06:07.040 --> 0:06:11.000 asker Richard Nixon. So, in the meantime, couldn't President Trump 0:06:11.040 --> 0:06:17.040 ostensibly fire acting FBI Director McCabe if he didn't want 0:06:17.120 --> 0:06:21.080 him to be the one in charge? He could? I 0:06:21.120 --> 0:06:22.480 don't know if he will. I don't know if it 0:06:22.480 --> 0:06:25.160 would be politically why you're like, I can't make any 0:06:25.200 --> 0:06:31.279 more statements about political suicide, right, So going forward, what 0:06:31.279 --> 0:06:32.720 do you think is the most important thing for us 0:06:32.720 --> 0:06:34.440 to keep keep track of to sort of get a 0:06:34.440 --> 0:06:37.960 real sense of of what's going to happen here. Well, 0:06:38.000 --> 0:06:41.080 I would look for some sort of statement and reporting. 0:06:41.080 --> 0:06:42.680 I'm trying to get this myself. Is what is the 0:06:42.720 --> 0:06:46.160 status at this point of the counterintelligence probe into Trump 0:06:46.240 --> 0:06:50.680 and Trump campaign in Russia? I would look at, um, 0:06:50.839 --> 0:06:53.680 what the dynamics will look like for a for for 0:06:53.800 --> 0:06:56.279 the nomination fights for the new FBI director. And while 0:06:56.680 --> 0:06:59.200 we just have now new information that miss McConnell sent, 0:06:59.279 --> 0:07:02.440 there won't be a special prosecutor. Um. I do think 0:07:02.480 --> 0:07:04.359 it makes political sense at this point to have some 0:07:04.440 --> 0:07:08.200 sort of bipartisan special commission or something along those line. 0:07:08.320 --> 0:07:11.680 Maybe I mean a kind of special select committee, but 0:07:11.920 --> 0:07:15.680 something that will just allow for our country to have 0:07:16.000 --> 0:07:20.960 a respected group bipartisan that will just sort of present 0:07:21.000 --> 0:07:23.120 at a certain point, here are the facts about the 0:07:23.160 --> 0:07:25.320 election we can all agree on, and let's get it 0:07:25.520 --> 0:07:28.720 find it right. Unfortunately, we're gonna have to leave it there. 0:07:28.720 --> 0:07:30.840 I can speak with you all morning. Eli La is 0:07:30.840 --> 0:07:34.040 a Bloomberg View columnist talking about Trump's firing FBI Director 0:07:34.120 --> 0:07:48.320 James Come. Well, a lot of times there, whatever there's 0:07:48.320 --> 0:07:51.480 a blip in the market, people point their finger at 0:07:51.560 --> 0:07:54.640 this abyss called risk parody. They say risk parody funds 0:07:54.640 --> 0:07:57.640 are deleveraging, or risk parody funds are rotating out of something. 0:07:58.120 --> 0:08:00.280 To sort of clarify what actually is going going on, 0:08:00.320 --> 0:08:02.680 I want to bring in Rob Croche. He is the 0:08:03.200 --> 0:08:07.600 senior portfolio manager at Salient Partners in Houston, Texas. Salient 0:08:07.760 --> 0:08:11.640 overseas about fourteen billion dollars in assets. So Rob, I 0:08:11.680 --> 0:08:15.200 want to just start with talking about why risk parody 0:08:15.320 --> 0:08:19.360 funds are blamed for turmoil in the markets, and whether 0:08:19.560 --> 0:08:22.800 you have seen any instances of this. Sure, well, we've 0:08:22.800 --> 0:08:25.840 certainly seen instances of them being blamed. We haven't seen 0:08:25.880 --> 0:08:32.600 any instances where they really did exacerbate market drawnouts. Um. 0:08:32.800 --> 0:08:35.600 Risk parody is something that a lot of people haven't 0:08:35.640 --> 0:08:38.600 taken the time to try to understand, and therefore it's 0:08:38.640 --> 0:08:41.000 easy to blame it and and have it be credible. 