WEBVTT - Catastrophe in the Name: ETF, Trades, AI 0:00:02.560 --> 0:00:07.080 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.000 --> 0:00:11.000 Should I give a really quick bird update? Oh yeah, 0:00:11.080 --> 0:00:13.600 Well we put out the cliff Astness episode, which was 0:00:13.880 --> 0:00:15.640 very well received, but we did get a few comments 0:00:15.680 --> 0:00:27.040 about where they're not being a bird update really quick birds. Yeah, 0:00:27.200 --> 0:00:31.480 the birds doing really well, flying really well. We need 0:00:31.520 --> 0:00:33.400 to work on perching. So he's in a big. 0:00:33.320 --> 0:00:35.440 Room's interesting is regressed on perching? 0:00:35.600 --> 0:00:40.000 Well, the thing is, it's hard. He's very comfortable perching 0:00:40.000 --> 0:00:42.920 on people. He's very comfortable perching on his cage. I 0:00:42.960 --> 0:00:45.320 put in an old cat tree that I had at 0:00:45.320 --> 0:00:47.839 my parents' house in the room where he is. He 0:00:48.000 --> 0:00:53.120 refuses to perch on it. And so if you open, yeah, 0:00:53.120 --> 0:00:56.880 you probably wouldn't purchase the catch. Yeah maybe, I mean 0:00:56.880 --> 0:00:58.800 my cat hasn't touched it in several years, so I 0:00:58.840 --> 0:01:01.800 thought maybe the cats I'll never never. I think I 0:01:01.840 --> 0:01:02.520 need to get. 0:01:02.360 --> 0:01:04.360 Like you owner ever and terror I can tell you 0:01:04.440 --> 0:01:04.720 the cat. 0:01:06.959 --> 0:01:09.160 I think I need to get him like an indoor 0:01:09.200 --> 0:01:12.679 potted tree or something, because if you open the cage 0:01:12.720 --> 0:01:14.160 and then run to the other side of the room, 0:01:14.280 --> 0:01:16.480 he will fly directly to you. He will not land 0:01:16.520 --> 0:01:18.760 on anything other than his cage and humans. So we 0:01:18.840 --> 0:01:21.560 need to work on that. Also. We're calling it a 0:01:21.600 --> 0:01:23.600 heat but it could be a lady bird. 0:01:24.240 --> 0:01:27.040 Is this whole project still in the service of like 0:01:27.160 --> 0:01:30.760 one day releasing or herd into the wild, or is 0:01:30.760 --> 0:01:33.039 it more just like I think, be nice if he 0:01:33.120 --> 0:01:35.000 wasn't clinging to your shoulder all the time. 0:01:35.120 --> 0:01:37.600 I think given that it's so attached to humans, it 0:01:37.600 --> 0:01:40.000 would be very hard to release this bird right now. 0:01:40.440 --> 0:01:42.360 It won't perch. I mean, we'll see when we get 0:01:42.360 --> 0:01:43.840 in a tree if it'll perch on the tree. 0:01:43.959 --> 0:01:45.960 I guess I'll stop asking that question. I guess that's 0:01:46.000 --> 0:01:46.800 just your bird now. 0:01:47.200 --> 0:01:50.720 Yeah, and its name is bird. 0:01:52.560 --> 0:01:54.920 Hello, and welcome to The Money Stuff Podcast. You're a 0:01:54.920 --> 0:01:57.640 weekly podcast where we talk about stuff related to money. 0:01:58.000 --> 0:01:59.960 I'm Matt Levie and I write The Money Stuff Calm 0:02:00.200 --> 0:02:01.600 for Blue Our Opinion, and. 0:02:01.560 --> 0:02:04.080 I'm Katie Greifeld, a reporter for Bloomberg News and an 0:02:04.120 --> 0:02:05.560 anchor for Bloomberg Television. 0:02:06.880 --> 0:02:08.640 Katie, I came to you this week and I was like, 0:02:08.680 --> 0:02:11.480 I want to talk about ETFs, which sounded really sounds great. 0:02:11.560 --> 0:02:13.000 And I was like, I want to talk about autocollable 0:02:13.080 --> 0:02:14.840 ets and You're like, Nah. 0:02:14.840 --> 0:02:17.360 You know that's the thing. It really feels like a 0:02:17.400 --> 0:02:20.359 monkey's paw situation or something. I should be psyched. 