Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast.
We are going to continue to monitor markets throughout the day here, of course, but right now we have a very special guest with us here in New York City. We've got Kristin Olsen. She's a partner of Alternative capital Markets at Goldman Sachs. She's here to discuss investing strategies and give us her outlook for alternative markets. She was also in a great panel this morning that was far too short about positioning for a recession, so we're gonna
get some more time with her. Thankfully, Kristen, thank you for being here with us in person. I imagine that all capital markets are very attractive right now as we're in this recessionary environment.
Can you talk to me.
About what business is looking like for you?
Sure?
Well, I would say clients are increasingly upping their allocations alternative. So we've always had a very big strategic weight towards alternative investments. And I think what our clients have seen over the past twenty five years is the private markets have generated real alpha versus the public markets, and they've seen it with less perceived volatility and correlation to traditional markets.
And so obviously that's attractive right now. I think when people are looking under the hood at where an alternatives, they focused traditional private equity. In this market, secondary private equity is particularly compelling. Obviously, liquidity is at a premium, and so the opportunity to buy private equity at a
discount is pretty compelling right now. And then in this environment private credit, the ability to be top of the capital structure and in this market yet double digit un levered returns is very very compelling.
Christian, I'm down here in Orlando, Florida today at the B and Y Melon Persihing Insight Conference, and what we've heard of yours, retail investors really have an appetite for alternative investments.
How do you view that source of wealth, that pool of capital.
Certainly we see that as a very big growth opportunity. I think that market and those investors have not has had as many opportunities to get into alternatives. And what we're seeing over the last couple of years or some new opportunities in private credit, in particular with the advent of a number of these non traded BDCs that provide
quarterly yield and access to this type of private credit market. Similarly, we've seen the private real estate side non traded wreaths, and both of those are structured to accommodate a broader universe of investors than traditional alternatives are available to. And then I think the next question will be how does that investor based access private equity and what structures will become available in that space.
Within reads which is so interesting that you bring up Can you talk to me a little bit more about that and what clients are interested in.
So from from my client base, they're looking more at the and this is on the private well side, ultrahigh net worth and if we even go down to kind of mass affluent, it's more of the private rate market as opposed to the public rate market. But you know,
I think there's some hesitancy right now. You know, those investments have a fixed yield in an environment where private credit with floating rate, floating yields are probably a little bit more attractive, and I think there's a little bit of a wait and see as where do the real estate values for existing pools of assets shake out, and probably some concerns in the near term about where evaluations are going.
So Christian, you mentioned earlier private credit, and that's a business that I think if I were to come back again and start my Wall Street career all over again, that would be an area that I would look really hard at. I'm just amazed at the amount of capital flowing to private credit.
What's your view of that that market?
We think right now it's quite compelling. Look, obviously, there's been a big pivot post the global financial crisis. Right banks pulled back significantly from this type of direct lending, and alternative credit providers stepped in. So I think you have, you know, five times the amount of capital in that space then you did back in two thousand and nine. And then if you sit here today and you look at you know, base rates up five hundred basis points,
credit spreads widening. If you can pick the right managers that can select the right credits. Unlevered yields of ten plus percent and levered returns that are low teens, you're not that far off from the returns that investors might
be thinking of for private equity. And so, you know, we think that risk return today is very attractive and hence you're seeing a lot of capital flow into that space, and particularly if we've been in a yield starb environment and that yield's pretty attractive today.
Is that changing the calculation of the traditional sixty forty portfolio? Have we moved past that at this point?
Well?
Look, I mean I think underneath sixty forty there's always a lot of asset classes in there, and from my perspective, we have a big strategic weight to alternatives, and so private credit would be part of that, you know. And so for us, we think about a moderate client approaching twenty five percent, and alternatives and private credit would be a part of that twenty five percent.
Christin, you know, I've done some work with some university endowments and I am just I'm not shocked, but I'm just really surprised at how much endowments have leaned into alternative investments, some of them at thirty to forty percent of their endowment in alternatives.
How do you view that source of capital.
Yeah, look, they've traditionally you know, I think they're leaning in. I would bet they're leaning in even more than that today. So they've always been one of the largest allocators allocators alternatives. I think what you're seeing is the individual investor kind
of getting up closer to those levels. You know, we just did our Family office survey and you know, when we went out to that universe of investors, we saw that they were on average allocated forty four percent to alternatives, so even higher than where you see kind of the endowment community. And then further, they're actually mostly looking to actually increase that in the coming year. So you know,
I think you're seeing a bit of a pivot. Obviously, we talk a lot about the institutional world having a bit of a denominator effect right where their alternatives have performed, their traditional assets values have you know, declined, and as a result, they're actually not able to keep adding as much as they have historically, whereas the individual community, the family office community, is actively adding to their alternatives allocations.
When did this start? When did the interest start to really pick up?
I would say for the ultra high net worth community, there's always been very meaningful interest, and the reason being that that investor base has the ability to endure the ill liquidity and thus benefit from the ill liquidity premium in those markets. But over the past several years, I think you've seen even more of a lean in to
alternatives from that channel. And then I think you're seeing growth, you know, as we alluded to in the in the retail space and the ultra high net and the mass affluent space, as more and more people want to access the alpha that is generated in these markets.
Kristin, what does the data show historically about how alternatives as an asset class perform in what could be a recessionary environment, however shallow it may prove to be.
Yeah, Look, I think if we look at the past twenty five years private equity, the median private equity manager has generated positive returns, although they've varied every single year for the last twenty five years. And if you think about what the alpha, so the outperformance that they're generating relative to traditional markets, the median managers across buyot and growth have done three to five hundred points basis points
a year better than their public market equivalent. And if you go to top quartel managers that our performance is going to be even higher. And so again, if you have the ability to endure the illiquidity in this asset class, you are getting rewarded even with the median manager, but obviously more important to pick top quartel managers in this space.