0:08:41.120 --> 0:08:43.800 So so help us understand it. What is risk parody? Sure? 0:08:43.920 --> 0:08:47.360 Risk parody is an asset allocation strategy that tries to 0:08:47.400 --> 0:08:50.880 take risk in asset classes that are really different from 0:08:50.920 --> 0:08:55.120 each other. So rather than having six stocks and bonds, 0:08:55.760 --> 0:08:59.720 it tries to take risks spread pretty equally across stocks 0:09:00.040 --> 0:09:03.640 on credits, UH and sovereign debt. So you know, that's 0:09:03.679 --> 0:09:08.040 sixty forty portfolio, sixty stocks bonds that the average investor 0:09:08.120 --> 0:09:12.679 holds in their portfolio. That is like equity risk, and 0:09:12.760 --> 0:09:16.160 so you know the next time stocks drawn on, it's 0:09:16.280 --> 0:09:19.360 very clear what's going to happen to that portfolio. So 0:09:19.960 --> 0:09:22.280 the idea is to sort of remove correlation to a 0:09:22.320 --> 0:09:25.200 particular move up in one direction or or down in 0:09:25.240 --> 0:09:28.760 another direction. I do have to wonder, though, what has 0:09:28.800 --> 0:09:31.520 the track record been like have these has you have 0:09:31.559 --> 0:09:34.680 your risk parity funds truly been uncorrelated to some of 0:09:34.720 --> 0:09:39.160 the major markets. Sure, so anytime one market moves a lot, 0:09:39.240 --> 0:09:41.800 you're gonna be correlated to it. But at the same time, 0:09:41.840 --> 0:09:44.719 if you look over the long run, our beta two 0:09:44.760 --> 0:09:48.040 stocks are beta two, bonds are beta to to credit, 0:09:48.080 --> 0:09:50.839 our beta to two sovereign debt is exactly what it 0:09:50.840 --> 0:09:53.120 should be. We're getting exactly a quarter of our risk 0:09:53.240 --> 0:09:56.480 historically from each of those asset classes, and that's the goal. 0:09:56.760 --> 0:09:58.559 We don't want to put all your eggs in one basket. 0:09:58.840 --> 0:10:00.720 So what if it turn has been like returns have 0:10:00.800 --> 0:10:02.880 been good. I mean, we're up four percent or so 0:10:03.040 --> 0:10:06.160 year to date in in our mutual fund version of 0:10:06.240 --> 0:10:09.480 risk parity um They're exactly what you would expect from 0:10:09.640 --> 0:10:12.800 from a balanced portfolio that allocs to all the classes. 0:10:13.280 --> 0:10:15.760 What has institutional interests been like for these types of funds. 0:10:16.040 --> 0:10:20.800 Institutional interest it continues to uh increase in risk parity strategies. 0:10:20.800 --> 0:10:24.400 What we're seeing is institutions recognizing that to make that 0:10:24.480 --> 0:10:27.240 seven percent bogey that they need to make, they need 0:10:27.280 --> 0:10:29.600 to do something different. They can't afford to double down 0:10:29.640 --> 0:10:32.120 on stocks. We all know that stocks are are fully 0:10:32.160 --> 0:10:35.360 priced right now. Bonds are fully priced right now, so 0:10:35.720 --> 0:10:37.960 you know that what they've been doing is unlikely to 0:10:38.000 --> 0:10:40.560 get them seven percent on a go forward basis. So 0:10:40.640 --> 0:10:42.920 what should they do? Should they double down on stocks 0:10:43.080 --> 0:10:46.080 or double down on private equity or do should they 0:10:46.080 --> 0:10:48.200 do something a little bit different from that? And so 0:10:48.240 --> 0:10:52.160 they've been allocating to what we see called risk miday 0:10:52.200 --> 