0:02:20.919 --> 0:02:23.120 The thing this is the thing. The thing about ETFs 0:02:23.200 --> 0:02:27.400 is that eventually all of financial products and ultimately all 0:02:27.400 --> 0:02:30.200 of human existence will be sucked into an ETF. And 0:02:30.280 --> 0:02:33.119 like you have to be able to roll with all 0:02:33.200 --> 0:02:35.000 of the possible forms of ETF. 0:02:35.120 --> 0:02:37.760 I you know, I'm like super comfortable with the idea 0:02:37.800 --> 0:02:40.560 that you know, there's structured products in ETFs. Yeah, I 0:02:40.600 --> 0:02:43.959 know what for ETF is. The concept of an autocollable 0:02:44.000 --> 0:02:45.960 ETF is a little bit of a tougher too. But 0:02:46.120 --> 0:02:49.720 the first one launched this past week. Yeah, Calamus Kalamos 0:02:49.840 --> 0:02:54.040 with JP Morgan is the swap counterparty. 0:02:54.200 --> 0:02:55.000 Yeah. 0:02:55.160 --> 0:02:59.200 So you did a breakdown in your Money Soff column 0:02:59.200 --> 0:03:01.959 about how's theoretic this would work. You provided an example. 0:03:02.240 --> 0:03:04.240 Some don't quite get it, okay. 0:03:04.760 --> 0:03:08.000 So, like, if you're a JP market, you're in the 0:03:08.000 --> 0:03:12.799 business like manufacturing products that clients want to buy. One 0:03:12.840 --> 0:03:15.560 thing that clients come to with a lot is we 0:03:15.560 --> 0:03:22.000 would like to hedge our stock market risk. It would 0:03:22.000 --> 0:03:26.280 be nice if when the market crashed we could get 0:03:26.320 --> 0:03:29.280 some insurance. And so there's a big business in manufacturing 0:03:29.360 --> 0:03:34.280 insurance against market crushes because like fundamentally most people, most 0:03:34.320 --> 0:03:37.800 investors are long equities and they want to have insurance. 0:03:37.920 --> 0:03:41.720 Someone want to have insurance against the market crush, and 0:03:41.720 --> 0:03:43.600 how do you manufacture that insurance because no one's to 0:03:43.680 --> 0:03:45.560 sell that insurance, right, Like who wants to be in 0:03:45.560 --> 0:03:48.320 the business of saying if the market crashes, I'll give 0:03:48.320 --> 0:03:50.840 you money, Like it's a terrible wrong way situation to 0:03:50.840 --> 0:03:54.400 be in. And so a lot of like the world 0:03:54.480 --> 0:03:56.880 of like equity to rotistrating is figuring out how to 0:03:56.880 --> 0:04:01.480 manufacture that sort of market risk insurance crash insurance. And 0:04:02.560 --> 0:04:06.120 there are ways to do it, like the dispersion trade 0:04:06.120 --> 0:04:10.160 and hedgephones is like a gibeis are closing. It's all 0:04:10.160 --> 0:04:13.400 a complicated way to take single stock ball and turn 0:04:13.440 --> 0:04:16.600 it into index vall so that you can sell people 0:04:16.600 --> 0:04:19.440 insurance against market crashes. But like a classic way to 0:04:19.520 --> 0:04:22.839 do it is to say, we're going to have retail 0:04:22.920 --> 0:04:26.840 investors sell us insurance against market crashes. And the way 0:04:27.240 --> 0:04:32.120 retail investors sell insurance is essentially they buy bonds and 0:04:32.160 --> 0:04:33.800 the bonds, you know, they put it in one hundred dollars, 0:04:33.920 --> 0:04:36.520 they get back one hundred dollars plus like a very 0:04:36.600 --> 0:04:39.280 high rate of interest, except if the market crashes, they 0:04:39.279 --> 0:04:41.960 get back like nothing or they lose money. Right, so 0:04:42.000 --> 0:04:45.440 the thing they buy is sort of a catastrophe bond 0:04:45.560 --> 0:04:49.000 for market crash, Like if the market crashes, they don't 0:04:49.000 --> 0:04:51.279 get back all their money, and the money they don't 0:04:51.279 --> 0:04:55.760 get back gets used to pay someone else's insurance. One 0:04:55.800 --> 0:04:57.560 of the main like the classic form of that is 0:04:57.600 --> 0:05:00.000 called an auto callable. It's just like the name of it, 0:04:59.839 --> 0:05:02.480 but it's basically you put in money. If the market 0:05:02.640 --> 0:05:04.960 stays flat or up or even goes down a little bit, 0:05:04.960 --> 0:05:07.159 you get back like one hundred and fifteen cents on 0:05:07.240 --> 0:05:09.320 a dollar in a year. And if the market goes 0:05:09.360 --> 0:05:11.960 down a lot, you know, you lose the amount of 0:05:12.000 --> 0:05:14.760 the market crash and you know, and JP Morgan sells 0:05:14.760 --> 0:05:18.600 that to you gives them index volatility that they can 0:05:18.640 --> 0:05:21.720 turn around and sell to you know, institutional clients who 0:05:21.720 --> 0:05:25.720 want a hedgeance market crash. So that is the autocoll. 