1 00:00:02,720 --> 00:00:07,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,039 --> 00:00:10,399 Speaker 2: I feel like we should address why we were off 3 00:00:10,480 --> 00:00:12,360 Speaker 2: air for three weeks. People asked me about it. 4 00:00:12,600 --> 00:00:15,319 Speaker 1: Really, no one asked me about it. Well, no one 5 00:00:15,360 --> 00:00:16,079 Speaker 1: asked me about it. 6 00:00:16,880 --> 00:00:19,159 Speaker 2: I got questions, Well, you had a vacation, then I 7 00:00:19,200 --> 00:00:22,920 Speaker 2: had a vacation. Then we actually had an episode. 8 00:00:23,239 --> 00:00:26,040 Speaker 1: I think I think everyone in this room would agree 9 00:00:26,120 --> 00:00:28,840 Speaker 1: the greatest episode of the Money Stuff podcast in its history. 10 00:00:29,600 --> 00:00:32,440 Speaker 1: Except when I say we recorded it, I mean we performed. 11 00:00:32,760 --> 00:00:34,440 Speaker 1: We accidentally did not record. 12 00:00:34,920 --> 00:00:37,919 Speaker 2: Yeah, so it will never see the light of day. 13 00:00:38,360 --> 00:00:40,120 Speaker 1: We do, I believe have your side of the audio. 14 00:00:40,120 --> 00:00:42,519 Speaker 1: Where's like I was joking, we should do like a 15 00:00:42,560 --> 00:00:45,160 Speaker 1: space coast coast to coast thing, where like we play 16 00:00:45,200 --> 00:00:48,480 Speaker 1: your audio and I just say non secretaris that set 17 00:00:48,520 --> 00:00:51,000 Speaker 1: you up to say something weird in between your audio. 18 00:00:51,400 --> 00:00:54,160 Speaker 2: But I was a sign that I was also thinking 19 00:00:54,200 --> 00:00:56,760 Speaker 2: like Mystery Science Theater, where like I say something and 20 00:00:56,760 --> 00:00:59,080 Speaker 2: then you, like you offer a snippy little comment, and 21 00:00:59,120 --> 00:01:02,000 Speaker 2: then I say something else and you just respond. 22 00:01:02,040 --> 00:01:03,320 Speaker 1: There are a lot of ways we could go with 23 00:01:03,360 --> 00:01:03,800 Speaker 1: that audio. 24 00:01:03,920 --> 00:01:04,680 Speaker 2: Who has the time. 25 00:01:05,000 --> 00:01:05,679 Speaker 1: Who has the time? 26 00:01:05,840 --> 00:01:09,400 Speaker 2: Not us? No, so we apologize to your listeners. 27 00:01:09,640 --> 00:01:11,480 Speaker 1: You're fine, I'm sure it was. 28 00:01:11,560 --> 00:01:13,559 Speaker 2: I'm sure we all had a great couple of weeks. 29 00:01:14,680 --> 00:01:16,440 Speaker 1: We got a vacation from this. They got a vacation 30 00:01:16,560 --> 00:01:20,119 Speaker 1: from us. Fine. I'm going away on a couple of weeks. 31 00:01:20,160 --> 00:01:21,840 Speaker 2: So I'm going to a conference, and you're going to 32 00:01:21,840 --> 00:01:22,920 Speaker 2: do an I want to say this. 33 00:01:23,240 --> 00:01:25,240 Speaker 1: I'm going to the Tulane m and A conference, which 34 00:01:25,240 --> 00:01:26,960 Speaker 1: is like the Big M and A conference for like 35 00:01:27,640 --> 00:01:30,319 Speaker 1: M and A bankers. The Song Exempt put lawyers to 36 00:01:30,360 --> 00:01:32,680 Speaker 1: a very logic extent. So if you're there, say hi 37 00:01:33,120 --> 00:01:35,040 Speaker 1: and uh, I've never been to this conference everyone, So 38 00:01:35,160 --> 00:01:36,160 Speaker 1: that's fun because it's a New. 39 00:01:36,120 --> 00:01:40,160 Speaker 2: Orleans that does sound really and the weather should be 40 00:01:40,959 --> 00:01:44,399 Speaker 2: nice but not horrible. In March in New Orleans. I'm 41 00:01:44,440 --> 00:01:48,360 Speaker 2: going to Vegas for an ETF conference. I hate Vegas, 42 00:01:48,840 --> 00:01:52,400 Speaker 2: but I'll be there. So if you're there, shout out 43 00:01:52,440 --> 00:01:53,080 Speaker 2: the pod. 44 00:01:53,840 --> 00:01:56,440 Speaker 1: Hello, and welcome to the Money Stuff Podcast. You're a 45 00:01:56,480 --> 00:01:59,760 Speaker 1: weekly podcast, your occasional podcast where we talk about stuff. 46 00:02:00,040 --> 00:02:03,640 Speaker 1: It into money. I'm that Levine and I read the 47 00:02:03,680 --> 00:02:05,360 Speaker 1: Money Stuff column from Bloomberg Opinion. 48 00:02:05,760 --> 00:02:08,320 Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and 49 00:02:08,360 --> 00:02:09,959 Speaker 2: an anchor for Bloomberg Television. 50 00:02:19,520 --> 00:02:20,960 Speaker 1: Where should we start, Katie. 51 00:02:21,000 --> 00:02:25,480 Speaker 2: We could start with Warner Brothers. That happens last week. 52 00:02:26,080 --> 00:02:27,160 Speaker 1: I was still happening. 53 00:02:27,160 --> 00:02:29,240 Speaker 2: But yes, it's still happening. But I was on vacation, 54 00:02:29,919 --> 00:02:33,000 Speaker 2: and I left for vacation thinking that, Okay, Netflix has 55 00:02:33,240 --> 00:02:35,079 Speaker 2: kind of got this in the bag, like they've kind 56 00:02:35,120 --> 00:02:38,160 Speaker 2: of had this in the bag, and they did not 57 00:02:38,760 --> 00:02:40,640 Speaker 2: have it in the bag. They ended up walking away. 58 00:02:40,840 --> 00:02:44,280 Speaker 1: Yeah, it's fascinating, right, Like Paramount had bid thirty dollars 59 00:02:44,320 --> 00:02:48,119 Speaker 1: to buy Warner Brothers. Warner Brothers had said, we'd rather 60 00:02:48,240 --> 00:02:53,640 Speaker 1: take this Netflix bid. It was something more complicated, but whatever, 61 00:02:53,720 --> 00:02:56,640 Speaker 1: it was like worth more than thirty dollars, right to Warner, 62 00:02:56,840 --> 00:03:00,840 Speaker 1: they thought. And then Paramount kept past them. And then 63 00:03:00,840 --> 00:03:03,239 Speaker 1: they eventually raised their bed from thirty to thirty one, 64 00:03:03,880 --> 00:03:06,520 Speaker 1: and Warner was like, well, thirty one is better than 65 00:03:06,520 --> 00:03:09,400 Speaker 1: Netflix's bed, although thirty was not. So they went back 66 00:03:09,440 --> 00:03:12,680 Speaker 1: to Netflix and they said, you have matching rights, would 67 00:03:12,680 --> 00:03:15,000 Speaker 1: you like to raise your bed above thirty one? And 68 00:03:15,080 --> 00:03:17,440 Speaker 1: Netflix said no, thank you, see you later. 69 00:03:17,800 --> 00:03:19,440 Speaker 2: Yeah, And so Netflix. 70 00:03:19,040 --> 00:03:22,320 Speaker 1: Just dropped out and Paramount is buying Warner for a 71 00:03:22,360 --> 00:03:22,799 Speaker 1: thirty one. 72 00:03:22,800 --> 00:03:26,880 Speaker 2: Dollars I could see world in which Paramount does go 73 00:03:26,960 --> 00:03:30,559 Speaker 2: after Netflix next, because this was pretty audacious. 74 00:03:30,720 --> 00:03:33,519 Speaker 1: So you have this dynamic where Paramount thinks that it 75 00:03:33,520 --> 00:03:35,720 Speaker 1: should be combined with Warner Brothers and Warner Brothers kind 76 00:03:35,760 --> 00:03:37,880 Speaker 1: of things. It should be combined with someone like Warner Brothers. 