Looking a little bit more broadly, kristin, what's your outlook for the rest of the year. What are you most concerned about and what are you excited about? What's keeping you up at night and helping you go to sleep?
Oh gosh, one of my most concerned about. Well, look, I mean I think everyone is concerned about, you know, the possibility of actually going into a recession, although it seems like some of those fears are abating a little bit. I think the beauty in the ASCID class I focus in though, is all of these things create different types
of opportunity. So when you look at the hood under the hood, if we do go into a recession or hip bumps in the road, you know, we'll start looking at managers that can think about how to provide capital into those disruptions, right, whether it's a special situations manager, strategic lenders, distressed managers. So I think you know, the theme of this right as we think about a recession, we were there opportunities. I think in alternatives you will
see opportunities. They'll just be different than the opportunities that we were excited about maybe three or four years ago, which happened to lean a lot into growth and tech and venture. That being said, you know, with valuations down a lot, there's going to be opportunity in that space as well going forward.
Kristin, thank you so much for joining us. Really appreciate getting some of your time. Christin Olsen, she's a partner Alternative Capital Markets at Goldman Sachs, so getting some good thoughts there on the alternatives market.
You're listening to the team. Ken's her live program, Bloomberg Markets, weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Madison Mills in New York.
I'm down here in Orlando, Florida at the BNY Melon Pershing Insight Conference. Having a great time down here, but unfortunately I miss hanging out with my buddy and Maletti. She's Offsprings, head of Active Equity. She's in New York with Madison and great to talk to you as always. I'm seeing a market here in where I've got seven stocks basically driving the entire bu for the S and P five hundred. Is it time to look for some names that might be getting lost here?
I think it is, Paul, and I'm sorry I'm missing you here in person, but good for you to be in Florida. It is the interesting thing, though, is if you do look underneath and find time to dig around, there are some really interesting stocks and more dispersion when you look down cap, when you look in the mid cap space, and when you look in the small cap space, there's a lot more dispersion. And believe it or not, companies are really moving on fundamentals.
What are the fundamentals that you feel are most important to you when sussing out these quality companies?
Yeah, you know, Madisine, I'm glad you said it, because the key really is quality, and I know people are tired of hearing it. But when you have uncertain futures like we do now, an uncertain future and so many macro things that are quite honestly just nobody really knows what's going to come next, you have to look at quality. For us, that's really balance sheets. It's do they have free cash flow? Can they support and direct their own future?
And clearly, and Paul, you know this probably better than I do. Management teams that have had experience dealing with difficult times too really helps.
Sounds that sounds a lot like active management. And so I mean, I mean, how do you think about it? I mean, one of the things I'm concerned about is there's still maybe some earnings risk in this market here.
How do you think about that issue, that potential headwind?
Yeah, you know, Paul, we've been in an earnings recession and I think that is something also that gets lost. Up until this last quarter, you know, we have seen earnings declines almost across the board, except for again a few names here and there. Even this quarter we had very little earnings growth. In fact, I think it only came from two sectors, technology and industrials. But we are seeing companies that are being able to hold margins pretty well,
being able to hold arnians pretty well. Those are the type of companies that we're looking for. We do think the future is going to continue to be uncertain, but wouldn't exit the equity markets because we still even if there is a downturn, think there's going to be opportunity and companies that can adapt and do well, and so still kind of bullish on the unique opportunities, not the overall opportunity.
And as Paul mentioned, it's these seven names driving a lot of the rally that we've been seeing. When you look further down the pipeline, what are some of the names or themes if you don't want to talk about names that are that investors are missing out on right now?
You know, the small and mid cap space I think has almost been left for dead. They've underperformed. The Russell two thousand has underperformed the Russell three thousand five of the last consecutive years and nine the last eleven years. History would suggest that can't go on for much longer.
So whether or not we're going to see the larger cap names start to sell off or the smaller cap names start to outperform, I'm not sure what's going to close the gap, but something has to give there, and so I think the smaller and mid cap space has a lot of opportunity. And what I'm hearing from our investment teams is they're seeing it and they're finding it there. Also, when the economy slows and we've gone from six percent growth down to one, those smaller cap companies tend to
have faster growth. The only thing I would caution is if we do head into a recession, you could see a little bit of pause before you see that acceleration.
Hey, and in a world where an investor can get four and a half percent into two year treasury, you know how important now are dividends to you and your teams here. We had a guest on a few months ago that said, you know, this is going to be the decade of the dividend.
How do you guys think about that?
I do think it's really and Paul, I mean, if you can get dividends on top of an equity return, that's going to be much more attractive than it was before. I think investors, you know, in a double digit teen high teen twenty percent return market, people don't really care about the dividend. But if we are now in a lower return environment where equities return you know, high single digit, if we're lucky, that's going to be the return. A company that can produce a dividend on top of that,
that's going to be pretty interesting. And by the way, it's also a sign of quality that a company has the ability to pay the dividend and maybe increase the dividend over time.
Quality always makes me think about Apple. Uh what do you think about the Apple? I mean, is it just way overplayed at this point?
You know, it's interesting because I don't think I mentioned the stat but you know, the entire market cap of Apple near three trillion dollars. You know, it might be well deserved. I'm not going to sit in the seat and say that it's not. We probably won't know that for the next.
Year or two.
But the entire market cap of Apple is bigger than the entire market cap of the Russell two thousand. So do you want to own some of those two thousand companies or one individual company? And I just think the risk reward is a little bit less certain with Apple at these prices.
And you know it just you know, a month or two ago, all we were talking about was the health or the potential headwindow of the US banking system, and you know, a handful of names really had had some trouble.
There is it time to look at some of those regional.
Banks because it seems to have, you know, kind of those concerns seem to have been laid a little bit.