0:10:56.120 gaining asset classes or equity risk mitigation, And so that 0:10:56.200 --> 0:10:59.160 doesn't mean usually when I hear equity risk mitigation, I 0:10:59.200 --> 0:11:02.480 think lower return. But that's not what this is. This 0:11:02.559 --> 0:11:06.240 is actually seeking return, but doing it in markets that 0:11:06.360 --> 0:11:10.319 aren't stocks. So walk me through a meeting that you 0:11:10.360 --> 0:11:14.040 would have with an institutional investor. I'm wondering what are 0:11:14.040 --> 0:11:18.880 the biggest questions? Sure, so, in general, when you go 0:11:18.920 --> 0:11:20.920 and talk to an institutional investor about a strategy like this, 0:11:20.960 --> 0:11:23.160 you know that they're already looking at it, and so 0:11:23.360 --> 0:11:27.360 it's really asked answering questions about what makes our implementation different. 0:11:27.600 --> 0:11:30.280 In general, the answer is that we try to have 0:11:30.360 --> 0:11:33.880 a more adaptive portfolio, so we have an overlay. We 0:11:33.880 --> 0:11:35.840 don't We think spar it's a good starting place, but 0:11:35.920 --> 0:11:37.880 we don't think it's where you end. We think that 0:11:37.960 --> 0:11:40.600 you start from there and then you apply some common 0:11:40.640 --> 0:11:44.200 sense approach to tilting the portfolio based on market sentiment. 0:11:44.840 --> 0:11:49.559 And so we explained that approach uh to to potential allocators. 0:11:49.600 --> 0:11:51.640 So how do you do that through algorithms or do 0:11:51.640 --> 0:11:53.720 you do that through a human being looking at the 0:11:53.760 --> 0:11:56.040 market and saying, you know, we should probably do this. 0:11:56.440 --> 0:11:58.800 Algorithms is a scary word, but it's not nearly as 0:11:58.800 --> 0:12:01.720 scary as that thing where we go with the human being. 0:12:02.200 --> 0:12:05.240 You know, so computer is less scary than humans actually 0:12:05.800 --> 0:12:10.960 kind of behaviorally, it's for sure, right, and so you 0:12:10.960 --> 0:12:14.160 know it's it's systematic um, but it's not a it's 0:12:14.200 --> 0:12:18.439 not some crazy black box. We use momentum. Uh. Momentum 0:12:18.520 --> 0:12:21.600 gives us an edge over time. Momentum tells us which 0:12:21.600 --> 0:12:24.360 asset classes are in favor right now and which asset 0:12:24.360 --> 0:12:26.360 classes are are for sure out of favor right now, 0:12:26.559 --> 0:12:27.800 and they help us step out of the way of 0:12:27.800 --> 0:12:31.000 stuff that's not working. So, uh, do you end up 0:12:31.040 --> 0:12:33.360 trading quite a bit in these funds? I mean it's 0:12:33.400 --> 0:12:36.400 a turnover pretty pretty high. Sure, anytime you're training futures, 0:12:36.400 --> 0:12:38.959 turnovers high relative to a sort of buy and hold 0:12:38.960 --> 0:12:42.040 equity portfolio. But yeah, turnovers high. How do you get 0:12:42.120 --> 0:12:47.640 diversity with a model when the implementation can be somewhat 0:12:47.720 --> 0:12:51.200 challenging when you talk about specific corporate securities, for example, 0:12:51.760 --> 0:12:55.040 that may not trade as frequently as say, you know, 0:12:55.280 --> 0:13:00.720 futures or other contracts. So I just wonder theoretical models 0:13:01.120 --> 0:13:03.319 do they ever not translate because of sort of the 0:13:03.360 --> 0:13:06.400 liquidity concerns? For sure, when you're when you're building a 0:13:06.400 --> 0:13:10.960 portfolio like this, liquidity's paramount