77 00:03:39,600 --> 00:03:44,920 Speaker 1: And so Paramount, which has a young, ambitious, arguably NEPO 78 00:03:44,920 --> 00:03:45,560 Speaker 1: baby ceo. 79 00:03:45,720 --> 00:03:47,520 Speaker 2: I was going to say, a CEO with a well 80 00:03:47,640 --> 00:03:48,560 Speaker 2: deep pocketed file. 81 00:03:48,680 --> 00:03:51,840 Speaker 1: Yeah, a CEO with let's say, something to prove. He's like, 82 00:03:51,880 --> 00:03:55,520 Speaker 1: I want to buy Warner, and Warner has a CEO 83 00:03:55,560 --> 00:03:57,640 Speaker 1: who has kind of proven itself and you know, wants 84 00:03:57,720 --> 00:04:01,040 Speaker 1: to sell, right, And so it makes sense to combine 85 00:04:01,080 --> 00:04:02,920 Speaker 1: these two companies. I mean, it probably makes sense. They 86 00:04:02,920 --> 00:04:05,520 Speaker 1: think it makes sense. There's there's some synergies, whatever makes 87 00:04:05,560 --> 00:04:07,920 Speaker 1: sense to combine the companies, and it makes sense for 88 00:04:08,600 --> 00:04:13,680 Speaker 1: Paramount's executive team to control the combined company, let's say, right, 89 00:04:14,480 --> 00:04:17,600 Speaker 1: But what doesn't make sense from a corporate finance perspective 90 00:04:17,680 --> 00:04:21,200 Speaker 1: is Paramount, which is teeny, buying Warner, which is big. Yes, 91 00:04:21,720 --> 00:04:23,880 Speaker 1: it sort of straightforward world. You'd be like, well, Warner 92 00:04:23,880 --> 00:04:26,320 Speaker 1: will buy Paramount and then they'll combine them and then yah. Yeah, 93 00:04:26,480 --> 00:04:28,240 Speaker 1: But It just didn't work out that way because of 94 00:04:28,480 --> 00:04:32,120 Speaker 1: the dynamics of how Warner is trying to sell itself 95 00:04:32,160 --> 00:04:35,960 Speaker 1: and bidding against Netflix, and Paramount had offered an all 96 00:04:35,960 --> 00:04:38,400 Speaker 1: stock deal, like, it would not have worked, right, Yeah, 97 00:04:38,440 --> 00:04:41,440 Speaker 1: So they offered it all cash deal, which meant borrowing yeah, 98 00:04:41,680 --> 00:04:42,120 Speaker 1: jillions of. 99 00:04:42,120 --> 00:04:46,800 Speaker 2: Dollars more than twice their market capitalization. Actually, it's pretty fantastic. 100 00:04:46,880 --> 00:04:49,200 Speaker 1: It depends on account, like their market cap right now, 101 00:04:49,360 --> 00:04:53,120 Speaker 1: Paramount's market gap is like thirteen fourteen billion dollars their 102 00:04:53,120 --> 00:04:56,880 Speaker 1: equity market cap and the debt for this deal I think, 103 00:04:56,920 --> 00:05:01,240 Speaker 1: including like everything is like seventy nine billion dollars, so 104 00:05:01,279 --> 00:05:05,760 Speaker 1: it's like six times in their market cap. But that 105 00:05:05,800 --> 00:05:08,200 Speaker 1: math is not quite right because like their market cap 106 00:05:08,240 --> 00:05:10,240 Speaker 1: today is like thirteen billion dollars, but they're getting like 107 00:05:10,279 --> 00:05:14,440 Speaker 1: a forty something billion dollar equity check from Larry Allison Fair. 108 00:05:14,680 --> 00:05:17,360 Speaker 1: They're also doing a rights offering, which I love. 109 00:05:17,680 --> 00:05:19,800 Speaker 2: Explain that and why do you love it? Well? 110 00:05:19,839 --> 00:05:21,760 Speaker 1: I love it because just doesn't make sense for like 111 00:05:21,800 --> 00:05:23,840 Speaker 1: this teeny company to borrow so much money to buy 112 00:05:23,839 --> 00:05:27,400 Speaker 1: this bigger company. You do the reverse, right, and the 113 00:05:27,520 --> 00:05:29,960 Speaker 1: rights offering is a way to like very slightly move 114 00:05:29,960 --> 00:05:32,560 Speaker 1: in the correct direction, which is like, we should have 115 00:05:32,600 --> 00:05:36,000 Speaker 1: more stock outstanding if we're going to swallow this giant company. 116 00:05:36,360 --> 00:05:38,719 Speaker 1: And so they're offering to sell about three billion dollars 117 00:05:38,720 --> 00:05:41,719 Speaker 1: of stock to whoever wants at public investors on the 118 00:05:41,760 --> 00:05:44,760 Speaker 1: same terms that Larry Allison is buying. So Paramount is 119 00:05:44,839 --> 00:05:48,400 Speaker 1: essentially a controlled company like in the personal ownership of 120 00:05:48,440 --> 00:05:50,560 Speaker 1: like the Ellison family, but it has public shareolders and 121 00:05:50,680 --> 00:05:52,160 Speaker 1: they can put in some more money. Basically, if you're 122 00:05:52,160 --> 00:05:54,200 Speaker 1: a public sherelder, you have the right to buy some 123 00:05:54,240 --> 00:05:57,200 Speaker 1: stock at the sixteen bucks that Larry Ellison is playing, 124 00:05:58,080 --> 00:06:00,240 Speaker 1: which like you know, it's three billion of stock, which 125 00:06:01,200 --> 00:06:03,920 Speaker 1: it's three billion less of debt load than you'd otherwise need. 126 00:06:03,960 --> 00:06:05,080 Speaker 1: And like they have a lot of debt. 127 00:06:05,279 --> 00:06:06,919 Speaker 2: They do have a lot of debt, to the point 128 00:06:06,960 --> 00:06:10,560 Speaker 2: where they were downgraded to junk by Fitch in the 129 00:06:10,600 --> 00:06:14,240 Speaker 2: aftermath of this, which I guess isn't that surprising when 130 00:06:14,279 --> 00:06:15,040 Speaker 2: we're talking about some. 131 00:06:15,000 --> 00:06:18,000 Speaker 1: Of these levels I was thinking about, like when they 132 00:06:18,000 --> 00:06:19,400 Speaker 1: were trying to get this deal. So there's a long 133 00:06:19,440 --> 00:06:21,960 Speaker 1: time where Paramount was pestering Warner to take their deal 134 00:06:22,000 --> 00:06:25,280 Speaker 1: instead of Netflix and Warner we're saying no, and it 135 00:06:25,320 --> 00:06:26,560 Speaker 1: was hard for them to say no because a lot 136 00:06:26,560 --> 00:06:30,039 Speaker 1: of sharelders wanted the certainty and cash of the Paramount deal, 137 00:06:30,440 --> 00:06:32,000 Speaker 1: and so the board had to defend their deal. And 138 00:06:32,040 --> 00:06:34,719 Speaker 1: one thing the board said was the paramat deal would 139 00:06:34,760 --> 00:06:37,760 Speaker 1: be the largest leveraged buyotever, and we have doubts that 140 00:06:37,760 --> 00:06:40,159 Speaker 1: they can get it done. And like, in some sense, 141 00:06:40,200 --> 00:06:42,760 Speaker 1: that's like a weird thing to say. Because the Warner 142 00:06:42,839 --> 00:06:46,680 Speaker 1: board represents the Warner shareholders. They have a fiduciary duty 143 00:06:46,680 --> 00:06:48,080 Speaker 1: at this point to get the best price for the 144 00:06:48,080 --> 00:06:51,960 Speaker 1: Warner shaholders. And if you say, well, the paramount deal 145 00:06:52,000 --> 00:06:54,240 Speaker 1: involves borrowing a lot of money, it would be hard 146 00:06:54,279 --> 00:06:56,360 Speaker 1: to pay down all that debt, Like that doesn't matter, 147 00:06:56,400 --> 00:06:58,359 Speaker 1: Like that's not your problem, right, the shoulders are cashed 148 00:06:58,360 --> 00:07:00,240 Speaker 1: out at that point. If it runs into trouble after 149 00:07:00,279 --> 00:07:02,240 Speaker 1: the LBO, that's not the sholder's problem. So it's not 150 00:07:02,240 --> 00:07:04,720 Speaker 1: the boards problem. And the board is defending this as saying, well, 151 00:07:04,880 --> 00:07:06,839 Speaker 1: we don't think they could even raise the financing to 152 00:07:06,880 --> 00:07:08,920 Speaker 1: do this albo, which is kind of a weird thing 153 00:07:08,920 --> 00:07:11,880 Speaker 1: to think because it's like Larry Ellison, It's like it's 154 00:07:11,880 --> 00:07:14,720 Speaker 1: people who can raise the financing yeah, but