Yeah, Paul, what I'm hearing from our investment teams on the banks, you know, there are probably some opportunities, but I think there is also, you know, a real, a real thoughtful approach that our teams are taking because they know that more change is coming. We're seeing regulators suggests that more capital is needed at the big banks. Clearly
that's coming down to the smaller banks as well. I don't know that we've seen the last shoe to drop on the smaller regional banks from everything that I'm hearing from our investment teams, So I you know, I'm not sure that it's time to run and grab all you can get in that space.
We have like thirty seconds left here. What does that shoe drop look like?
You know, That's that's the million dollar questions, And I wish I could answer that. I think, you know, we're all trying to figure out. You know, there's there's always cracks that you see in the market, and you're always
trying to figure out. I'm certainly a big warrior. I would I would say that the likely next shoot to drop is the economy is going to see, you know, more pressure, the credit tightening that's likely to come from these This bank weakness could create pressure across the board, and that's that's probably the most likely scenario with Aunay Blackslaw, Yeah.
And great stuff.
As always, I always appreciated getting a few minutes of your time, particularly when you are in the big town. And Maletti, she's all Springs, head of Active Equity and as I say, time and time again, pound for pound, I think some of the smartest investors are from Milwaukee, Wisconsin.
And I don't know why, but there's a lot of good folks out there doing a lot of good work.
You're listening to the tape. Catch are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Now we're going to go to an interview with coinbased CEO and co founder Brian Armstrong. He sits down with Bloomberg shanale Bassic after the sec suit Coin base for a range of alleged violations.
Let's go to the conversation right now.
Do you think you're going to have to go here?
Yeah, Well, this was not unexpected. You know, we've been in discussion with the SEC for a long long time, even going back to before we were a public company.
We started sharing with them how we.
Operate our business, how we list assets on the platform, how we think about our staking program, and through a large number of dialogues back and forth, they allowed us to become a public company. You know, we had many discussions with them in the last year when their tones started to change and they started to come to us with more questions about the business.
So we were very forthcoming.
We met with them probably thirty times over the last year, and we started to kind of ask them for feedback, and we said, you know, we would like there to be a robust market in the US to trade crypto securities. Of the thousand plus assets we've reviewed today, we've rejected ninety percent of them, the ones we we believe our commodities. What feedback do you have for this for us? How can we come in and register, how can we work together? And unfortunately we were met with silence. We really got
no feedback in those thirty meetings. The first meeting where they were scheduled to come and give us feedback, they canceled it a few days before that, and then we got a wells notice a few days after that. So it's really unfortunate. We work with regulators all over the world,
other regulators here in the US. I think I'm a reasonable person to get along with, but unfortunately the SEC under this chair has taken a regulation by enforcement approach instead of creating a clear rule book in the US that can allow this industry to be built in a safe and trusted way.
You know, when was the last time you personally met with Gary Gensler and what did you say?
Right?
So, when he first came in as the chair, I flew out to New York. I reached out to him. Our team has reached out. I tried to make an effort to connect with him in person, because that's what I try to do whenever a new regulator kind of comes in. Unfortunately, we were not able to connect at that time. I'm not sure why we couldn't get on his calendar, and we followed up a few times in the in the year after that, we eventually got a
meeting that was virtual. You know, it may have been COVID related or something like that, but we were able to get a virtual meeting. But unfortunately, it was frankly like a pretty icy reception. I would say, you know, we sort of came in hat in hand and said, hey, chere, Gensler. You know you've asked people to come in and register respectfully, We're here to register. What would you like us to do? What process would you like us to go through? And
his response was, you know, talk to your lawyer. I'm not here to advise you. And that was kind of how the conversation started. And so and at that point, you know, we realized there was a gap. You know, we felt like this was an important technology that we felt needed to be built in a safe and trusted way here in the US, in a way that consumers were protected. And I don't know what his motivations or person, you know, his personal views were, but it didn't seem like he was on the same page.
So what does this mean for you? If the government cracks down so hard on crypto on coinbase sec? Does coinbase exist in five years?
Absolutely?
We do, And I want to make an important point, which is that the SEC chair may have a certain point of view, but that's not representative of the whole US government. In fact, quite the opposite. I would say the SEC Chair as a bit of a really an
outlier here kind of in the US government. So when I meet with members of Congress, I think the broad consensus probably amongst eighty percent of people I talk to both sides of the aisle, it's a pretty it's a pretty reasonable view they have, which is, we don't know exactly what this technology is going to become, but we're seeing every other major financial hub in the world move towards clear legislation. We need to make sure that this innovation happens in the US in a way that again,
let's just protect consumers. Let's supply some basic good ideas around a mlky C and audited financial statements and make sure there's no wash trading. Let's create a clear market structure where you know, businesses cannerstand, which is CFTC, SEC, who should who should they talk to about which types of assets? So Congress is recognizing this, and the White
House is as well. Actually, the Biden administration put out in an executive order about a year ago, kind of asking all the branches of government to sort of say, get your act together on crypto. We don't there's some risks, but there's some real important opportunities with this technology.
Let's create a clear regulatory framework.
Will you fight this all the way to the Supreme Court? Do you think you'll have to? And do you have the financial resources to do that?
Yeah?
So even if this takes some time, you know, that's okay. We've so in Q one we were adjusted a bit a positive as a company, even in the depths of this crypto bear market, if you want to call it that.
We have over five billion dollars a balance on the balance.
Sheet, right, So, and frankly, even though that this complaint came in from the SEC, it's really business as usual today, right. We're continuing to trade the assets that we have on our platform. You know, we trade over two hundred assets on our platform. The SEC complaint mentioned just thirteen of them, so a relatively small percentage of the assets we trade. We also have business overseas and other countries.
We arrive a lot of.