um and so the credit 0:13:11.000 --> 0:13:13.480 that we trade is a derivative contract, it's an index, 0:13:14.000 --> 0:13:17.240 it's a swap on an index. Uh So it's something 0:13:17.280 --> 0:13:22.120 that is totally liquid by the billions. Uh So we 0:13:22.120 --> 0:13:25.280 we put liquidity first when you're building a portfolio like this. 0:13:25.960 --> 0:13:28.800 Uh and you want to be adaptive, everything you're trading 0:13:29.080 --> 0:13:32.400 has to be very liquid. So going back to sort 0:13:32.400 --> 0:13:34.640 of how we began with the idea that whenever there's 0:13:34.640 --> 0:13:36.920 a blip in the market, people point their fingers at 0:13:37.000 --> 0:13:41.200 risk parity funds is having to de leverage or getting withdrawals. 0:13:41.679 --> 0:13:45.040 Have you seen anything from either from your competitors even 0:13:45.600 --> 0:13:48.160 that have made you think, well, in the hands of 0:13:48.160 --> 0:13:53.040 the wrong person, this could be a dangerous strategy. I 0:13:53.040 --> 0:13:55.160 wish I could throw up my competitors under the bus here, 0:13:55.160 --> 0:13:58.559 but I really can't. All Right. The truth is that 0:13:58.679 --> 0:14:01.880 when when you're a actional portfolio manager and you're trading 0:14:01.920 --> 0:14:04.720 a lot number one, you have to manage market impact costs, 0:14:04.880 --> 0:14:07.280 and you have to manage trading costs, and you know, 0:14:07.400 --> 0:14:10.439 the type of trading that's been sort of assumed of 0:14:10.520 --> 0:14:14.679 risk parity managers during these these periods is implausible from 0:14:14.679 --> 0:14:19.400 a trading cost perspective, And so I'm confident that risk 0:14:19.400 --> 0:14:22.680 parity managers aren't adding insult to injury when when markets 0:14:22.680 --> 0:14:25.560 are drawing down right now, Um, what what I think 0:14:25.640 --> 0:14:28.400 is much scarier is discretionary managers throwing in the towel 0:14:28.480 --> 0:14:33.160 or getting getting fearful and selling stocks. I think that 0:14:33.160 --> 0:14:36.480 that's something much more likely to happen in a discretionary context. 0:14:36.800 --> 0:14:38.880 Was sort of an old school equity manager than it 0:14:39.000 --> 0:14:41.440 is a systematic risparity manager. What do you think is 0:14:41.440 --> 0:14:43.040 going to be the biggest challenge for the rest of 0:14:43.080 --> 0:14:48.480 the year for your risk parity funds? Fortunately, the funds 0:14:48.520 --> 0:14:52.320 don't ask me that. You know, uh, we very much. 0:14:52.880 --> 0:14:56.840 I can't tell the future. So we think that having 0:14:56.880 --> 0:14:58.560 a plan and sticking to it is the way to 0:14:58.600 --> 0:15:02.120 generate performance over time. That said, anytime the market environment 0:15:02.200 --> 0:15:05.960 changes quickly, it can be challenging for a portfolio that's adapting. 0:15:06.200 --> 0:15:10.320 So our portfolio today is ideally situated for the market 0:15:10.320 --> 0:15:12.880 we're in today. As it changes, it will take us 0:15:12.920 --> 0:15:14.640 a little a little bit of time, a couple of 0:15:14.720 --> 0:15:18.840 days to reallocate the portfolio for the new environment. And 0:15:18.920 --> 0:15:21.600 during those periods when when the level of risk changes 0:15:21.680 --> 0:15:24.640 or correlations change, we can be misallocated for a couple 0:15:24.640 --> 0:15:27.880 of days. Fortunately, periods where the market is sort of 0:15:27.920 --> 0:15:30.040 calm and stays in the same state are much more 0:15:30.080 --> 0:15:34.040 frequent and persistent than the sort of jumpy transitory states. 