now that 155 00:07:14,800 --> 00:07:17,800 Speaker 1: they've signed the Paramount deal, I'm like, oh, yeah, this 156 00:07:17,920 --> 00:07:20,760 Speaker 1: is the largest LBO ever And like I can see 157 00:07:20,800 --> 00:07:24,160 Speaker 1: why someone with ties to Warner Brothers would be nervous 158 00:07:24,160 --> 00:07:26,400 Speaker 1: about that. There's going to be a lot of job cuts. 159 00:07:26,400 --> 00:07:29,240 Speaker 1: There's going to be probably a lot of cuts in production, 160 00:07:29,320 --> 00:07:32,080 Speaker 1: although there's debate about that. But like, to service all 161 00:07:32,120 --> 00:07:34,400 Speaker 1: of this debt, it's going to be difficult and it's 162 00:07:34,400 --> 00:07:36,640 Speaker 1: going to lead to like hard business treses at Paramount 163 00:07:36,720 --> 00:07:40,520 Speaker 1: Warner And if you sold to Netflix, which has plenty 164 00:07:40,560 --> 00:07:42,600 Speaker 1: of money, you wouldn't have those pressures made a lot 165 00:07:42,640 --> 00:07:46,280 Speaker 1: of pressures, right, Like Netflix is not not necessarily a 166 00:07:46,360 --> 00:07:50,280 Speaker 1: lavish benign over alert for movie companies, but like having 167 00:07:50,280 --> 00:07:52,600 Speaker 1: that much debt like makes it harder to run the business. 168 00:07:52,760 --> 00:07:56,000 Speaker 2: Yeah, I mean there were questions about theatrical releases, et cetera. 169 00:07:56,080 --> 00:07:57,400 Speaker 2: When it came to the Netflix bid. 170 00:07:57,560 --> 00:07:59,560 Speaker 1: Netflix is like, you can have your theory of mind 171 00:07:59,560 --> 00:08:00,920 Speaker 1: of Netflix, but they have plenty of money. 172 00:08:01,000 --> 00:08:03,640 Speaker 2: Yeah. Yeah, it's funny. I mean, taking a look at 173 00:08:03,640 --> 00:08:08,280 Speaker 2: our reporting, both Ted Sarandos and David Ellison had spent 174 00:08:08,320 --> 00:08:11,560 Speaker 2: a lot of time in DC sort of pitching for 175 00:08:11,600 --> 00:08:14,920 Speaker 2: this deal. And it seems like one of the factors though, 176 00:08:15,120 --> 00:08:17,720 Speaker 2: was the idea that when it came to the regulatory 177 00:08:17,800 --> 00:08:20,360 Speaker 2: side of things, that it would be a quicker experience 178 00:08:20,440 --> 00:08:23,960 Speaker 2: going with the Paramount bid than with Netflix that probably 179 00:08:23,960 --> 00:08:25,920 Speaker 2: would have lasted well into twenty twenty seven. 180 00:08:26,160 --> 00:08:29,000 Speaker 1: A lot of people think that, Yeah, Paramount definitely pushed 181 00:08:29,000 --> 00:08:31,920 Speaker 1: that narrative. Ted Sarandas is going around saying no, no, it's fine, 182 00:08:31,960 --> 00:08:34,200 Speaker 1: we have no problem. We would have got improved quickly. 183 00:08:34,360 --> 00:08:36,640 Speaker 1: So I don't know the answer, but like, yes, certainly 184 00:08:36,960 --> 00:08:39,839 Speaker 1: people were nervous about the Netflix regulatory approval process, and 185 00:08:40,559 --> 00:08:43,120 Speaker 1: you know, this is on the backdrop of everything is 186 00:08:43,960 --> 00:08:49,160 Speaker 1: about Donald Trump's personal whim but anyway, so there's a 187 00:08:49,200 --> 00:08:51,760 Speaker 1: sense that like Netflix is politically on the outs and 188 00:08:51,960 --> 00:08:55,320 Speaker 1: Paramount is politically on the end. But like the Netflix 189 00:08:55,559 --> 00:08:57,760 Speaker 1: very consistently said no, no, it's no problem, more fine, 190 00:08:57,760 --> 00:08:58,720 Speaker 1: We're doing great. 191 00:08:58,880 --> 00:09:01,439 Speaker 2: So I don't know, Yeah, I mean, Netflix, in walking 192 00:09:01,440 --> 00:09:03,640 Speaker 2: away said that this was solely about price, that they 193 00:09:03,640 --> 00:09:04,800 Speaker 2: were confident they would get it. 194 00:09:04,880 --> 00:09:08,880 Speaker 1: Fascinating, Yeah, you've come this far, You've had this much 195 00:09:08,920 --> 00:09:12,800 Speaker 1: time and money on this deal, and they're like, could 196 00:09:12,800 --> 00:09:15,880 Speaker 1: you pay one more dollar and you're like, no, it's amazing. 197 00:09:16,120 --> 00:09:17,920 Speaker 1: It's an amazing display of disciplined No, by the way, 198 00:09:17,960 --> 00:09:19,160 Speaker 1: it's one more dollar. But it's also they get a 199 00:09:19,200 --> 00:09:20,920 Speaker 1: big breakup fee for walking away. 200 00:09:21,240 --> 00:09:22,560 Speaker 2: Yay, Paramount is paying. 201 00:09:22,840 --> 00:09:25,160 Speaker 1: There's been a lot of talk about paramount of grain 202 00:09:25,240 --> 00:09:28,040 Speaker 1: to pay that breakup fee, and like, I've always found 203 00:09:28,080 --> 00:09:32,040 Speaker 1: that talk very perplexing because obviously, if you've been thirty 204 00:09:32,080 --> 00:09:34,800 Speaker 1: one dollars per share in cash to buy a company, 205 00:09:35,040 --> 00:09:38,000 Speaker 1: the incidence of the breakup fee is on you, Like 206 00:09:38,320 --> 00:09:40,679 Speaker 1: nobody could possibly pay it other than paramount, and it's 207 00:09:40,720 --> 00:09:43,079 Speaker 1: just like sort of smoking mirrors that. Wheer was like, oh, 208 00:09:43,080 --> 00:09:44,679 Speaker 1: they have to pay the breakup fee anyway, Yeah, they're 209 00:09:44,679 --> 00:09:45,040 Speaker 1: paying it far. 210 00:09:45,200 --> 00:09:48,920 Speaker 2: Yeah. Well. Also, just to the point on the DC relationship, 211 00:09:48,960 --> 00:09:53,560 Speaker 2: apparently President Trump told Sorrando's at some visit not to 212 00:09:53,640 --> 00:09:57,480 Speaker 2: overpay for the company. So apparently he took his advice. 213 00:09:57,720 --> 00:10:00,400 Speaker 1: I don't know, No, he was he was going to overpay. 214 00:10:00,240 --> 00:10:02,160 Speaker 1: The Trump gave him some business advices. 215 00:10:02,200 --> 00:10:05,640 Speaker 2: I've never mind if the President tells you that, I 216 00:10:05,679 --> 00:10:08,680 Speaker 2: mean kind of feels like the writing's on the wall, 217 00:10:08,880 --> 00:10:09,800 Speaker 2: like this is all okay. 218 00:10:09,960 --> 00:10:11,920 Speaker 1: I don't think that's Like if you overpay, we'll want 219 00:10:11,920 --> 00:10:14,240 Speaker 1: to approved. I think that's just used to be in business. 220 00:10:14,320 --> 00:10:17,400 Speaker 2: Yeah, yeah, yeah, I mean I wasn't actually in the room, 221 00:10:17,600 --> 00:10:19,400 Speaker 2: So yeah. 222 00:10:19,520 --> 00:10:22,960 Speaker 1: We're speculating a little bit about what that conversation. 223 00:10:23,200 --> 00:10:25,800 Speaker 2: I don't know what room it was. Wasn't the Oval office, 224 00:10:25,840 --> 00:10:29,680 Speaker 2: It could be any room, yeah, perhaps a ballroom. Just 225 00:10:29,720 --> 00:10:33,400 Speaker 2: from a human level, I mean, just reading this, I 226 00:10:33,440 --> 00:10:35,240 Speaker 2: feel like I was getting my feelings hurt, like the 227 00:10:35,280 --> 00:10:38,960 Speaker 2: fact that it took so many months, Paramount was rebuffed 228 00:10:38,960 --> 00:10:42,280 Speaker 2: at so many turns. It feels like Warner Brothers the 229 00:10:42,360 --> 00:10:45,000 Speaker 2: board really didn't want to do this and then found 230 00:10:45,040 --> 00:10:47,559 Speaker 2: themselves in a position where they sort of couldn't say no. 231 00:10:47,720 --> 00:10:50,120 Speaker 2: I feel like if I was in Paramount shoes, I 232 00:10:50,120 --> 00:10:52,920 Speaker 2: would just feel really bad all the time. 233 00:10:53,200 --> 00:10:55,000 Speaker 1: But interesting, I don't know. 234 00:10:55,080 --> 00:10:57,679 Speaker 2: I mean, maybe I just don't have the bullheaded confidence. 