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I'm at forty percent right now. It was really not great doing television today.
This is great. We have gotten I've gotten for months now, emails from listeners being like, Bloomberg's engineers need to do something because your voice isn't audible next to Katie's voice. And what we have done is the Bloomberg engineers have like tuned down Katie's voice by ten percent, so now we are more compatible.
They've performed surgery on me. Actually, and now this is how I sound. It feels like I ate an ash tray. I just feel disgusting. I need more milk.
It's gonna be great.
It'll be fine.
Big week, Katie tenth anniversary of Money Stuff.
Happy birthday.
Birthday to the newsletter, not the podcast. The podcast is still an infant getting mental.
When did we get born in like April? Well, well, you seem like you're in a good mood.
It was touch and go to get here today, as you know, because you're a bad late. Yeah, and we're getting through the week.
This is my last thing that I have to do today because I'm going to call out sick tomorrow.
Yeah, that's hello and Welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Wonder who are you talking about the bay, Kat?
We're going to talk about Vanguard and seven basis points. Yeah, We're going to talk about Apollo, and then we're going to talk about the big game.
The big game, so Vanguard. I texted you this week to say while I was on what should I say about Vanguard? Because you wrote an article about Vanguard cutting its fees and you never texted me back because you were on television. Sure I never wrote about it, but you did.
So the story begin on Monday when Vanguard announced that they were putting through their biggest ever fee cut across eighty seven mutual funds and ETFs. It brings their average fee on their like ten trillion dollars of assets down to just seven basis points, which is wild. These are
wild numbers. The industry averaged roughly is forty four bases points, So that tells you just how low Vanguard is, and then we wrote a follow up story myself and Vildna Hirich a couple days later, talking about how this really tightens the screws on everyone else Blackrock, State Street, Invesco, et cetera, because Vanguard has this ownership structure where basically the fund investors own the firm, and thus everything they do is just geared towards lowering fees. Other companies don't
operate that way. Blackrock doesn't operate that way. And Blackrock actually fell, i believe, by the most since twenty twenty two on Monday alone, both because it was a down market with you know, the will he won't on tariffs, but also because of this news, which was interesting.
Yeah, this is sort of the most intuitive way for an index fund to work, right. Like, It's like you get a bunch of investors, they pull their money, they hand their money to someone to perform the sort of administrative tasks of putting it into all of the thoughts, and they pay that someone a reasonable fee. But there's
no like outside shareholders. You don't need like pay the cost of capital of some giant firm to like just pull your money and put it into an index, right, so it should be you know, a world of technology and you know, a world of giant scale for these funds that should be kind of free to invest in in the next fund, and it kind of is. Well.
Vanguard would be quick to tell you, including CEO Salem Ramji, who I also interviewed on BTV on Thursday, would say that, Okay, you think of us as just this passive index fund company, but we're more than that, Malavine. We also have active funds, and they care very deeply about their active funds, but
their active funds are also really cheap. Their bond funds, in particular, their active bond funds charged ten basis points on average, and they have this interesting theory that because their fee is so low, their managers don't have to take outsized risks in the active portfolios to like outperform or make up the fee, and that that leads to their outperformance over longer term horizon.
That makes sense. Yeah, it's like an old tybee, like how much work is it to like take my money and invest it in bonds? Like it's active in the sense that like you're choosing particular bonds, but.
They they choose that bond over that but it's like the cost of that should come down over time, and that shouldn't be you know, like Vanguard is a mutual right, It's like the people in the mutual fund like pay the managers and there's no outside ownership to collect another fee.
Makes sense what.
I find interesting about van Garden, especially right now, so CEO Selim Ramsey, he came from Blackrock. He used to run the I shares line at Blackrock, which is their ETF business. So he went from Blackrock to van Guard, which is like, we don't get a lot of like exciting moves like that in the ETF industry all the time.
So that was a big deal. And again, like Blackrock and everyone else has to operate in this universe that Vanguard has creative where Vanguard is just lowering fees, lowering fees, lowering fees, and everyone else has to respond, even though you know they actually do have to worry about their
margins and their external shareholders. But in tweeting about this story, I got a few tweets back to the effect of, you know, maybe they should actually stop focusing on lower fees and like focus more on putting this money back into the business and making the customer experience better.
That's fair because I'm like, ah, you just put your money and your own but like, in fact, it is a corporation that has to do things like.
Yeah, maintain a website, yeah, exactly.
Have customer service and like yeah.
One of the responses I got was from a woman theoretically who says that she's a financial planner who I didn't verify her profile or anything, but she said I wish they would have cut their fees a little less and instead invest in their customer facing it and user experience, which is often disjointed and confusing to consumer's relative to
the competition, which I find kind of funny. Okay, your fees are seven basis points, you're playing next to nothing, and you have this like small subset of people saying no, please stop lowering fees, like put this into improving my experience as your client.
Yeah, this is pretty reasonable man. Yeah, I would frequently pay more for better experiences. And there are a lot of people in the financial industry who get very sad at the idea that the only criterion is like lowest fees and you worry one about customer experience being sacrificed. But then people don't those worried about performance being sacrificed too, although the evidence for the higher fee managers having better
performance isn't great. The other thing I'll say is, like you're talking about like black Rock, it seems to me that like the move and asset management is like there's this kind of Barbell strategy of like you know, there's like indexy public stuff that tends to zero fees, and there's hot new private credit where you can charge all sorts of fees. Right, And so you look at black Dot getting into private credit a big way because like
the fees on that are just a lot higher. Blueberg lawa Benita has had an article this week about Pimco, Yeah,
not really getting into private credit. And like one thing there is like you have a lot of competition and margin compression on liquid fixed income, which is you know, like the Vanguard, Like I have to fix I remember, like you know, Pimco's bread and butter is like running bond mutual funds, and that's a tough business because people want low fees, and you get low fees and index funds, and people want the hot new thing which is private credit,
and you can get high fees there. But like just running an active bond fund is tough.