Revenue from other sources that are not related to trading fees. So you know, Coinbase is well capitalized and adjusted a bit A positive and key one. I think we're going to be fine going to court. In fact, it's a relatively small portion of our company that you know, we have a great legal team, policy team, et cetera that's working on this, and what I really want, you know, ninety ninety five percent of the company to be focused on is just building great products for our customers and
making sure we don't lose sight of that. And so this is a very serious matter that I'm going to work on with a couple of our executives, but really the vast majority of the company needs to keep building because that's how this technology is going to ultimately benefit a billion people hopefully.
How long does the regulatory overhang last? The reality is this could take many, many months. And do you think that your investors might lose some faith or even your customers while you go through this?
Yeah?
Well, I mean, look, this is not a new concept, right, There's been lots of discussion. The SEC has had rhetoric around this for several years that I think has influenced the market. And so the investors in coinbase, are you know, comfortable with that if they're because there. It's all public, right, and it's not like some secret thing that's being revealed. And I think they're taking a long term view that
Coinbase is a very different company. We're kind of in an end of one right, We're we're really the only company that was based here in the US that went public that has audited financial statements that's taken a compliance first approach.
You know, even in this.
Recent sec complaint by the way that came out yesterday, it was unfortunate they sort of did it back to back with other another complaint that went out there. You know, that may have been intentional to try to conflate the two, but I think people are smarter than that, and they recognize that. You know, this complaint against Coinbase, there were no allegations, no allegations of misappropriation of customer funds, there was no allegations of wash trading. You know, myself and
the executive team were not named person only. It's really debating this more technical legal question of are some of these assets commodities or are these securities?
And I think that's.
Something the court will have to decide to sort of get some legal pres some case law out there, which will ultimately benefit us, because that's what we've been asking the sec for for a long time, is how do we get more clarity? So if we need to go to the courts to do it, it's not our first choice. We'd rather the regular had just published a clear rule book. But if they're not going to do that, the courts are there in the US to avail ourselves up.
So part of this was about securities being registered or not in terms of how they're listed on your exchange, But part of this was about staking also, So staking obviously is becoming a more important part of the crypto ecosystem. Do you plan based on how the regulators are treating staking to wind down your staking service?
No, we're not going to wind down our staking service. Again as these court cases play out, it's really business as usual. We're going to continue to operate.
That.
You know, snake staking only represents about three percent of our net revenue, but it is a it's a very important function in the crypto community, and it serves an
important part of these decentralized blockchains. And I guess I should mention also that you know, Coinbas's staking product is architected and built in a way to be compliant, and we've actually think it's materially different than some of the other ones out there which have been called staking, and so yeah, we're going to continue to operate our staking business.
So if users wanted their funds back in the staking service at this point in time, does Coinbase have the ability to service that at scale in case that there is a larger run on the staking business.
Yeah, So you know, staking is really something that's a decentralized part of part of these decentralized protocols. So Coinbase is really just you know, it's a pass through mechanism. We're helping people access these decentralized protocols. So some of the decentralized protocols have, for instance, like a lock up period of you know, some number of days when you initiate the withdrawal request, and so we're just making that
kind of information available to the customer. But it's yeah, you know, all the the funds are there backed one to one that when you're when you're staking something, it's being pledged into these these decentralized protocols, and we actually don't even have the ability to you know, move it somewhere else at that point it's we're just giving people access to these centralized protocols.
So the business face withdrawals, does that have a material impact on Ethereum's price? And how does claimities prepare for something like that? What do you mean is there kind of a broader run that you have to be prepared for?
Oh well, okay, so in in our business, we're not We're not a bank, right, we don't do fraction reserve, and so there's not really this concept of a run. Right, all the all the funds are there, backed one to one and you don't have to take our word for it. You know, are as a public company, we have auditors Deloitte in this case, who's gone in and verified all of that. You can kind of confirm it in our
financial statements. So you know, if people want to withdraw funds, they one hundred percent of it is there.
There's no such thing as a run really.
So how do you answer the question of you know, on one hand, there is sec that is, you know, causing a big overhand in terms of both you guys and the industry. On the other hand, just financially, you know, rates are higher in the United States, people are more inclined to keep their money in a bank.
Why should they keep their.
Money with you? Well, what's interesting in crypto, there's been the evolution of something called stable coins, right, and so we're actually in consort with another company Circle in the space. We've created a USD coin, which is the second largest
stable coin out there. And as you've mentioned, interest rates in this environment, that's been both a good source of revenue for US, but it's also something that we've passed along to customers, so customers can actually earn rewards on USDC and get access to some of these higher interestate environments.
Brought our question not just about coinbase, but about the industry. As you know, more regulatory enforcement actions come to the forefront, how much of an over do you think that will have on crypto pricing?
You know, it's hard for me to say.
It was actually kind of surprising yesterday with this complaint that came out, crypto was up, which I would not have expected.
So I don't know what to make of that.
I don't know if it means that people knew something was coming but they expected it to be worse.
Than it actually was, or.
If they just felt that, you know, they're still a believer in it or something. But you know, I don't try to predict what's going to happen in these markets. You know, we don't operate a hedge fund or anything like that. We just want to provide a good service to our customers around the exchange and all the products we offer.
Before I let you go, I want to ask about not crypto. I want to ask about artificial intelligence. Even talking about it all day as a crypto entrepreneur, how.
Do you see AI?
Do you see it as a competing factor in terms of dollars going towards technology? Do you see dovetailing with your industry at all?
Well, AI is certainly one of those couple really important technology trends the US needs to get right, along with crypto, and I think we're seeing a similar question start to happen in Congress along with crypto, is like, hey, how should this be.
Regulated so it can be done in a safe, trusted way.
I do think there's a couple interesting intersections between AI and crypto. One of them is that you know, in the world of AI, there you know it's so easy to mass generate things, whether it's a news article or images, and so the provenance of those and the authenticity of it can be a little bit hard to figure out.
And in a world of crypto.
One of the great things about crypto, you know, with NFTs and whatnot, you can actually have a.