235 00:10:57,760 --> 00:10:59,600 Speaker 1: You know, Warner would never say we really don't want 236 00:10:59,600 --> 00:11:03,079 Speaker 1: to sell the I mean, they're a boardive competent directers 237 00:11:03,080 --> 00:11:05,480 Speaker 1: that have a fiducial duty to get the best price 238 00:11:05,520 --> 00:11:10,319 Speaker 1: for their shareholders. I think that they liked the Netflix deal. 239 00:11:10,440 --> 00:11:12,400 Speaker 1: For whatever reason, they liked the Netflix deal. You know, 240 00:11:12,440 --> 00:11:15,760 Speaker 1: they'll tell you deal certainty and the value of the 241 00:11:15,800 --> 00:11:20,920 Speaker 1: cable stub and whatever. But there was always some price. 242 00:11:22,200 --> 00:11:24,160 Speaker 1: I mean, there had to have always been some price 243 00:11:24,679 --> 00:11:26,600 Speaker 1: that paramount could pay that would be enough for them, 244 00:11:27,000 --> 00:11:30,280 Speaker 1: And it turned that price was one dollar more, which 245 00:11:30,320 --> 00:11:32,360 Speaker 1: is funny. The other thing that happened that it's so 246 00:11:32,440 --> 00:11:35,200 Speaker 1: strange is that Netflix, you know, was like, we'll pay 247 00:11:35,840 --> 00:11:37,600 Speaker 1: the complicated package they would pay, and this is our 248 00:11:37,640 --> 00:11:40,839 Speaker 1: best and final offer. And Paamans said, we offer thirty 249 00:11:40,880 --> 00:11:43,160 Speaker 1: dollars and it is not our best and final offer. 250 00:11:43,400 --> 00:11:46,760 Speaker 1: And so it would like Warner could not accept that deal. 251 00:11:46,840 --> 00:11:49,200 Speaker 1: It would be just absolute malpractice to be like, we'll 252 00:11:49,200 --> 00:11:51,760 Speaker 1: take your not best offer. So they had to hold 253 00:11:51,760 --> 00:11:53,840 Speaker 1: out for something more, And everything else is in the 254 00:11:53,840 --> 00:11:55,720 Speaker 1: background of like, oh, we had to hold out for more, 255 00:11:56,080 --> 00:11:59,640 Speaker 1: and like I don't know if they explicitly said thirty 256 00:11:59,679 --> 00:12:02,480 Speaker 1: one best and final effort, but like thirty one was enough. 257 00:12:02,679 --> 00:12:06,400 Speaker 2: Yeah, Well, it'll be interesting to see how long this 258 00:12:06,440 --> 00:12:08,240 Speaker 2: actually does take to get through. 259 00:12:08,520 --> 00:12:10,640 Speaker 1: The Other thing is but I don't think I think 260 00:12:10,640 --> 00:12:12,920 Speaker 1: they've already gotten some of their clarents. There's like European 261 00:12:13,160 --> 00:12:15,640 Speaker 1: there's a locking still happen. But the other interesting thing 262 00:12:15,679 --> 00:12:18,240 Speaker 1: is like if your model of this is they have 263 00:12:18,320 --> 00:12:20,439 Speaker 1: taken on crippling dat and won't be able to service it, 264 00:12:20,600 --> 00:12:24,760 Speaker 1: like you read some people being like Netflix's plan here 265 00:12:25,280 --> 00:12:27,280 Speaker 1: is to buy the whole thing in three years when 266 00:12:27,280 --> 00:12:30,520 Speaker 1: it falls apart, which is one one way to put 267 00:12:45,880 --> 00:12:47,120 Speaker 1: Private credit has been a thing. 268 00:12:47,240 --> 00:12:52,439 Speaker 2: Oh my gosh, GOSHBDC. 269 00:12:50,760 --> 00:12:51,440 Speaker 1: All these things. 270 00:12:51,520 --> 00:12:59,240 Speaker 2: Yeah, b CRED Blackstone stepping up to meet these redemptions personally, right. 271 00:12:59,240 --> 00:13:05,040 Speaker 1: Be cred the Blackstone non traded private credit business development 272 00:13:05,040 --> 00:13:06,800 Speaker 1: company that's not as name, that's just what it is. 273 00:13:07,320 --> 00:13:09,920 Speaker 1: Its name is b Credit. All these non traded BBCs, 274 00:13:10,840 --> 00:13:14,360 Speaker 1: they call them like semi liquid vehicles. Every quarter they 275 00:13:14,400 --> 00:13:16,880 Speaker 1: offered a redeem up to five percent of the stock 276 00:13:17,240 --> 00:13:19,800 Speaker 1: a tender offer. So if you are invested in this fund, 277 00:13:19,800 --> 00:13:21,440 Speaker 1: you can't sell it on the stock exchange. There's no 278 00:13:21,520 --> 00:13:24,160 Speaker 1: way to get liquidity except every quarter they will buy 279 00:13:24,240 --> 00:13:25,920 Speaker 1: back your shares if you want, if you want out, 280 00:13:26,080 --> 00:13:28,400 Speaker 1: but only up to five percent. So last quarter they 281 00:13:28,480 --> 00:13:32,240 Speaker 1: got seven point nine percent of the fund in redemption requests, 282 00:13:32,400 --> 00:13:35,679 Speaker 1: which is a record, as we reported. And so they 283 00:13:35,720 --> 00:13:40,960 Speaker 1: had to scrape to do those redemptions, not because they 284 00:13:40,960 --> 00:13:43,400 Speaker 1: didn't have the money. They have like bank credit facilities. 285 00:13:43,440 --> 00:13:45,640 Speaker 1: They can do the money, but because like the way 286 00:13:45,679 --> 00:13:47,880 Speaker 1: the tender offer works, they can't. It's boring, but like 287 00:13:48,000 --> 00:13:51,680 Speaker 1: they couldn't actually meet all those redemptions. And rather than 288 00:13:52,200 --> 00:13:55,480 Speaker 1: say no, which is not quite the same thing as gating, 289 00:13:55,520 --> 00:13:58,400 Speaker 1: the fund quotes but like yeah, like look like gating, 290 00:13:58,400 --> 00:14:00,920 Speaker 1: and people get mad and upset. So rather than say 291 00:14:00,920 --> 00:14:02,840 Speaker 1: know it anyone right out, they let everyone get out. 292 00:14:03,120 --> 00:14:06,600 Speaker 1: And to do that, they paid about seven percent of 293 00:14:06,600 --> 00:14:10,079 Speaker 1: them out with Pea Creds money and they paid their 294 00:14:10,080 --> 00:14:14,880 Speaker 1: remaining zero point nine percent out with money from Blackstone 295 00:14:15,040 --> 00:14:20,360 Speaker 1: the firm and from the personal accounts of some Blackstone employees. Yeah, here, 296 00:14:20,400 --> 00:14:22,920 Speaker 1: you know, get into the fund. It's like meant to 297 00:14:22,960 --> 00:14:25,240 Speaker 1: be a show of confidence. It's like we will cash 298 00:14:25,280 --> 00:14:27,600 Speaker 1: you out at par and we will pay par with 299 00:14:27,640 --> 00:14:30,560 Speaker 1: our own money because we really believe in these credits. 