0:05:25.920 --> 0:05:29.520 It is a classic structured note structuring product that like 0:05:29.720 --> 0:05:32.320 banks love to sell to you know, retailer high night 0:05:32.320 --> 0:05:38.880 Worth investors. And now it's going into an ETF, which 0:05:39.320 --> 0:05:40.040 was inevitable. 0:05:40.080 --> 0:05:42.599 I mean buffers have been so popular. 0:05:43.040 --> 0:05:45.160 Yeah, I think actually the press release for this ETF 0:05:45.200 --> 0:05:48.000 said something like, this is the latest play for a 0:05:48.040 --> 0:05:50.920 boomer candy pretty just like just the name of these 0:05:50.960 --> 0:05:53.520 kinds of ETFs. Now. Yeah, And it's like a little 0:05:53.560 --> 0:05:55.200 bit similar to a buffer in that it's like a 0:05:55.200 --> 0:05:58.960 fixed income replacement that like maybe has a little little extra. 0:05:58.800 --> 0:06:01.920 Juice but even still on. And you know, I'm prepared 0:06:01.960 --> 0:06:03.960 to be proven wrong, but I feel like this is 0:06:04.000 --> 0:06:05.760 a tougher sell like buffers, I. 0:06:05.760 --> 0:06:07.320 Should say, it's different from a buffer. And then a 0:06:07.320 --> 0:06:09.960 buffer is buffered, and this is like, yeah, in a crash, 0:06:09.960 --> 0:06:10.799 you lose your money. 0:06:11.000 --> 0:06:13.560 Yeah, a buffer is okay, you're giving up upside, but 0:06:13.560 --> 0:06:15.960 you're going to be cushioned buffered on the downside. 0:06:16.000 --> 0:06:18.919 That it was like you're getting a nice coupon, yeah, 0:06:18.960 --> 0:06:20.640 except in bad states of the world, in which case 0:06:20.680 --> 0:06:22.360 you there's a lot of money. Yeah. 0:06:22.400 --> 0:06:25.120 So I don't know, I mean, who is this for? 0:06:25.600 --> 0:06:29.480 Like I hear them, I love them, I know, I know, 0:06:29.640 --> 0:06:31.360 I just wonder, like. 0:06:30.880 --> 0:06:32.640 Obviously, like you know, I sold the agent high net 0:06:32.680 --> 0:06:34.960 worth investors. And there's a story a while back that 0:06:35.000 --> 0:06:39.359 I remember I quoted about Korean autocollables or some brokers 0:06:39.400 --> 0:06:42.800 as something like no one's ever only bought one. Once 0:06:42.800 --> 0:06:44.440 you buy them, you keep coming back from more because 0:06:44.440 --> 0:06:46.520 they're so great, love them so much, and it's like, 0:06:46.640 --> 0:06:48.240 you know, you think of the profile of it for 0:06:48.240 --> 0:06:49.720 a second and you're like, yeah, of course that's true. 0:06:49.800 --> 0:06:49.880 Right. 0:06:49.920 --> 0:06:51.559 You keep buying them because you get paid a fifteen 0:06:51.600 --> 0:06:54.560 percent yield. You keep buying them until there's one crash 0:06:54.560 --> 0:06:57.520 and then you stop. Right, yeah, maybe, yeah, but right, 0:06:57.560 --> 0:06:59.000 it pays a fifteen percent yield and most of the 0:06:59.040 --> 0:07:00.760 market crash of the crashes. 