Digital signature that proves, you know, this.
Was issued by Bloomberg or by Brian Armstrong or whoever. So I think it could be useful to track the provenance of creative works, whether that's text, audio, video, et cetera. The other thing that might be interesting is that a lot of these these you know, bots or autonomous agents in the AI sphere, they're going to need to go get things done in the world. Right people are already using them to sort of say, hey, order my groceries or you know, maybe build this website and spin up
this server. And so they're gonna need financial money. They're gonna need money to go do things in the world, these these AI agents, and so I think that actually in the future you're probably gonna see a lot of crypto transaction happening between AI agents or AI and various businesses around the world because crypto is kind of the native money of the Internet.
The Internet. Internet is global, it's decentralized.
Every country everybody in the world can participate in it, and so it wouldn't really make sense to use you know, the dollar, the euro in a truly global context. If you you know what you want to be country agnostics. I think AI will use crypto more.
How much are you actually working on that future?
So our we're not trying to build something that is allowing bots to like transact.
In crypto at the moment. But what we are doing is we're building.
Good infrastructure, you know, picks and shovels, if you will. So with coinbas Cloud, for instance, we're making our APIs around how crypto is stored and transacted and commerce happens, and we're just exposing those kind of like Amazon Web services, but to any business that.
Wants to integrate it.
So I suspect more businesses will integrate that over time, and some of those may use AI. We're also using
AI in our business in a few other ways. I mean, we use it a lot for fraud prevention, you know, and unfortunately we get people signing up putting in stolen credentials and things like that, and so we've developed a lot of really good machine learning to detect that, and you know, we're occasionally we're testling it in a few other areas too, just like around Actually, like you know, our design teams, they'll sometimes look at mid Journey or
DOLLI and sort of generate an interface using ANI at least, like you know, show me five ideas for what an interface might look like to do remittances in crypto or for content creators to have a direct relationship with their audience, and what with the interface for that? And AI is just like a great assistant, you know, it doesn't. I don't think AI really is taking people's jobs. It's taking tasks off their plates, largely to make their jobs more efficient.
And so having like a you know, a research assistant or someone like that, you know, a tutor or a mentor or a therapist whatever. Everybody can have one of these paired with them, and I think it'll just make humans more productive.
Ran we're out of time, but thank you so much for your time as for taking our questions.
Thank you.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Bn Y Melan Pershing, it's a conference boy. The story for me over the last twenty four hours as an avid golfer, an avid watcher of the world of the business of golf, is the merger between the PGA Tour and the Live Golf.
No, what's all that coming? Including me? Leanna Baker joins us.
She's a US deal's team managing director with Bloomberg News.
Leanna, what what happened?
Because this is one hundred and eighty degree return for the PGA who said they would never merge with Live.
You mentioned that you're still shocked by this news. I am too. But from what we understand, over the past seven weeks, both sides had been talking. It had very secretive, very few bankers or wars involved. It seems like meetings happened all over the world. We heard in Venus, Italy, there was a meeting they closed the deal. In San Francisco.
There's also meetings in London, and they really kept us close to the best and they didn't want it leaking out to anyone because they knew how controversial and explosive this merger would be.
And now we're hearing about potential antitrust scrutiny. What's the likelihood of that becoming a big issue for both sides here.
This is something the government will definitely review. They look at most mergers. You might recall that LIVE PGA had been suing each other over things related to anti trust, so it had already been kind of kicked up as an issue. Live had been accusing PGA of, you know, blo walking them out and being a monopoly. So this is something that you know, they've dropped all litigation. So the question is who will really oppose this deal, Who
would really complain to the government. The Saudi's clearly of very deep pockets. There's probably going to be a lot of lobbying happening. So at this point it's too early to know if this is something that'll be blocked because it seems like both sides really wanted to happen.
Lean The timing here seems really odd that, like they announced this yesterday, nobody knew, including you know, presumably Jack Nicholas, Tiger Woods, Rory McElroy, those types of people nobody really knew. Agents didn't know. They had little to no information to disclose so far about the details here, does it feel kind of half baked here that maybe they were their hand was forced to disclose something.
So I'm the managing editor of the deal's team of Bloomberg and we follow mergers all the time. It's really common for only a small group of people to know about a really important merger because leaks could kill a deal. Let's say uh Yasir el Rumayan, the Saudi executive charge was seen with the commissioner of PGA like that could have blown the cover. So it's not that unique that
these people weren't involved. What's unique is that there were so many high profile people who maybe could have known and didn't. What does still have baked is that there's no value on any of this. If you look at the statement yesterday, there's nothing mentioned. L Raumayan said that Saudi Pis is prepared for the best billions in the entity, but we don't have the details. That's something we're really
trying to dig into. What is this merger work, What is the value of PGA, What is the value of live We here it'll be sorted out over the summer. That's what's strange though, that we don't have any information at this point.
Is there any chance of this relationship alienating some fans or is that is that a concern for either side here or is it just you know, money wins.
Money definitely wins. That seems to be the lesson here. The question is, well the fans when I saw that, Rory mackelroy came out with a statement saying that this is going to be good for the sport. But long term, you know, Saudi has a history of human rights violations, and the question will be will fans be able to look past that when they're rooting for you know, another
Tiger Woods comeback. So it's a great question. But the PGA must have decided that for the long term health of the sport they were going to make more money with the Saudis than not.
So Leandy is getting you covered deals for a living here. What's the I mean, what's the next step here?
I mean?
Are are they going to try to release more information? What do you what do you expect to see?
So sources tell us that over the course of the summer more information will come out around the value of the deal. We've heard the Saudis are going to study the valuation of what each party brings to the table. In terms of assets. There could be an investment bank that's brought on. There already were bankers involved, but there
could be another one brought on. So I think the financial details will leak out over the summer, and this is a framework agreement, so we can see something more official tied up over the next few months.