300 00:14:30,680 --> 00:14:33,320 Speaker 2: Specifically, it was more than twenty five senior leaders from 301 00:14:33,560 --> 00:14:37,080 Speaker 2: sure across Blackstone. We reported. Yeah, I've heard that too. 302 00:14:37,200 --> 00:14:39,240 Speaker 2: I was talking to someone about this on bloomber TV 303 00:14:39,400 --> 00:14:41,720 Speaker 2: yesterday and they were like, I take this as a 304 00:14:41,800 --> 00:14:44,360 Speaker 2: very bullish sign. It's a kin to share buybacks or 305 00:14:44,400 --> 00:14:46,160 Speaker 2: insider buying or something like that. 306 00:14:46,640 --> 00:14:48,200 Speaker 1: So that is the honestly what it's meant to be. 307 00:14:48,240 --> 00:14:53,040 Speaker 2: That's the optimistic angle. But the headlines keep coming, and I. 308 00:14:52,960 --> 00:14:55,840 Speaker 1: Mean like the angle is like some retail investors in 309 00:14:55,840 --> 00:14:58,280 Speaker 1: this private fund, having read bad headlines, wanted to take 310 00:14:58,280 --> 00:15:04,480 Speaker 1: their money out, and there are offsetting inflows from experienced 311 00:15:05,120 --> 00:15:08,280 Speaker 1: private credit professionals who work at Blackstone and know the portfolio. Right, 312 00:15:08,440 --> 00:15:11,160 Speaker 1: that's a good story. Yeah, you have to like, you know, 313 00:15:11,200 --> 00:15:13,520 Speaker 1: you have to like twist the arms of the employees 314 00:15:13,560 --> 00:15:14,600 Speaker 1: to yeah, how do you say no? 315 00:15:14,920 --> 00:15:16,760 Speaker 2: That's what I would love to know, Like, Okay, more 316 00:15:16,800 --> 00:15:20,160 Speaker 2: than twenty five or about twenty five said yes. Did 317 00:15:20,160 --> 00:15:23,080 Speaker 2: anyone say no? Did anyone feel like they could? I 318 00:15:23,120 --> 00:15:24,200 Speaker 2: want to talk to that person. 319 00:15:25,040 --> 00:15:26,880 Speaker 1: The other thing that bothered me about this is like 320 00:15:28,240 --> 00:15:30,040 Speaker 1: if you came to me and I was like a 321 00:15:30,080 --> 00:15:31,320 Speaker 1: sharp Elbo private. 322 00:15:31,040 --> 00:15:33,160 Speaker 2: Credit professional and you really I can see it. 323 00:15:33,280 --> 00:15:36,680 Speaker 1: You're like all of our retail not all seven of 324 00:15:36,720 --> 00:15:39,480 Speaker 1: our retail investers are panicking in one out of our 325 00:15:39,520 --> 00:15:41,920 Speaker 1: lovely fund, which has great credits, and I live in 326 00:15:41,920 --> 00:15:45,320 Speaker 1: the portfolio. Would you like in? I'd be like, sure, 327 00:15:45,680 --> 00:15:48,200 Speaker 1: that sounds like a firesal. I'd be happy to get 328 00:15:48,240 --> 00:15:50,880 Speaker 1: in when these people are panicking, and then my bosses 329 00:15:50,880 --> 00:15:52,480 Speaker 1: would be like, great, you're buying it one hundred cents 330 00:15:52,480 --> 00:15:55,880 Speaker 1: on the like, no, that's nothing. I don't want to. Like, 331 00:15:56,200 --> 00:15:57,880 Speaker 1: if I think they're worth one hundred cents on the 332 00:15:57,920 --> 00:15:59,960 Speaker 1: dollar and everyone's panicking, I want to buy a ninety. 333 00:16:00,480 --> 00:16:02,440 Speaker 1: They should get a discount. You know, when you think 334 00:16:02,480 --> 00:16:04,680 Speaker 1: about like the professionals at the firm using their own 335 00:16:04,680 --> 00:16:09,040 Speaker 1: money to buy the controversial assets. The classic story is 336 00:16:09,080 --> 00:16:10,960 Speaker 1: in like I don't know, I like twenty eleven or something. 337 00:16:11,600 --> 00:16:14,720 Speaker 1: Sometime shortly after the financial crisis, Credit Sueez had this 338 00:16:14,800 --> 00:16:18,000 Speaker 1: like giant pile of what people call the toxic assets, 339 00:16:18,000 --> 00:16:20,680 Speaker 1: like yeah, the mortgage derivatives and just do your weird 340 00:16:20,680 --> 00:16:23,720 Speaker 1: stuff from the crisis, and they were like, we can't 341 00:16:23,960 --> 00:16:26,280 Speaker 1: sell this. It has a huge capital hit. So we're 342 00:16:26,320 --> 00:16:29,280 Speaker 1: going to package it into a box and give shares 343 00:16:29,320 --> 00:16:31,760 Speaker 1: of the box to our like managing directors. And so 344 00:16:31,800 --> 00:16:35,720 Speaker 1: they've just paid bonuses one year in toxic assets. Love it, 345 00:16:36,200 --> 00:16:38,600 Speaker 1: and like those people all got rich, like they'd like 346 00:16:38,680 --> 00:16:41,000 Speaker 1: immediately recovered, and they did so well because like they 347 00:16:41,080 --> 00:16:43,520 Speaker 1: got these toxic assets at the marks they were at, 348 00:16:43,560 --> 00:16:48,160 Speaker 1: which was a distress mark. But here everything's in par 349 00:16:48,440 --> 00:16:51,600 Speaker 1: you know their distress marks. You're getting a price that 350 00:16:51,680 --> 00:16:58,680 Speaker 1: does not reflect necessarily the level of nervousness that your 351 00:16:58,840 --> 00:17:01,200 Speaker 1: retail investors are showing they try to redeem. 352 00:17:01,360 --> 00:17:03,680 Speaker 2: Yeah, and that's the thing. I mean, we heard from 353 00:17:03,960 --> 00:17:07,240 Speaker 2: Blackstones Global head of private credit Strategies at Bloomberg and 354 00:17:07,280 --> 00:17:09,959 Speaker 2: Bust this week saying that the noise that you're seeing 355 00:17:10,119 --> 00:17:13,560 Speaker 2: doesn't match the solid credit fundamentals of the fund's assets. 356 00:17:13,760 --> 00:17:16,359 Speaker 2: It almost feels like the conversation has sort of moved 357 00:17:16,880 --> 00:17:19,800 Speaker 2: beyond that when it comes to the redemption request that 358 00:17:19,800 --> 00:17:24,520 Speaker 2: you're seeing. And even if it's not headlines about Blackstone specifically, 359 00:17:25,080 --> 00:17:27,160 Speaker 2: there's a lot of stories. I mean, there was one 360 00:17:27,280 --> 00:17:30,880 Speaker 2: on Thursday about Blackrock what marking a private loan they 361 00:17:30,960 --> 00:17:32,520 Speaker 2: hadn't made to zero. 362 00:17:32,840 --> 00:17:34,160 Speaker 1: Me some markdan on some lens. 363 00:17:34,320 --> 00:17:34,560 Speaker 2: Yeah. 364 00:17:34,600 --> 00:17:38,040 Speaker 1: I don't know that it'll be universal across all these 365 00:17:38,080 --> 00:17:40,520 Speaker 1: these funds, but like all these all these people, all 366 00:17:40,560 --> 00:17:42,680 Speaker 1: the all these like senior private credit people are going 367 00:17:42,680 --> 00:17:46,359 Speaker 1: around expressing conference in their portfolios, which one might be 368 00:17:46,400 --> 00:17:49,679 Speaker 1: true and two they have to say. But then, like 369 00:17:50,119 --> 00:17:52,840 Speaker 1: there's the separate question of if everyone is panicking and 370 00:17:52,880 --> 00:17:55,240 Speaker 1: you are confident in the portfolio, Like, yeah, you should 371 00:17:55,240 --> 00:17:56,760 Speaker 1: step in and buy, but it's weird to have to 372 00:17:56,760 --> 00:17:59,159 Speaker 1: buy out one hundred cents on the dollars. Yeah, and 373 00:17:59,200 --> 00:18:02,040 Speaker 1: this is why I of the trade that Boas Weinstein 374 00:18:02,119 --> 00:18:05,840 Speaker 1: is doing. So we're recording this. On Thursday, he announced 375 00:18:05,920 --> 00:18:08,800 Speaker 1: one I think today or yesterday for the star woud 376 00:18:08,800 --> 00:18:11,600 Speaker 1: A private read Yeah, and two weeks ago he announced 377 00:18:11,600 --> 00:18:14,680 Speaker 1: one for these blue Owl private BDCs, where basically he's 378 00:18:14,680 --> 00:18:19,439 Speaker 1: going around tendering to buy shares of these non traded, 379 00:18:19,520 --> 00:18:22,360 Speaker 1: semi liquid vehicles that people are nervous about, and he's 380 00:18:22,400 --> 00:18:24,360 Speaker 1: offering to buy them, like, you know, he's seventy five 381 00:18:24,359 --> 00:18:27,879 Speaker 1: sons on the dollar. Presumably he's more skeptical than like 382 00:18:28,040 --> 00:18:31,159 Speaker 1: Blackstone is, but like less skeptical than these retail investors. Right, 383 00:18:31,240 --> 00:18:33,840 Speaker 1: he thinks these credits are fine or he's heading the 384 00:18:33,840 --> 00:18:36,479 Speaker 1: credit I don't know, but like he's getting these credits 385 00:18:36,480 --> 00:18:38,919 Speaker 1: at a discount because retail investors are I don't want 386 00:18:38,920 --> 00:18:40,400 Speaker 1: to say panicking, but they're nervous. 