0:07:01.000 --> 0:07:03.359 Yeah, So Kala Mos is first out the gate. I 0:07:03.360 --> 0:07:06.560 think you have. Innovator and First Trust have also filed 0:07:06.560 --> 0:07:11.840 for similar products. It's interesting that JP Morgan hasn't JP 0:07:11.960 --> 0:07:15.480 Morgan sort of pioneered this category in the ETF space, 0:07:15.560 --> 0:07:19.880 this derivatives power to find outcome space. They have Jeppy, 0:07:20.040 --> 0:07:23.800 which is a household name in my household. Maybe not 0:07:23.960 --> 0:07:27.160 in years, but then you know, there were a bunch 0:07:27.160 --> 0:07:30.360 of Jeffy copycats, and you've also seen buffers rise up 0:07:30.360 --> 0:07:32.840 in the last few years. But I don't know, it's 0:07:33.040 --> 0:07:35.560 somewhat interesting to me that you know, it's not JP. 0:07:35.440 --> 0:07:38.400 Morgan that's well, JP Morgan is the swap count of party. Yeah, 0:07:38.400 --> 0:07:41.760 which means that their vall that is being bought. They're 0:07:41.760 --> 0:07:44.160 buying the vall from the retail customers to sell to 0:07:44.200 --> 0:07:45.239 their institutional customers. 0:07:45.280 --> 0:07:49.120 Yeah. Yeah, but they're not the ones headlining the CTF necessarily. 0:07:49.280 --> 0:07:53.400 Yeah right. I never fully understood the structured nets business. 0:07:53.640 --> 0:07:55.720 But like part of it is like the retail and 0:07:55.800 --> 0:07:59.400 high not worth like private wealth bankers are sitting around saying, 0:07:59.440 --> 0:08:02.200 like what can we sell to our customers to make money? 0:08:02.560 --> 0:08:04.920 And then part of it is like the institutional vault 0:08:04.920 --> 0:08:07.760 traders are sitting around thinking where can we get some 0:08:07.880 --> 0:08:10.880 voll and like there's a meeting of the minds. So 0:08:10.960 --> 0:08:13.160 here like the you know, the JP Morgan valltraders are happy, 0:08:13.200 --> 0:08:15.200 even if they're not like making the DF fee. I mean, 0:08:15.200 --> 0:08:17.240 they're making some sort of fee on your point about 0:08:17.240 --> 0:08:19.720 who's this is four? Yeah, I read about this this 0:08:19.760 --> 0:08:22.160 week and it reader emailed me, so remind me of 0:08:22.880 --> 0:08:24.560 there's a catastrophe bond etf. 0:08:24.680 --> 0:08:29.080 Yes, I love IOLs is the taker iOS and launched 0:08:29.080 --> 0:08:30.360 without a lead market maker. 0:08:31.480 --> 0:08:33.720 Yeah, and there's like a Bloomer article about it from 0:08:33.840 --> 0:08:36.640 April saying the securities can be a hard cell for 0:08:36.679 --> 0:08:38.920 retail investors who have never before had to price the 0:08:39.000 --> 0:08:41.560 risk of a typhoon or earthquake. Ei way, they're not 0:08:41.600 --> 0:08:44.800 pricing it now, they're a price taker. But anyway, they 0:08:44.920 --> 0:08:48.000 quote someone saying the asset class does itself no favors 0:08:48.000 --> 0:08:51.520 by having catastrophe in the name. At least it's clear though. 0:08:51.640 --> 0:08:54.319 At least you kind of know like the basic contours 0:08:54.320 --> 0:08:56.560 of what you're doing when it's this catastrophe in the name. Here, 0:08:56.640 --> 0:08:59.240 it's called an auto callable, which is like tells you nothing, 0:09:00.000 --> 0:09:02.000 and you know it's a big like headline, Yeah, this 0:09:02.000 --> 0:09:03.200 is how much yell do you? And you're like, oh, 0:09:03.280 --> 0:09:05.640 y old to create it. Then you're like, oh, I 0:09:05.679 --> 0:09:09.400 can lose all my money. Yeah. Also, it's like if 0:09:09.400 --> 0:09:12.080 you're into this sort of thing, which I know you're not. No, 0:09:12.440 --> 0:09:15.040 you're into the sort of thing. It's really cool because 0:09:15.080 --> 0:09:18.559 it's like the structure of it is basically you know, 0:09:18.600 --> 0:09:21.280 it's an autocol, so there's like knock in and knockouts 0:09:21.280 --> 0:09:23.720 and stuff. Basically, if the index is down forty percent 0:09:24.360 --> 0:09:25.920 is when you start to lose money. Like instead of 0:09:25.920 --> 0:09:27.120 getting a nice coupon. 0:09:26.840 --> 0:09:28.240 It's like very rarely happens. 