Leanna, thanks so much for joining us.
Really appreciate getting the update, and you raise a fantastic point which I hadn't even thought about, which is no valuations were assigned here, and you just kind of get a sense like who can see upper handers from an economic perspective in terms of valuation. So we really appreciate Leanna Baker us Deal's team at Managing director with Bloomberg News.
Give I guess the latest.
Here on the PGA and the live tour coming together, a huge, huge develop in the world.
Of professional golfers. We're gonna have more coming up. This is Bloomberg.
You're listening to the tape. Can's a our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. Also listen live on Amazon Alexa from our flagship New York station. Just say Alexa playing Bloomberg eleven thirty.
Marty, thanks so much for joining us in New York.
We're all over the place here on a remote broadcast, and thanks so much for joining us. You know, I want to start with the issue that has been on every CEO's mind. I don't care if they're in the dog food business or in the technology business, they have to lead with AI, which back in the day we called it artificial intelligence. Marty, you sit on the board of Alphabet aka Google. One could argue that that is an existential threat to Google and a search business.
How do you guys think about AI?
Well, I think about AIS something that's the natural evolution of software. And it's amazing what's been going on in this latest evolution. And Google has been for some time an AI first company. It's been at least a decade since Sundar CEO made that declaration and and specifically bold and responsible AI. I think it's an incredible opportunity space for Google, and few institutions on the planet have the kind of the kind of human capital and other capital
resources dedicated to AI like Google does. It's an incredibly.
Exciting time, and you were just saying, the question is is it going to be five AI or is it going to be five billion?
Right?
If you had to bet, which of the two would.
You bet on?
Yeah, that's a great question. I really don't know the answer. It's these ais take incredible amounts of resources to train them, right, hundreds of millions of dollars, And so right now it looks like there's going to only be a few of these frontier models that have been heavily trained because they cost hundreds of millions of dollars to train. There could
always be some kind of breakthrough. The transformer paper that Google published in twenty seventeen, well that's the e in chat GPT that lopped off at least three orders of magnitude and the cost of training these models, maybe somebody will think of another one. There is a model that started with Meta that's out in the open right now and a lot of people are experimenting with that. To get to answer your question, if I have to call,
I would say it's probably gonna be a lot. Like cloud services generally, there's a lot of reasons why you want the compute to be in the cloud, and you're probably gonna want one of those lms that's been trained up on so much information, and you're definitely going to want data privacy and security and enterprise grade around it. And so I don't know how many of those they're going to be. And then I think open source AIS will be great for certain very specific vertical applications.
Marty. That's kind of where I wanted to go here.
I mean, you think about some of the applications of AI, and it gets very scary very quickly.
Is this thing? Is it even able to be regulated? If so, how do you think it might develop? Sure?
So I am for years a proponent of regulation. Of course, the right regulation, and that's the hard part.
Usually we need.
Some kind of crisis or calamity, and then the regulation happens after that. The financial crisis is a pretty good example. And then in the regulation you get ten thousand different things, most of which are probably not that necessarily or useful. But for instance the financial regulation, there was something that was incredibly useful, which was the capital adequacy tasks. Right, so we got something powerful and necessary out of it.
And so here I would like to get in front of it but still have a light touch right, So maybe there will be a thousand, or a million, or a billion flowers blooming with all of these With all of these AIS, I think we can take some pages from things that we have already learned about. So, for instance, electronic trading, there was a time when you could just a lot of orders into the exchange and maybe if your algo had a mistake in it, you had runaway orders and you lost a lot of money, and that
was really bad and it could destabilize markets. And so you ad you add some throttles, you add some checkpoints, you make sure that every so often you've once again demonstrated that you've got adequate capital to put those trades in. So we got to be extremely careful about the interface points between the AIS and the APIs into the banking system, the stock trading system, the air traffic control system, the electricity grid, all of those points. We need to have
a lot of belts and suspenders and controls around. We know how to do this. Actually we've been doing it since the railroad, so we've been doing this for hundreds of years, and so I might need some regulatory help to galvanize attention. A pattern might be something that happened
with gene editing. I'm old enough to remember back in the seventies when gene editing first came up as a possibility, there was a famous conference in a silomar where all the scientists and US, Chinese, everybody got together and said, let's put down some guardrails. So one of the things that came out of there is we can do gene editing in an organism, but not in the germ line, not the osites, not what could go on and permanently alter the human race. We're not going to touch that.
And those guardrails have served us reasonably well. They've been imperfect. There was a scientist in China, as it turned out, who went and edited the germ line, and the Chinese came down really hard on them. And I think this is something that we can share with China, is that nobody wants this to end up in a bad place for human civilization. Generally we have that alignment.
Are we already late on getting that for AI?
No, No, there's time, but time's a wasting and so in the short term, like this year, we need to start having the discussions, and they need to be done at an Internet national framework and there may be needs to be an international agency along the lines of the Atomic Energy Agency that sets standards on these controls, and then people can attest that their AI meets these standards and do it in a way. I think this is also important where a lot of flowers can bloom, right,
we want to do this in a careful way. But this kind of regulation does need to happen, and it needs to happen promptly. I'm not one of those alarmists. I do not see AI ending in the extinction of the human race. It is fascinating. If anything I see parallels to the dot com boom. Right, It's wonderful to see all this hype and then all the CEOs are talking about it, and out of the dot com boom, we got pets dot Com, and we also got Amazon and Google.
Right, yep, Marty, you know it feels like we're at the let's call it the top of the first inning, if you will, of this AI game year, and I think investors are struggling to maybe try to get some exposure to the opportunity here in for better or worse, in Vidia has I think kind of become that name where sure, if I got to own AI, I have.
To own in VideA.
But where else do you think investors should be thinking about investing in in what is you know, kind of an application or that we don't really know how it's going to evolve.