387 00:18:40,520 --> 00:18:43,000 Speaker 2: Well, that's what I wanted to ask you, was what 388 00:18:43,200 --> 00:18:44,679 Speaker 2: is the trade here for Boas? 389 00:18:44,880 --> 00:18:48,200 Speaker 1: The trade is like the value of liquidity in these 390 00:18:48,359 --> 00:18:51,439 Speaker 1: vehicles has gone up enormously in the last month. People 391 00:18:51,520 --> 00:18:54,160 Speaker 1: now want this liquidity, and if people really want liquidity, 392 00:18:54,160 --> 00:18:56,240 Speaker 1: they should pay for liquidity, and bo As will be 393 00:18:56,240 --> 00:18:57,080 Speaker 1: the one to get paid. 394 00:18:57,280 --> 00:18:59,040 Speaker 2: Yeah, in theory, I'm wondering. 395 00:18:59,520 --> 00:19:02,359 Speaker 1: Tender like this might just be trolling. Yeah, nothing forces 396 00:19:02,359 --> 00:19:05,600 Speaker 1: anyone to tender, because these vehicles all have mechanisms to 397 00:19:05,640 --> 00:19:07,600 Speaker 1: cash you at a one hundred cents on the dollar. Like, yeah, 398 00:19:07,600 --> 00:19:10,880 Speaker 1: not perfect, there's gates whatever. But because like you sort 399 00:19:10,880 --> 00:19:12,560 Speaker 1: of expect to get cashed out one hundred cents on 400 00:19:12,600 --> 00:19:14,320 Speaker 1: a dollar, you might not want a tender to Boaz 401 00:19:14,359 --> 00:19:16,240 Speaker 1: at seventy five, but you might. 402 00:19:16,520 --> 00:19:18,920 Speaker 2: Yeah, to the point, he could be trolling. I was 403 00:19:18,960 --> 00:19:21,000 Speaker 2: looking at some of his tweets, including the one he 404 00:19:21,040 --> 00:19:25,800 Speaker 2: announced this, and someone commented something like, you're a hilarious man. 405 00:19:26,280 --> 00:19:27,080 Speaker 2: It is pretty funny. 406 00:19:27,119 --> 00:19:29,760 Speaker 1: Funny trade. Yeah, it's a funny trade because like there's 407 00:19:29,800 --> 00:19:32,480 Speaker 1: all these headlines that, oh, private credit liquidity, and then 408 00:19:32,520 --> 00:19:34,760 Speaker 1: like there's all these private credit people going around on 409 00:19:34,800 --> 00:19:36,800 Speaker 1: TV being like it's fine, our portfolios are good. And 410 00:19:36,800 --> 00:19:38,920 Speaker 1: then because like I'll pay seventy five, like it's great, 411 00:19:38,960 --> 00:19:41,320 Speaker 1: it's a good trade. Well, it was like a little 412 00:19:41,320 --> 00:19:42,840 Speaker 1: bit pouring fuel on the fire, Like. 413 00:19:42,840 --> 00:19:44,960 Speaker 2: How it works out for him? Like is he he 414 00:19:45,040 --> 00:19:45,960 Speaker 2: might get zero shares? 415 00:19:46,000 --> 00:19:46,840 Speaker 1: I don't know, but. 416 00:19:46,760 --> 00:19:48,719 Speaker 2: I mean it would be nice to ask the man himself. 417 00:19:48,720 --> 00:19:52,679 Speaker 2: But like, is this him calling the bottom and hoping, 418 00:19:52,720 --> 00:19:55,080 Speaker 2: like how it's being traded in the market, that it 419 00:19:55,080 --> 00:19:56,679 Speaker 2: will go back to one hundred cents or is he 420 00:19:57,040 --> 00:19:59,560 Speaker 2: just hoping that he will get cash out at one 421 00:19:59,600 --> 00:19:59,959 Speaker 2: hundred cent? 422 00:20:00,440 --> 00:20:02,360 Speaker 1: There could be all sorts of trades. Yeah, he could 423 00:20:02,400 --> 00:20:05,320 Speaker 1: be short what the credits a right? But like, yeah, 424 00:20:05,359 --> 00:20:07,679 Speaker 1: to me, like the obvious trade is like the il 425 00:20:07,680 --> 00:20:10,360 Speaker 1: liquidity premium of these funds has gone way up and 426 00:20:10,440 --> 00:20:11,359 Speaker 1: he can capture that. 427 00:20:11,760 --> 00:20:16,160 Speaker 2: Yeah, well, Boas come on the podcast. Just the point 428 00:20:16,160 --> 00:20:17,920 Speaker 2: I wanted to I wanted to make when it comes 429 00:20:17,920 --> 00:20:21,000 Speaker 2: to like the fundamentals almost not mattering. I do just 430 00:20:21,040 --> 00:20:23,640 Speaker 2: wonder about the psychological aspect of it all. The fact 431 00:20:23,680 --> 00:20:27,520 Speaker 2: that over the past several years, all these private asset, 432 00:20:27,560 --> 00:20:30,679 Speaker 2: private credit folks have been pushing so hard into the 433 00:20:30,720 --> 00:20:34,600 Speaker 2: retail market. Whether this experience overall, even if the fundamentals 434 00:20:34,600 --> 00:20:38,520 Speaker 2: are fine, will just dent demand going forward from retail. 435 00:20:38,720 --> 00:20:40,879 Speaker 1: My bet is always on people having short memories. But 436 00:20:41,119 --> 00:20:43,080 Speaker 1: right now, yeah, it's like no, one's like, oh, we 437 00:20:43,119 --> 00:20:45,199 Speaker 1: really need to do our retail private credit pressure right, 438 00:20:45,240 --> 00:20:47,080 Speaker 1: like not this week. 439 00:20:47,440 --> 00:20:49,320 Speaker 2: Not this week. I don't know. There's a lot of 440 00:20:49,320 --> 00:20:51,480 Speaker 2: planned there's like a lot of like interval fund type 441 00:20:51,480 --> 00:20:53,360 Speaker 2: things that are supposed to push out in the next 442 00:20:53,400 --> 00:20:56,480 Speaker 2: couple of months. So yeah, we'll see, we'll see, we'll see. 443 00:21:11,560 --> 00:21:16,600 Speaker 2: Speaking of private assets, you about thanks over, Let's talk 444 00:21:16,640 --> 00:21:18,919 Speaker 2: about what's going on in the ETF space. Why not 445 00:21:19,359 --> 00:21:24,680 Speaker 2: you know, all the while we're here, So we're talking 446 00:21:24,680 --> 00:21:29,840 Speaker 2: specifically about private companies because there's this fascinating ETF. The 447 00:21:29,880 --> 00:21:34,040 Speaker 2: government name is the er Shares Private Public Crossover ETF. 448 00:21:34,480 --> 00:21:41,439 Speaker 2: It's xover Crossover XOVR. It owns SpaceX, not outright, but 449 00:21:41,560 --> 00:21:46,919 Speaker 2: through a special purpose vehicle. And the SEC has a 450 00:21:46,960 --> 00:21:49,480 Speaker 2: cap on how much of an ETF, any open ended 451 00:21:49,520 --> 00:21:52,920 Speaker 2: fund can have in a liquid asset. It's fifteen percent. 452 00:21:53,440 --> 00:21:56,040 Speaker 2: The problem is that the CTF keeps running into is 453 00:21:56,080 --> 00:22:02,320 Speaker 2: that it keeps getting out flows, so it stake as 454 00:22:02,320 --> 00:22:05,080 Speaker 2: a percentage of the portfolio keeps going up. It hit 455 00:22:05,160 --> 00:22:07,879 Speaker 2: like forty four percent or somewhere close to it in 456 00:22:07,920 --> 00:22:08,960 Speaker 2: the past couple of weeks. 