0:09:28.480 --> 0:09:32.600 Okay, you say that. Yeah, the reason you say that 0:09:32.840 --> 0:09:36.000 is because you and I and probably mostly who'll buying 0:09:36.080 --> 0:09:38.800 it have an intuition of what the index is. But 0:09:38.840 --> 0:09:41.000 the index that they use is not the S and P. 0:09:41.480 --> 0:09:45.240 The index that they use is a like volatility targeted 0:09:45.440 --> 0:09:47.600 S and P. Oh, So basically they like lever the 0:09:47.640 --> 0:09:49.920 S and P to get you to a thirty five 0:09:49.920 --> 0:09:53.000 percent volatility. Okay, essually in the ballpark of two x 0:09:53.080 --> 0:09:56.079 leverard a little more than two x LeVert So a 0:09:56.160 --> 0:09:57.760 twenty percent drop in the S ANDP is not that 0:09:57.840 --> 0:10:01.360 common either. But it's like it's yeah, and like you 0:10:01.400 --> 0:10:04.400 see forty percent, like forty percent that never happens, but 0:10:04.440 --> 0:10:06.880 like the innex reps like twenty ish percent, you lose 0:10:07.040 --> 0:10:10.000 forty percent of your money. So it's like the structure 0:10:10.080 --> 0:10:12.640 is not like a lot of structure notes. It's like 0:10:12.679 --> 0:10:14.600 you can tell the story and I supposed you know, 0:10:14.600 --> 0:10:16.839 you're like if the market is down twenty percent, you 0:10:16.920 --> 0:10:19.200 lose twenty percent. It's like very easy to understand here. 0:10:19.240 --> 0:10:23.040 It's like you get this nice yield and sometimes you don't. 0:10:23.240 --> 0:10:24.720 And it's not like when the market is down twenty percent, 0:10:24.760 --> 0:10:26.600 it's like, yeah, like it it's like math and like 0:10:26.720 --> 0:10:29.360 sometimes you don't. Yeah, so it's an intuitive product for 0:10:29.400 --> 0:10:30.240 retail investors. 0:10:30.559 --> 0:10:33.400 Yeah, I'm interested to see if. I mean, just given 0:10:33.480 --> 0:10:36.800 how popular these types of ETFs would be if we 0:10:36.800 --> 0:10:39.240 were recording this in twenty nineteen, which we wouldn't, but 0:10:39.480 --> 0:10:41.160 I'd beel like, oh, who's going to buy this? But 0:10:41.200 --> 0:10:42.880 I don't know what could happen. It could see some uptick, 0:10:42.960 --> 0:10:46.480 but I really get it, So we'll see. Like, if 0:10:46.800 --> 0:10:49.480 you can't explain it in an elevator ride. 0:10:49.240 --> 0:10:51.160 You can explain it. It plays a high yield except 0:10:51.160 --> 0:10:52.000 when the market crashes. 0:10:52.200 --> 0:10:54.080 Except when the market crashes. Yeah, but it's you know, 0:10:54.120 --> 0:10:56.080 if the index is about. 0:10:55.800 --> 0:10:58.480 This level, if it's paying numbers, it's hard to explain. 0:10:58.559 --> 0:11:01.280 But well, yeah, a lot of stuff. It's not like 0:11:01.559 --> 0:11:04.360 floors and caps and everything. It's just like phase fifteen percent, 0:11:04.400 --> 0:11:08.440 except when the market's down more than this x percent. 0:11:09.800 --> 0:11:12.840 Something else that was wondering. You know, this has typically 0:11:12.880 --> 0:11:15.800 been the domain of you know, high net worth individuals 0:11:16.200 --> 0:11:18.680 who was making less money as a result of this 0:11:18.760 --> 0:11:22.400 being put in the ETF wrapper, Like does JP Morgan 0:11:22.480 --> 0:11:27.320 care if they're selling these two calamos versus selling this 0:11:27.400 --> 0:11:28.400 in some other structure. 0:11:29.320 --> 0:11:31.680 I always used to have the impression that structured notes 0:11:31.720 --> 0:11:34.200 had very juicy fees. Yeah, but I actually I think 0:11:34.200 --> 0:11:36.959 it's like kind of a competitive business that's not that juicy. 0:11:37.240 --> 0:11:40.679 Yeah, well this ETF charges like seventy four basis points. 