Sure?
Well, I'm a big believer that history doesn't necessarily repeat, but it does rhyme. And so if you look at past past booms, you see that there's this migration up the stack, up the logical stack of abstraction. Right so, right now in video is absolutely an obvious place to go. You can't get h one hundreds for lover money. They cost forty thousand dollars a pop and they've all been ordered years in advance, right, so that's great. What is
a higher level abstraction than video? Will You could look back at previous booms and you could say, well, and the next level of abstraction past the chips, was the phones, the smartphones, and those are pretty good investments. And then that would lead you, of course to Apple among the others, and then you got into the provider of software services around that mobile ecosystem, and that included many other companies Google,
Amazon and so on. So I would look for the same thing here, I would just see who's going to be building the software applications on top of the cheps yea and those would.
Be places to look looking kind of further down.
The line that yes, absolutely the next few years. And Nvidia is an amazing company. I had the opportunity to be there in twenty seventeen early, kind of a long time ago, and they had this unbelievable demo that kind of clued me into what was coming. They had this monitor with beautiful, a beautiful person on it, and the picture changed every thirty seconds, another beautiful person, different ethnicity,
different gender, different height, different everything. And then after an hour of this, they said, oh, by the way, none of those people has actually existed. We trained an AI model on people that were thought to be beautiful, and then we ran it in reverse and asked it to generate beautiful people. And so this is seventeen, so they've been on it. So I would look for all of the companies that are building these incredible applications and those would be places to invest.
Great.
Well, yeah, Paul, Paul, all right, we've got thirty seconds left here. Do you see this as a bubble similar to the dot com era or it sounds like you're too optimistic for that.
I look, I have been working in AI for a long long time, back back since the eighties, and and what is happening is truly exciting, right And what has happened is we've gotten to the second half of the chessboard, the proverbial chessboard, where you're doubling the grains of rice at every square. And it's not that interesting for the first thirty two squares, but right right around forty or so, it gets incredibly interesting. And we are we're in that
spot right now. So as it is the bubble, there are going to be some companies that are pure hype and they don't bound to anything, and there's a lot of crazy capital going in and there's going to be some amazing things coming out of this. You want to own those.
Marty, thanks so much for joining us. Really really appreciate getting some of your time. Marty Schabas, Vice chairman of partner at six Street Partners.
You're listening to the tape cats our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
All right, I'm sitting here in New York with Mark Blasri. He's co founder and CEO of Avenue Capital Group and the former owner of the NBA's Milwaukee Bucks. He is here with us to discuss a lot of money and sports topics. But I want to start on pickleball because I love it and I'm excited to get your thoughts on it. Mark, talk to me about why pickleball has more growth potential than the NBA or than any other spot in your eyes.
Right now, I don't know if it has more growth potential. I think what it has is massive potential, and it's I think it's fastest growing sport today. And part of that is just that everybody from all different walks of life are able to play it. Right. So, before we got on, you told me you love to play it. When I was talking to somebody here earlier, they were explaining to me how they love pick a ball, And what you find is it's just a wide mixture of
different people who want to play it. Whether you're super athletic. Whether you're not right basketball, you've got to be somewhat athletic, yes, right, and pick a ball. It's you can get very good at it, very quickly, and I think that's why people love playing it, and so I think it's got massive potential. When you try to look around the United States, every time I turn. You know you mentioned it earlier. Think
of Central Park. You know here in New York. The last thing we would have thought five years ago was that you would have sixteen pickleball courts, right all of a sudden, Now you have it here in the middle of the most populous city in the United States, and they're turning a part of Central Park in there where you've got pickleball courts. Why because there's this demand and so all that is just going to keep on growing. And it's not that they put on sixteen basketball courts.
They've already got basketball courts in Central Park. So I think you're gonna have You just have a sport that is growing by leaps and bounds, and I hope it continues.
Hey, Mark, getting back to the basketball, you sold your stake in the Milwaukee Bucks for at evaluation, about three and a half billion dollars, So nice trade there. But I have to ask you about one of the pillars evaluation in the NBA, in Major League Baseball, in the NHL is the regional sports network and that industry is in complete disarray. The leading player out there back by a Sinkler Broadcast group filing for bankruptcy.
How do you see that playing out?
Well, I think it's a great question. I think the regional players have had issues. I think what has not had an issue is obviously on the national level. So when you take a look at sort of media rights nationally, those have continued to grow. You saw that with the NFL, You're going to see it with the NBA, You're seeing it with baseball. You'll see it. I think you'll see that everywhere. So I think nationally those rights are going to keep on growing, Whereas I think on the regional
side that's had more issues. And you know, I think obviously it's always Sinclair with about you know, sixteen at least in the NBA, you've got sixteen teams that were affected by that when you had the bankruptcy. So I would be positive on the national side, and obviously I'm negative on the regional side.
Going into streaming though and circling a little bit back to the pickuball conversation, and are you concerned at all that people don't necessarily want to watch pickleball at that big of a scale, that an Apple TV is not necessarily going to be streaming pickleball tournaments anytime soon?
I actually am not. Hopefully I'll try to prove it to you right now. So would you say you're a big sports fan?
Mark?
You know the answer?
Okay, so you're you're Medza Medza happen right, You'll watch it a little bit, not a good all?
Right?
Have you ever watched the Olympics? Have you watched curling on the Olympics?
Happened before?
Okay? So if you have, that means you will watch anything on sports. Just think of it that way, because if you're watching curling and you just admitted that you are, and you're not even a sports fan and you're watching curling, I mean, have I been in the room while curlings? On the fact that people will watch curling. So here's the reason why the reason why people watch curling, and the reason why people will watch pick a ball, and the reason why they will watch darts or anything is.
People love watching the best in the world compete, and that's really what it is. So you're gonna love watching pick a ball because when you're watching the best people in the world compete at something, average people love that. They want to aspire to something, they want to see, Hey, what is it that the best we're able to do? That I'm not right, And that's what you're gonna find.