457 00:22:09,520 --> 00:22:14,240 Speaker 1: SpaceX's evaluation is like a quintuple the last years. 458 00:22:14,560 --> 00:22:17,560 Speaker 2: Yeah, morning Star has been very vocal on this, specifically 459 00:22:17,600 --> 00:22:20,480 Speaker 2: this man named Jeffrey Prattack. I hope that's I'm saying 460 00:22:20,520 --> 00:22:22,680 Speaker 2: his last name, right, that if you take a look 461 00:22:22,680 --> 00:22:25,920 Speaker 2: at the performance of the ETF, it doesn't necessarily reflect 462 00:22:26,160 --> 00:22:30,080 Speaker 2: the fact that SpaceX's valuation has quintupled, which is also 463 00:22:30,200 --> 00:22:31,120 Speaker 2: a big question mark. 464 00:22:31,520 --> 00:22:33,800 Speaker 1: Right, this is like the opposite of private credit. Like 465 00:22:34,240 --> 00:22:36,639 Speaker 1: private credit, everyone's like, oh, the marks are fine, everyone 466 00:22:36,640 --> 00:22:39,639 Speaker 1: like about these marks, and then this one. Yeah, like 467 00:22:39,640 --> 00:22:42,320 Speaker 1: those marks should be much higher. Yeah, which is weird 468 00:22:42,320 --> 00:22:46,000 Speaker 1: to me that people wouldn't usually people of marketings up. 469 00:22:46,720 --> 00:22:49,080 Speaker 2: Yeah, Well that's the big question there, like why, like 470 00:22:49,119 --> 00:22:51,760 Speaker 2: you would think that this fund is absolutely crushing it. 471 00:22:52,160 --> 00:22:53,800 Speaker 2: But morning Star has made the case that if you 472 00:22:53,840 --> 00:22:56,080 Speaker 2: take a look at the performance of this ETF, its 473 00:22:56,119 --> 00:23:01,640 Speaker 2: performance can be almost entirely explained by its public holdings 474 00:23:01,880 --> 00:23:05,200 Speaker 2: rather than it's SpaceX holdings, which again it's a it's 475 00:23:05,200 --> 00:23:10,520 Speaker 2: a question mark, why is that happening? Sure, that's that's 476 00:23:10,600 --> 00:23:11,160 Speaker 2: the big one. 477 00:23:11,800 --> 00:23:13,560 Speaker 1: I mean the answer, I mean, I don't know the answer. 478 00:23:14,520 --> 00:23:15,600 Speaker 2: I don't know the answer either. 479 00:23:15,640 --> 00:23:17,879 Speaker 1: We've looked at the SPV and the shares aren't there 480 00:23:17,880 --> 00:23:20,120 Speaker 1: and like oops, and they close up and forget about. 481 00:23:20,359 --> 00:23:23,520 Speaker 2: Well, that's one of the theories, right, is that the SPV, well, 482 00:23:23,640 --> 00:23:30,400 Speaker 2: the SPV that's like a very well, it could partly 483 00:23:30,400 --> 00:23:34,639 Speaker 2: be explained by SPV costs. There was a filing this 484 00:23:34,720 --> 00:23:38,040 Speaker 2: week where the firm said that in the prior period, 485 00:23:38,760 --> 00:23:42,399 Speaker 2: the funds like total expense ratio was one point one 486 00:23:42,480 --> 00:23:45,000 Speaker 2: eight percent, even though the management fee is only seventy 487 00:23:45,000 --> 00:23:48,159 Speaker 2: five bases points. And they said that they've since switched 488 00:23:48,160 --> 00:23:50,639 Speaker 2: to an SPV that has no management fee and no 489 00:23:50,760 --> 00:23:53,360 Speaker 2: carried interest, so this isn't going to be a problem anymore. 490 00:23:53,760 --> 00:23:55,320 Speaker 2: So it's going to be interesting to see how that 491 00:23:55,440 --> 00:23:58,280 Speaker 2: shakes out. But what we do know is that you 492 00:23:58,320 --> 00:24:01,840 Speaker 2: take a look at the this share of SpaceX, that 493 00:24:01,960 --> 00:24:06,080 Speaker 2: is this portfolio, and it is wildly above the SEC's 494 00:24:06,119 --> 00:24:10,720 Speaker 2: limit on how much you can actually hold liquid securities. 495 00:24:11,240 --> 00:24:15,080 Speaker 2: So the point being, this is a story that's developing 496 00:24:15,119 --> 00:24:16,480 Speaker 2: right now and it's going to be interesting to see 497 00:24:16,480 --> 00:24:19,560 Speaker 2: how it shakes out. And it sort of puts the 498 00:24:19,600 --> 00:24:23,200 Speaker 2: whole push on putting private assets, or at least private 499 00:24:23,240 --> 00:24:27,080 Speaker 2: companies in an open ended vehicle. Kind of takes the 500 00:24:27,119 --> 00:24:30,880 Speaker 2: shine off because with an ETF, you can take your 501 00:24:30,880 --> 00:24:34,320 Speaker 2: money out at any time. These funds ETFs aren't gated, 502 00:24:34,720 --> 00:24:37,840 Speaker 2: and that can cause your portfolio to do really funky 503 00:24:37,920 --> 00:24:40,359 Speaker 2: things if you have to sell your liquid assets and 504 00:24:40,680 --> 00:24:42,240 Speaker 2: it's not as easy to sell. 505 00:24:42,320 --> 00:24:46,359 Speaker 1: An SPV, I mean counterplant it's SpaceX. Yeah, right, this 506 00:24:46,440 --> 00:24:48,240 Speaker 1: is not a very good counterplint, right because like three 507 00:24:48,240 --> 00:24:49,720 Speaker 1: months ago, I won't want to be in croit credit 508 00:24:49,800 --> 00:24:52,360 Speaker 1: and now they don't. But like it is a counterplint, 509 00:24:52,359 --> 00:24:54,639 Speaker 1: which is that Yeah, people are like ooh, they're surprised 510 00:24:54,640 --> 00:24:56,920 Speaker 1: of having outfuds because people like you want to own 511 00:24:57,160 --> 00:25:01,720 Speaker 1: SpaceX and if their performance reflected that SpaceX shares, people. 512 00:25:01,480 --> 00:25:05,879 Speaker 2: Would want that flows follow performance. This is probably more 513 00:25:06,000 --> 00:25:09,439 Speaker 2: conversation around like SPVs, because there is an ETF that 514 00:25:09,520 --> 00:25:13,200 Speaker 2: does hold SpaceX outright. The ticker is ron B. It's 515 00:25:13,400 --> 00:25:19,960 Speaker 2: the Barren First Principles ETF. But they've also classified their 516 00:25:20,000 --> 00:25:23,240 Speaker 2: SpaceX holdings not as ill liquid but as less liquid, 517 00:25:23,280 --> 00:25:25,680 Speaker 2: which is something that I didn't actually really appreciate until 518 00:25:25,680 --> 00:25:28,680 Speaker 2: I started looking into the ron B ETF, that you, 519 00:25:29,400 --> 00:25:32,639 Speaker 2: as the portfolio manager, classified the liquidity of your holdings 520 00:25:32,640 --> 00:25:35,160 Speaker 2: to the SEC rather than the other way around. 521 00:25:34,920 --> 00:25:37,760 Speaker 1: Right, And by the way, like obviously they are incentives 522 00:25:37,800 --> 00:25:41,400 Speaker 1: the game that but like I kind of see why 523 00:25:41,480 --> 00:25:44,760 Speaker 1: someone would say SpaceX is kind of liquid, right, like, yeah, 524 00:25:45,080 --> 00:25:47,800 Speaker 1: it's a two trillion dollar company or whatever. 525 00:25:47,520 --> 00:25:51,400 Speaker 2: Really theoretically going public in the next couple of months. 