0:11:41.440 --> 0:11:43.240 Yeah, but like with anything like this, like there's a 0:11:43.280 --> 0:11:46.600 lot of mouths to feed, and like, yeah, they're doing 0:11:46.640 --> 0:11:49.040 a swap with japing Organ, which is probably a JP 0:11:49.160 --> 0:11:50.959 Morgan expects to make a certain amount of money and 0:11:51.000 --> 0:11:55.520 then swap. I don't know, it's hard to exactly compare 0:11:55.559 --> 0:11:57.200 the pricing of those to a structured note, But I 0:11:57.200 --> 0:12:00.400 don't get the sense that, like I think deserve these 0:12:00.400 --> 0:12:02.280 are a comparable products, right, Like these are sort of 0:12:02.360 --> 0:12:07.040 advisor sold like upper end retail products, and so like 0:12:07.120 --> 0:12:09.480 you know, they're all kind of competitive spaces. But this 0:12:09.600 --> 0:12:14.720 is not like wildly undercutting some super lucrative, uncompetitive business, 0:12:14.840 --> 0:12:16.719 right Like the structured notes is like everyone's kind of 0:12:16.720 --> 0:12:17.240 in on that game. 0:12:17.440 --> 0:12:21.480 Okay, good, you were worried JP Morgan is in losing 0:12:21.520 --> 0:12:37.720 out on anything. Yeah, to move onto the next JP 0:12:37.840 --> 0:12:41.840 Morgan story, I guess the prior credit trading story private 0:12:41.960 --> 0:12:42.760 credit trading. 0:12:42.920 --> 0:12:45.680 It's so good. Yeah, so right. There's a Bloomberg story 0:12:45.679 --> 0:12:47.400 this week by Ellen Schneider and Carmen. 0:12:47.200 --> 0:12:49.680 Araya, A bad how, such a fun read. 0:12:49.800 --> 0:12:52.640 Japi Morgan has stood up this entire private credit trading desk, 0:12:52.679 --> 0:12:56.000 which is so smart, like getting in early on what 0:12:56.160 --> 0:12:59.199 is quite plausibly going to be the next bank line trading, 0:12:59.240 --> 0:13:02.559 like a huge business. But unfortunately they don't do any trade. 0:13:02.679 --> 0:13:04.120 No one wants to trade with them. 0:13:04.240 --> 0:13:05.200 Now you have to start. 0:13:05.520 --> 0:13:07.760 Yeah, yeah, it's. 0:13:07.640 --> 0:13:09.079 Not that no one wants to trade with them. The 0:13:09.520 --> 0:13:12.280 product doesn't trade. Yeah, that's not entirely true. Some of 0:13:12.360 --> 0:13:14.040 it is that no one wants to trade with JP Morgan, 0:13:14.360 --> 0:13:16.560 And like there are some private credit firms trying to 0:13:16.559 --> 0:13:18.839 stand up trading desks, and like maybe it's just the 0:13:18.880 --> 0:13:21.920 competitive dynamic, but I think ninety five percent of it 0:13:21.960 --> 0:13:25.240 is that these loans don't trade and people don't want 0:13:25.240 --> 0:13:30.000 them to trade. Yeah, and so JP Morgan constantly sends 0:13:30.040 --> 0:13:33.640 out runs saying we're looking to buy five million dollar 0:13:33.760 --> 0:13:36.920 chunks of like these forty loans, and here are our bids, 0:13:37.200 --> 0:13:38.400 and everyone's. 0:13:37.920 --> 0:13:41.439 Like thank you, shooting out those runs into the void, and. 0:13:41.400 --> 0:13:43.400 Then they're calling and saying, hey, I just want to 0:13:43.440 --> 0:13:47.040 see if you got my run and I was like, goodbye, God, Yeah, 0:13:47.080 --> 0:13:48.480 it's really bad. It's great. 0:13:48.720 --> 0:13:50.960 The human psychology of that is just brutal, I know, 0:13:51.040 --> 0:13:51.959 but it's what you got to. 0:13:51.920 --> 0:13:54.320 Do, right, And you know that, like the people doing 0:13:54.360 --> 0:13:56.240 that are like, well, this is my shot at like 0:13:57.040 --> 0:14:00.640 being the person who invented a whole new category and 0:14:01.120 --> 0:14:03.120 bringing in, you know, hundreds of millions of dollars of 0:14:03.120 --> 0:14:07.440 revenue and being a superstar. But one, it's not guaranteed 0:14:07.440 --> 0:14:09.280 that will work out. And too, it is guaranteed that 0:14:09.320 --> 0:14:10.800 before it works out, I will spend a lot of 0:14:10.800 --> 0:14:13.440 time could calling people and getting nowhere right. 0:14:13.520 --> 0:14:17.240 Yeah, And I mean as a journalist I sympathize. Yeah, jeez, Louise, 0:14:17.280 --> 0:14:17.840 I hate could. 