So there's this massive demand for sports because people and you're seeing it, whether it's on streaming, that it's not gonna be how you and I grew up watching sports, which was sitting in the living room watching a game on a TV. It's gonna be streaming. When I look at my kids or I look at any young person, it's much more on their phone. It's much more on a tablet. The other thing that's going on and you're seeing it is the gambling aspect of it. People love
gambling on it. It's not where you went to your bookiet, it's betting a dollar here, a dollar there, and so sports and gambling have become very interrelated. So I think you're going to find that going forward. You've got these massive opportunities and all these different sports teams and sports leagues.
Hey, Mark, how about some of the big technology companies, whether it's an Apple or an Amazon, do you expect them at any time to really jump into the deep end of the pool and you know, get into the sports business, whether it's you know, taking an NFL uh TV package and really make the big the big dive.
Do you expect that to happen?
Well, let's put it this way. It should if you are Apple at any of these other companies, what do you want? You want people watching your product? So what's the problem with Apple or what's the problem with Netflix? You can record and you'll end up watching something you don't. You never watch it live. You watch it a week later, a month later. You know, some of us only want to watch these shows after the all sixteen episodes have come in. Right, So I love watching ted Lasso, but
I want to watch it all at once. I don't want to wait once a week, so I'll wait till the whole season's over. You can't do that with sports, You really can't. You can't say, well, I'm gonna record the Super Bowl and I'm gonna watch it six months later. I'm recording the NBA Finals and I'll watch it in
three months, You've got to watch it live. So for Apple, for Netflix, for any of these companies, for Meta, if what you want is more young people, if what you want is more consumers, you're gonna want consumers who are able to see something watching it live, and that will go on to your other products. So that's actually why I think they'll get into it.
But the youngest consumers are watching their content on TikTok, they're not even on Netflix. How are you thinking about positioning content for that type of platform?
Oh, that's easy. All you have to do is just make an NBA game one minute long, and I think, and I think you're fine, give me a high. That's all it is. You know, if you can make baseball one minute long, if you can do all these sports. If so, I think I think I've solved the dilemma for you. Okay, you know, now you've just got to go convince the NBA, Major League Baseball, and everybody else to have their games on TikTok and have them no more than one minute.
But but my broader question is, you know, sure we're all in on Netflix and streaming, but is there any downside to that?
Thinking?
Is there a miss on the social media play that could be the next generation's only way of watching.
Yeah, but look, if the next generation is only going to want to focus on things over a minute, you know, that are under a minute, then they're going to miss out on sports. That's you know, you've got to sort of just say there are things in life that are going to take longer than a minute, right, So that's what's going to happen. And whether it's baseball, basketball, hockey, no matter what sport it is, it's going to take longer. And if you want to watch it, here's what's going
to happen. And if you want things that are going to only be you know, in thirty second increments, you're going to miss out on a lot of things in life.
Hey, Mark, you know, probably the biggest story in sports over the last twenty four hours has been the merger of the PGA Tour and Live Golf. I'm not sure if you're a golf industry enthusiast, but was that just a case of just you gotta go where the money is.
Like, I don't know, I mean, I'm reading the same things you are. It seems a bit odd as to what's happened. I probably will refrain from talking about it until I've read more or understood more. But you never would have thought that was going to happen, And the fact that it happened overnight, there's got to be a lot of other reasons for it. So I'll wait until you can figure out and tell me why something where two people were so against each other all of a sudden, now are the best of partners.
Yeah, just kind of goes I guess Mark too.
You know, you got to think about the valuation here, and you know our our deals reporter Bloomberg News was she pointed out something very interesting in the whatever it was at least yesterday, which was very very little. There was no value, no mention of valuation. What's the PGA tour work, what's livedtour worth? And that's typically what you would get in an Emerger announcement and we don't have
any of that. So this just seems so I don't know, a little half baked, I guess, But as you say, we'll have to see how the the more details come out.
Now you could it on the head. I mean, it's what are the valuations? I don't even know what the PGA tour was worth before, right, right, So it'll be interesting to see where these values are and I think all that will come out in the next couple of weeks. But yeah, it's been it's been very surprising.
There's a portion of the audience too here and we saw this in the Netflix show about the PGA tour and their relationship with Saudi that is not going to watch because of that relationship. Is that something that you would have thought about if you were at the helm of this deal or is it just the idea that and I keep stealing this from Paul that money wins in the end regardless of any loss of audience.
I don't know. I think part of it is their job will be to get back people who are not going to be happy about that, right, And that's the challenge with anything. I think it's you know, the challenge the NBA had was during COVID getting people to come back and watch games, and I think you've seen that not only have they been able to do that, it's actually been record ratings, all right. It was the same thing if you think about Baseball when they had their strike, right,
So there's always an issue. I think the challenge is going to be for the sport, to get those customers back or get those fans back. Yeah, and if they're able to, then it'll be fine. If they're not able to, then it's gonna have been a big miss.
Hey, Mark, just about thirty seconds left here, we got the Heat and the Nuggets in the NBA Finals.
What's your take.
I think it's great. I mean, uh, you know what I love about it is the fact that the Heat in every series have been the massive underdogs and sort of proved everybody wrong. They were the undogs against the Bucks, they were the undogs against the Knicks, against the Celtics. All those teams were supposedly better, and yet the Heat went out they were supposed to get swept. I think they're doing great. I'm I'm just a big fan of watching people compete. So when you get to see the
best in the world compete, it's it's fabulous. So I hope it goes to seven games.
Yeah.
It's just been an amazing season so far, an amazing run for the Heat. So we'll see how that plays out. Mark Laswi, thank you so much for giving us some of your time here. Thank Mark Lazary, co founder and CEO of Avenue Capital Group.
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