526 00:25:51,480 --> 00:25:55,240 Speaker 1: Yeah, but like also there's secondary trading. That's there's jillions 527 00:25:55,280 --> 00:25:57,760 Speaker 1: of best pieces. Like if you were like gone to 528 00:25:57,800 --> 00:25:59,680 Speaker 1: your head, you have to liquid out your SpaceX shares, 529 00:25:59,680 --> 00:26:02,240 Speaker 1: and we like you could do it at like today's prices, 530 00:26:02,280 --> 00:26:06,760 Speaker 1: you could, yeah, for hundreds of millions of dollars of size, right, 531 00:26:06,800 --> 00:26:09,560 Speaker 1: not for tens of billions of dollars. So I don't know, 532 00:26:09,560 --> 00:26:12,280 Speaker 1: I don't I don't have that. Like I keep saying 533 00:26:12,359 --> 00:26:14,679 Speaker 1: private markets and then in public markets, right, like the 534 00:26:14,680 --> 00:26:17,199 Speaker 1: there's a continuum of liquidity, and like SpaceX is more 535 00:26:17,240 --> 00:26:18,560 Speaker 1: liquid than a lot of publics. 536 00:26:18,560 --> 00:26:21,440 Speaker 2: Then yeah, well it's interesting. I mean, as far as 537 00:26:21,600 --> 00:26:25,280 Speaker 2: I can tell, this ETF hasn't liquidated any of its 538 00:26:25,280 --> 00:26:27,520 Speaker 2: SpaceX SPV holdings, right. 539 00:26:27,400 --> 00:26:31,080 Speaker 1: Also, why would it. Yeah, it's a marketing matter. 540 00:26:31,880 --> 00:26:35,560 Speaker 2: Well, probably to get below the fifteen per sure, fair fair. 541 00:26:35,440 --> 00:26:37,680 Speaker 1: But once you once you solve that problem by saying 542 00:26:37,680 --> 00:26:41,400 Speaker 1: it's liquid, then as a marketing matter, it's really better 543 00:26:41,480 --> 00:26:43,199 Speaker 1: to be like, hey, I'm an ATF that's full of 544 00:26:43,240 --> 00:26:44,960 Speaker 1: SpaceX than to be like, hey, I'm an ETF with 545 00:26:45,000 --> 00:26:46,560 Speaker 1: a little bit of SpaceX and all other stuff. 546 00:26:46,640 --> 00:26:50,800 Speaker 2: Barn for example, is somewhat of a special case. People 547 00:26:50,840 --> 00:26:53,600 Speaker 2: familiar with the matter have run this plan by the SEC. 548 00:26:53,720 --> 00:26:57,600 Speaker 2: Part of their reported logic in why they classified it 549 00:26:57,640 --> 00:27:00,320 Speaker 2: this way is that they've been investing in SpaceX since 550 00:27:00,359 --> 00:27:04,159 Speaker 2: twenty seventeen, and they have like an established and good 551 00:27:04,320 --> 00:27:07,480 Speaker 2: relationship with the company that it seems like they would 552 00:27:07,520 --> 00:27:10,600 Speaker 2: have an easier time getting their hands on more SpaceX 553 00:27:10,640 --> 00:27:14,560 Speaker 2: than maybe other firms and funds out there. I don't know, 554 00:27:14,600 --> 00:27:17,280 Speaker 2: like if any issuer could go to the SEC and 555 00:27:17,320 --> 00:27:20,520 Speaker 2: be like, actually, this private company, we think it's lost liquid. 556 00:27:20,560 --> 00:27:21,400 Speaker 2: It's not you liquid. 557 00:27:21,560 --> 00:27:24,720 Speaker 1: I don't know. I could sell SpaceX shares. This doesn't 558 00:27:24,720 --> 00:27:26,719 Speaker 1: seem like a big problem. The only thing I think 559 00:27:26,840 --> 00:27:28,879 Speaker 1: is interesting to these funds is I just said, like, 560 00:27:29,040 --> 00:27:30,720 Speaker 1: you'd rather be like, hey, this is an ATF with 561 00:27:30,760 --> 00:27:35,199 Speaker 1: SpaceX than like than cats and dogs in SpaceX. Yeah, Like, 562 00:27:35,960 --> 00:27:39,840 Speaker 1: there's obviously a demand very publicly traded a SpaceX proxy. 563 00:27:40,160 --> 00:27:44,600 Speaker 1: Despite how liquid SpaceX is, right And one thing I've 564 00:27:44,680 --> 00:27:48,080 Speaker 1: heard is that people talk about the ETFs as like 565 00:27:48,119 --> 00:27:51,560 Speaker 1: a trade where the trade is you buy the EHF 566 00:27:52,040 --> 00:27:55,040 Speaker 1: and like with with with exover, there's like a they 567 00:27:55,040 --> 00:27:59,040 Speaker 1: have like a sort of indexy mechanistic list of their 568 00:27:59,080 --> 00:28:02,840 Speaker 1: other public stocks. You buy the ETF, you short the 569 00:28:03,680 --> 00:28:06,119 Speaker 1: other public stocks, and what you're left with is a 570 00:28:06,200 --> 00:28:08,680 Speaker 1: trade that's just long ETF, short public stocks and the ETF, 571 00:28:08,720 --> 00:28:11,760 Speaker 1: so you're left with just long SpaceX. And I think 572 00:28:11,800 --> 00:28:13,639 Speaker 1: that that's like kind of a marketed trade of like 573 00:28:13,680 --> 00:28:15,680 Speaker 1: this is how you get your SpaceX exposure. You buy 574 00:28:15,720 --> 00:28:18,160 Speaker 1: this ETF and you hedge out in the public stocks. 575 00:28:18,400 --> 00:28:20,159 Speaker 1: Which reminds me a little bit of the trades you 576 00:28:20,160 --> 00:28:23,240 Speaker 1: talked about with with Arc of Hollywood's rc ETFs, where 577 00:28:23,280 --> 00:28:27,040 Speaker 1: those ETFs looked like they might get allocations and hot 578 00:28:27,040 --> 00:28:29,840 Speaker 1: IPOs and so people would heartbeat into the ETFs to. 579 00:28:29,760 --> 00:28:30,399 Speaker 2: Get some. 580 00:28:32,080 --> 00:28:34,199 Speaker 1: But this is like this is like a sort of 581 00:28:34,520 --> 00:28:38,040 Speaker 1: you know, way to isolate SpaceX exposure, if that's the 582 00:28:38,080 --> 00:28:40,560 Speaker 1: sort of thing you're looking for, which I feel like 583 00:28:40,600 --> 00:28:42,120 Speaker 1: a lot of public market investors are. 584 00:28:42,480 --> 00:28:46,360 Speaker 2: Yeah, perhaps this fund did run up quite a bit. 585 00:28:46,400 --> 00:28:48,760 Speaker 2: I mean it grew to like one point eight billion 586 00:28:48,800 --> 00:28:50,480 Speaker 2: dollars in assets at one point, and I have to 587 00:28:50,560 --> 00:28:54,080 Speaker 2: imagine that was entirely because it was marketed as having 588 00:28:54,120 --> 00:28:58,880 Speaker 2: SpaceX exposure. But it's since seen pretty significant outfloads. 589 00:28:59,040 --> 00:29:01,560 Speaker 1: Yeah, so it doesn't go up allow SpaceX shows that 590 00:29:01,600 --> 00:29:10,760 Speaker 1: it's not a very good SpaceX proxy. And that was 591 00:29:10,760 --> 00:29:11,920 Speaker 1: The Money Stuff Podcast. 592 00:29:12,200 --> 00:29:14,360 Speaker 2: I'm Matt Levine and I'm Katie Greifeld. 593 00:29:14,560 --> 00:29:16,680 Speaker 1: You can find my work by subscribing to The Money 594 00:29:16,680 --> 00:29:18,680 Speaker 1: Stuff quletter on Bloomberg dot. 595 00:29:18,480 --> 00:29:22,000 Speaker 2: Com, and you can find me on Bloomberg TV every 596 00:29:22,080 --> 00:29:25,240 Speaker 2: day on the Clothes between three and five pm Eastern. 597 00:29:25,520 --> 00:29:27,320 Speaker 1: We'd love to hear from you if you can send 598 00:29:27,320 --> 00:29:30,720 Speaker 1: an email to Moneypod at Bloomberg dot net, ask us 599 00:29:30,720 --> 00:29:32,720 Speaker 1: a question and we might answer it on the air. 600 00:29:32,960 --> 00:29:35,560 Speaker 2: You can also subscribe to our show wherever you're listening 601 00:29:35,600 --> 00:29:37,480 Speaker 2: right now and leave us a review. It helps more 602 00:29:37,480 --> 00:29:38,320 Speaker 2: people find the show. 603 00:29:38,920 --> 00:29:43,280 Speaker 1: The Money Stuff Podcast has produced Moses On and Alexis HoTT. 604 00:29:43,720 --> 00:29:46,320 Speaker 2: Our theme music was composed by Blake Maples. 605 00:29:46,720 --> 00:29:50,200 Speaker 1: Amy Keen is our executive producer. Thanks for listening to 606 00:29:50,200 --> 00:29:52,720 Speaker 1: The Money Stuff Podcast. We'll be back next week with 607 00:29:52,840 --> 00:29:53,520 Speaker 1: more stuff