0:15:34.040 --> 0:15:36.800 So we think that over time, being adapted to the 0:15:36.840 --> 0:15:40.960 current environment ends up working much better than being scared 0:15:41.040 --> 0:15:42.880 and sitting on your hands. Thank you so much for 0:15:42.960 --> 0:15:46.240 joining us. Rub Crocha He is managing director of Quantitative 0:15:46.240 --> 0:15:51.360 Strategies and a senior portfolio manager at Salient Partners in Houston, Texas. 0:15:51.400 --> 0:16:03.520 Salient Partners overseas about fourteen billion dollars. We want to 0:16:03.560 --> 0:16:05.520 take a moment to let you know about something new 0:16:05.560 --> 0:16:08.120 from Bloomberg. Starting right now, you can use our I 0:16:08.320 --> 0:16:11.240 O s app or our new Google Chrome extension to 0:16:11.240 --> 0:16:15.080 scan any news story on any website, instantly revealing relevant 0:16:15.120 --> 0:16:17.880 news and market data from Bloomberg and other sources related 0:16:17.880 --> 0:16:20.240 to the companies and people you're reading about. So no 0:16:20.240 --> 0:16:22.280 matter where you're reading the news, you can bring the 0:16:22.320 --> 0:16:25.640 power of Bloomberg's news and data with you. It's pretty amazing. 0:16:25.880 --> 0:16:27.960 Download our i O s app or search for the 0:16:27.960 --> 0:16:30.360 Bloomberg extension on the Chrome Store to try it out. 0:16:30.640 --> 0:16:43.080 Learn more at Bloomberg dot com slash lens. Well. As 0:16:43.280 --> 0:16:46.960 Jay Clayton takes the helm of the Securities in Exchange 0:16:46.960 --> 0:16:49.720 Commission of the U s UH, it is important to 0:16:49.760 --> 0:16:53.160 realize one of his main concerns, as he has outlined 0:16:53.560 --> 0:16:56.560 on several occasions, is the dearth of i p O 0:16:56.600 --> 0:16:59.840 of initial public offerings in the US, talking about how 0:16:59.840 --> 0:17:02.280 this market has been shrinking and yet we are getting 0:17:02.320 --> 0:17:04.760 some signs that this might pick up. And not only 0:17:04.840 --> 0:17:07.280 is it US companies I p O in here, but 0:17:07.440 --> 0:17:11.399 European company is deciding to come to the US in 0:17:11.480 --> 0:17:14.520 order to raise equity. Ed Hammond is here with us. 0:17:14.520 --> 0:17:16.680 He has a deals reporter for Bloomberg News and joins 0:17:16.680 --> 0:17:19.720 me in the Bloomberg eleven three oh studio in New York, 0:17:19.840 --> 0:17:22.520 and can you give us a sense of why acca? 0:17:22.840 --> 0:17:26.199 And also preta do you say? Pretamon are like? What 0:17:26.240 --> 0:17:27.560 do you say? How do you say? Because it's a 0:17:27.560 --> 0:17:30.680 French word, we just call it prep alright, fine, Princi 0:17:30.760 --> 0:17:32.639 pretty bad when it comes to sort of French or 0:17:32.640 --> 0:17:34.960 foreign pronunciation anyway, because they tend to be lazy when 0:17:34.960 --> 0:17:37.919 it comes to foreign languages. Um, so yeah, which is 0:17:37.920 --> 0:17:39.600 why are they coming here? We just call it PREP, 0:17:39.840 --> 0:17:43.159 So I'll start with prep. Um. It's obviously huge in 0:17:43.160 --> 0:17:45.600 the UK. It's this kind of store of the high street, 0:17:46.720 --> 0:17:49.920 very very popular sandwich shop. I think it may be 0:17:50.040 --> 0:17:51.520 maxed out in terms of what it can do in 0:17:51.520 --> 0:17:55.119 the UK with