0:14:18.280 --> 0:14:20.840 As a not very good investment banker in my former life, 0:14:21.280 --> 0:14:24.360 I think about like how long one could have zero 0:14:24.400 --> 0:14:27.000 in one's p and L. Yeah, you know, like they've 0:14:27.040 --> 0:14:29.200 got some run back, right, No one's expecting them to 0:14:29.240 --> 0:14:32.240 do a lot of trade this month. Yeah, at some 0:14:32.280 --> 0:14:33.440 point someone will be like, hey. 0:14:33.320 --> 0:14:38.120 Guys, well there's a few interesting reasons in the article 0:14:38.200 --> 0:14:40.480 that are raised for why JP Morgan is getting shut 0:14:40.480 --> 0:14:43.600 out one is that the private credit firms want big 0:14:43.640 --> 0:14:44.960 banks to stay out of their turf. 0:14:45.040 --> 0:14:47.040 Like, I don't think that's the main reasons presented as 0:14:47.040 --> 0:14:49.200 a reason. That's part of the competitive dynamic of like 0:14:49.240 --> 0:14:51.160 we want to free that bank, and that might be 0:14:51.200 --> 0:14:54.280 part of it. I think the main reasons m hm, Okay, 0:14:54.280 --> 0:14:56.480 So I think like an important reason that the article 0:14:56.560 --> 0:14:58.800 highlights that I think is the second most important reason 0:14:59.320 --> 0:15:01.720 is that this is what Cliff was talking about when 0:15:01.760 --> 0:15:02.360 he came on. 0:15:02.680 --> 0:15:03.680 Like nice callback. 0:15:03.880 --> 0:15:07.640 Private markets are very attractive to a lot of investors 0:15:07.880 --> 0:15:11.520 because they are less volatile than public markets. And if 0:15:11.560 --> 0:15:13.280 you think about that for a fraction of a second, 0:15:13.360 --> 0:15:15.960 or if you talk to Cliff, you'll be like, wait, magic, 0:15:16.080 --> 0:15:18.960 they're not actually less volatiles. They don't trade, so you 0:15:18.960 --> 0:15:21.960 don't see the fluctuations and the values that you see 0:15:21.960 --> 0:15:26.320 in public markets because they trade constantly and so nonetheless, 0:15:26.400 --> 0:15:29.160 like you know, as Cliff has written about, like there 0:15:29.240 --> 0:15:33.160 is for some classes of investors, like a real value 0:15:33.160 --> 0:15:35.960 in not having to mark down your positions. Yeah, and 0:15:36.600 --> 0:15:42.680 if private credit loans traded constantly in a liquid market 0:15:42.680 --> 0:15:45.240 that everyone could see, it would be harder to not 0:15:45.360 --> 0:15:48.240 mark down your positions. When they went down in the market. Yeah, 0:15:48.360 --> 0:15:51.400 and then some of the perceived advantage of private credit 0:15:51.440 --> 0:15:54.960 would go away. And nobody trying to stuff private credit 0:15:54.960 --> 0:15:56.920 into four one case it's going to be all that 0:15:56.960 --> 0:15:59.600 excited about like increasing the volatility of the market. So 0:16:00.240 --> 0:16:04.640 that is I think the second most important reason still. 0:16:04.680 --> 0:16:06.920 I mean, you have Apollo trying to do that, trying 0:16:06.920 --> 0:16:09.680 to make trading a thing, but they're also trying to 0:16:09.840 --> 0:16:11.640 shove private credit into four to one case. 0:16:12.080 --> 0:16:13.600 Yeah, so this is the tension, right, Like you don't 0:16:13.600 --> 0:16:17.280 want volatility, yeah, but like you want retail customers, and 0:16:17.560 --> 0:16:21.760 it is hard to build a retail product that is 0:16:21.800 --> 0:16:24.400 completely a liquid yeah, but it makes sense. There's like 0:16:24.440 --> 0:16:27.960 an economic intuition for like you can put private credit 0:16:28.280 --> 0:16:30.320 into your four oh and K or your target date 0:16:30.360 --> 0:16:32.800 fund and you'll know with certainty that you won't need 0:16:32.840 --> 0:16:34.960 the money for thirty years, so that you can take 0:16:34.960 --> 0:16:37.120 the ill liquidity risk. You don't need liquidity because you're 0:16:37.160 --> 0:16:40.240 a long term saver, right, But nobody actually believes that 0:16:40.280 --> 0:16:43.200 because like retail is like it's hard to lock up 0:16:43.240 --> 0:16:47.120 retail for ten years, right, and so in practice to 0:16:47.160 --> 0:16:50.160 have a retail product, you need something like at least 0:16:50.160 --> 0:16:53.320 an interval fund and maybe an ETF right and an 0:16:53.320 --> 0:16:55.320 ETF if you need trading, right, like you need to 0:16:55.320 --> 0:16:57.800 be able to trade this stuff. So yeah, like there 0:16:57.840 --> 0:17:00.640 is definitely a push for trading a private to get 0:17:00.640 --> 0:17:03.320 it into retail. It's all right, so becuse the other way. 0:17:03.520 --> 0:17:05.359 But I do you think the most important reason that 0:17:05.400 --> 0:17:08.800 it's hard to trade private credit is that the deal 0:17:08.840 --> 0:17:13.240 that private credit firms are offering to borrowers like private 0:17:13.280 --> 0:17:17.200 equity sponsors is we will look you in the eye 0:17:17.240 --> 0:17:18.800 and write you this loan, and we will own that 0:17:18.840 --> 0:17:21.800 loan for the duration of the loan, and if you 0:17:21.840 --> 0:17:24.120 have problems, you come to us, and like, we won't 0:17:24.119 --> 0:17:27.520 be jerks because we're repeat players in this game. And 0:17:27.600 --> 0:17:32.800 so once private credit trades, like you know, there's opportunities 0:17:32.840 --> 0:17:36.520 for vulture funds and activists and like you know, loan 0:17:36.560 --> 0:17:39.919 to own investors, and so it's less pleasant for the 0:17:39.960 --> 0:17:43.040 private equity sponsors. And so you know, as they say 0:17:43.040 --> 0:17:47.280 in the article, you know, unlike most bonds, private credit 0:17:47.320 --> 0:17:50.560 loans require the approval of the lead lender and the 0:17:50.560 --> 0:17:55.040 private equity sponsor to trade. So even if JP Murrien 0:17:55.080 --> 0:17:56.480 could get someone to sell them, they'd have to go 0:17:56.520 --> 0:17:58.120 to the sponsor and say, hey, can we buy this loan? 0:17:58.200 --> 0:17:58.879 The sponsor could. 0:17:58.720 --> 0:18:03.440 Say no, yeah, which they have veto power. Basically, Yeah, 0:18:03.560 --> 0:18:03.920 it's not. 0:18:03.960 --> 0:18:06.720 Just veto power. It's not just like we don't want 0:18:06.800 --> 0:18:08.720 our loans to end up in the hands of like 0:18:09.080 --> 0:18:12.040 activists we're scared of. It's also just like we want 0:18:12.080 --> 0:18:15.960 our loans to be held by five people we negotiated 0:18:16.000 --> 0:18:18.800 with rather than like any random person. Yeah, because we 0:18:18.840 --> 0:18:21.359 want to be able to have a relationship with them 0:18:21.520 --> 0:18:24.720 if we need to you know, extend or refinance the loan, 0:18:24.800 --> 0:18:26.560 or you know, we run into problems or we need 0:18:26.600 --> 0:18:28.320 to restructure, Like, we want to be able to talk 0:18:28.320 --> 0:18:29.959 to people who we know and who like we have 0:18:30.000 --> 0:18:33.600 a long term, repeat relationship with, rather than you know, 0:18:34.359 --> 0:18:39.000 some random CLO manager. Yeah, and so that makes it 0:18:39.040 --> 0:18:40.080 hard to trade re regret it. 0:18:40.320 --> 0:18:42.560 So how does this evolve? I know that you're in 0:18:42.640 --> 0:18:46.160 the camp. It seems that it kind of feels inevitable. 0:18:46.240 --> 0:18:49.200 Yeah, I think so, But there's like a real cut argument. 0:18:49.480 --> 0:18:52.320 Yeah, and you also have I mean, like you said, 0:18:52.320 --> 0:18:54.399 the private equity sponsors don't want this. You also have 0:18:54.440 --> 0:18:56.879 like the likes of Blual who thinks that private should 0:18:56.880 --> 0:18:59.840 stay private. I mean, like, how do you see this evolving? 0:19:00.320 --> 0:19:04.399 Will there be a corner that remains in the shadows, 0:19:04.680 --> 0:19:07.199 or do you think that everything eventually will be out 0:19:07.200 --> 0:19:08.080