growth. Obviously, cec Us is potentially a 0:17:55.160 --> 0:17:59.560 huge market for this whole um grab and go as 0:17:59.600 --> 0:18:02.480 they call concept. I think is is obviously huge here. 0:18:02.560 --> 0:18:06.240 You have tons of competition, but actually nothing quite like Prep, 0:18:06.320 --> 0:18:07.919 both in terms of the menu and also just the 0:18:07.920 --> 0:18:10.359 style of the place. Unlike a lot of US sandwich 0:18:10.359 --> 0:18:12.080 shops that you go into, you know, whether it's your 0:18:12.200 --> 0:18:15.360 your Jersey mix or your Subway. In Prep, you don't 0:18:15.359 --> 0:18:18.040 actually see them making the sandwiches. It's all pre prepared food. 0:18:18.320 --> 0:18:19.960 You just literally go in and you kind of grab 0:18:20.040 --> 0:18:22.240 your baguette or your you know, you roll out of 0:18:22.280 --> 0:18:24.359 the fridge, go up to the counter, pay for it 0:18:24.359 --> 0:18:26.080 and leave. So you don't have that thing of sort 0:18:26.119 --> 0:18:28.320 of like you do here where you you know, you 0:18:28.320 --> 0:18:30.040 would order something and they actually build it up for 0:18:30.040 --> 0:18:31.560 you in the store. But why would you need an 0:18:31.560 --> 0:18:33.480 I p O in order to expand? I mean, is 0:18:33.520 --> 0:18:35.640 it just basically to get some more capital in dollars 0:18:35.800 --> 0:18:37.800 or is it something else? Yeah, I think it's to 0:18:37.840 --> 0:18:39.879 get some more capital. I mean, like the private ecty 0:18:39.880 --> 0:18:42.199 owners of this for a while have been have been 0:18:42.240 --> 0:18:44.439 looking at for an exit. I think there was some 0:18:44.480 --> 0:18:46.639 discussion around whether or not they would sell it. Obviously, 0:18:46.680 --> 0:18:49.119 some of that has been reported in terms of potential buyers. 0:18:49.200 --> 0:18:50.480 I think an I P over them is it's an 0:18:50.480 --> 0:18:52.840 obvious way for them to get you know, get it 0:18:52.880 --> 0:18:55.800 out there, obviously exit the business over time. I think 0:18:55.800 --> 0:18:58.879 this is is also a reasonably good time to take 0:19:00.240 --> 0:19:02.879 like this in particularly sort of consumer rounds public that 0:19:02.920 --> 0:19:04.800 seems to be deep appetite for it, and they're actually 0:19:04.800 --> 0:19:09.800 benchmarking against um Starbucks obviously but also against shake Shack, 0:19:09.880 --> 0:19:12.040 which was one of the biggest sort of success stories 0:19:12.080 --> 0:19:14.840 of the public markets in recent years. Interesting, so it 0:19:14.840 --> 0:19:18.840 could be chucked up to a private equity UH exit 0:19:19.000 --> 0:19:21.399 strategy as much as anything else. What about acces, It 0:19:21.480 --> 0:19:24.640 said that it intends to do an initial public offering 0:19:24.840 --> 0:19:29.879 of its US operations. Why now, again, I think, you know, 0:19:29.920 --> 0:19:33.480 there is a sense that the public markets are reasonably 0:19:34.000 --> 0:19:35.720 robust at the moment. We went through a long period 0:19:35.760 --> 0:19:37.720 where they were not wherever. You know, obviously everyone was 0:19:37.800 --> 0:19:39.400 very panicked and you saw a lot of ip as 0:19:39.440 --> 0:19:41.280 being pulled. But I think the other thing that's driving is, 0:19:41.320 --> 0:19:43.640 and we're seeing this across all sextes, really is there 0:19:43.720 --> 0:19:47.240 is a concern that we have some volatility down the road. 0:19:47.240 --> 0:19:50.320 And obviously, you know, it's not necessarily that we're at 0:19:50.359 --> 0:19:52.280 the top of the cycle, but there's certainly a sense 0:19:52.320 --> 0:19:53.600 that you know, if you are if you are going 0:19:53.640 --> 0:19:55.359 to do something, now is probably a good moment to 0:19:55.359 --> 0:19:58.000 do it, because it's unlikely to get better from here 0:19:58.040 --> 0:19:59.960 on out, both in terms of the kind of valuations 0:20:00.000 --> 0:20:01.840 people can expect, but also the appetite in the public 0:20:01.880 --> 0:20:03.800 markets also in the M and A market, So we 0:20:03.800 --> 0:20:05.440 see a lot of the same trades happening in m 0:20:05.440 --> 0:20:08.480 and A, where not people are necessarily rushing to do deals, 0:20:08.520 --> 0:20:11.800 but certainly people are keen to execute stuff now because 0:20:11.800 --> 0:20:13.600 there's a sense that, hey, you know what, in a year, 0:20:13.880 --> 0:20:16.639 maybe the opportunity has gone Yeah, well I'm talking about 0:20:16.680 --> 0:20:19.920 g LS, T Mobile and Sprint now might be back on. Yeah. 0:20:20.160 --> 0:20:22.199 So we've we've had this period obviously, this sort of 0:20:22.200 --> 0:20:25.399 perday period where none of the carriers could speak to 0:20:25.400 --> 0:20:27.399 each other because it was a spectrum launching going on. 0:20:27.480 --> 0:20:30.000 I think that in the last week and so now 0:20:30.119 --> 0:20:32.240 there is this expectation that, look, these guys are going 0:20:32.280 --> 0:20:34.560 to be back in dialogue, that there are any number 0:20:34.560 --> 0:20:37.040 of combinations that could happen in the space. TEAMO Sprint 0:20:37.080 --> 0:20:40.920 obviously was one that has been attempted before unsuccessfully, and 0:20:41.200 --> 0:20:44.119 therefore there's a sense of, look, maybe now with the 0:20:44.160 --> 0:20:47.600 expectation that we have a looser regulatory environment under Trump, 0:20:47.680 --> 0:20:50.120 certainly a looser enter trust environment, maybe this could come back. 0:20:50.119 --> 0:20:52.359 I think that one thing to say on that is 0:20:52.400 --> 0:20:55.919 this deal was previously kind of was was deboggamed by 0:20:55.960 --> 0:20:58.520 the government of the day, and it's actually been something 0:20:58.520 --> 0:21:00.960 that has been a really, really good thing for consumers 0:21:00.960 --> 0:21:03.360 because you've seen prices come way off by having these 0:21:03.400 --> 0:21:06.000 two carriers as separate carriers, You've you've actually seen the 0:21:06.000 --> 0:21:09.920 consumer benefit hugely. So I think making the argument now 0:21:10.480 --> 0:21:12.479 putting them together and going from what you have of 0:21:12.520 --> 0:21:14.879 like four carriers to three is going to be somehow 0:21:14.920 --> 0:21:16.840 good for the U S. Consumer is gonna be a 0:21:16.920 --> 0:21:19.560 very very difficult sol right, But I guess that then 0:21:19.600 --> 0:21:22.120 My question is do the people who would be approving 0:21:22.160 --> 0:21:25.320 the deal or not in government care about that? I mean, 0:21:25.400 --> 0:21:28.760 is that part of the discussion, because frankly, the company 0:21:28.800 --> 0:21:33.960 has cited potential willingness to allow this kind of deal 0:21:34.000 --> 0:21:36.840 in the US administration currently. Yeah, and that's you know, 0:21:36.920 --> 0:21:39.199 that's that's something that I think we are seeing a 0:21:39.200 --> 0:21:41.760