Yeah, what an interesting way to think about barbelling by fees rather than like risk, which I guess correspond to each other.
But I mean, like there are a lot of context where you can make a BARRELLI decision, right, and like yeah, here it's like your product offerings, Like there's a lot of demand for index, there's a lot of demand for alts in private, and like the middle is getting kind of hollowed out. It's been a tough time for like active mutual fund managers for a long time.
Yeah, I mean you're seeing that in the UTF world too, which you can't offer private yet.
I know. But I was going to say, like the other thing is like your article with the Vildanna, like you talk about like in the ETF world, like there are people who don't want to compete with yeah the giants by cutting piece to zero, and so they're like, ooh, here's a weird product where you can judge with higher fees, and like we're certainly seeing and talking about a lot of that, like the weird productized ETFs.
Yeah exactly. I mean you think about all the silly single stock super leveraged ETFs that are out there, all the derivatives based ETFs. Really interesting phenomenon occurred actually in twenty twenty four where the average fee on new ETFs coming to the market was ticking higher. So the new the new launches were expensive because the feeling among issuers is like, I'm not going to compete in the core, so I got to launch the silly stuff and I can try.
Yeah, the course is already there. You can get index bonds like now you need like the silly stuff.
Shall we sail long?
So Apollo is crouching thinking about starting a private credit trading desk.
They are having conversations that have been highly constructive at the highest levels about this.
So I wrote this. I wrote, I don't really know what private credit is, you know, And I get answers like a bunch of people emailed to say basically something like, if it's a registered public bond, it's public credit, and if it's not that, then it's private credit, which is
not right. It's not how people use the term, right, like people talk about syndicated bank loans and like loans that are bought by clos like as not private credit, right, Like that's something else People won't really say public credit, but it's something else. Private credit is distinct from deals done by banks, right private credit is asset managers during
direct lending. And in the past I would have followed that by saying that they hold to maturity on their balance sheet, but everyone kind of knew that would not last forever, right, Like, eventually, if you have potentially trillions of dollars in an asset class, like people are kind of trade it and uh, pollow is the launching at trading desk or talking about launching it trading desk.
I feel like we've been talking about Apollo's trading dusk for a while because we first started having this conversation, especially around when they filed for an ETF with State Streets.
Yeah, right, let me take that back. It's not that they're launching a trading desk. It's that they're having conversations that are consarned about.
Highly constructive at the highest levels.
About like a venue, about like a marketplace, where it's not just they'll have a trading desk, but there will be a bunch of trading desks and they'll trade with each other, and they'll be a pricing service and some sort of electronic platform for people to meet and trade private credit because the trading desk that they were doing, that they're planning and connection with the ETF was like to do a private credit ETF, you need your assets to be liquid Certainly the way you get liquidity is
by Apollo saying we'll buy the assets, right, and so like that trading desk was a sort of like facing a single customer, which is the ETF. But then obviously you know if you have that, you're going to look
for other places to trade with. But here it's like we want to all to all open venue for people who want to trade private credit because like obviously that's coming right, Like obviously you know you have enough private credit funds, they're gonna want to start trading, and so that's what they're putting on.
I'm trying to think about how to think about this, and you say marketplace for bond trading, and I think of like a market access or a trade web. Sure are they just trying to build that put for private credit.
Something like that? You're so young you think of market access. I mean like it used to be like you know, a dozen dealers with telephones, right.
Well, that is that just sounds bake, yeah.
Or like a dozen dealers with Bloombergs, right, And I think right when Pollow talks about you know, they're like to part with banks, exchanges and fintech firms. Like exchanges in fintech firms suggest there is like electronic marketplace, but yeah, like there's not that for private credit because if don't really trade and it doesn't have the electronic identifiers, right, it's like you sign a contract, right, so you have to like do some like technological processes to make it
tradable easily. But yeah, it's not that hard and they're going to do those processes. The other thing that I was thinking about in terms of how to think about this is like I haven't used the word banks to describe the golden Saxes of the world that like originate bond deals and then have bond trading desks. But it used to be that that business was done mostly by non banks like Goldman Sachs right, which became a bank
holding company in two thousand and eight. And it used to be that there was this world of investment banks that use their own capital to trade securities and that also originated and like underwrote bond deals. Committed the capital that basically sold it on to other people. And like those were non banks, they were investment banks, and they you know, were big and had a big market niche. And then over time, like you know, the rules were relaxed in the US to allow banks to own them.
And then in two thousand and eight, the big independent investment banks kind of got acquired or became bank holding companies. But like this used to be a non bank business, and you look at these big alternative managers and like to some extent, they are like recreating what the big
investment banks used to be. Right, Like if you look at like Apollo, like Apollo, KKR, Blackstone, like their DNA is like their LBO shops, right yeah, but like the thing that they're doing now is we're going to originate loans or you originate you know, debt deals, and we're going to run a trading desk for people to trade debt deals. Right. They're kind of like moving into the business that like Goldman Sachs was doing thirty years ago
before it became a bank. And they have some advantages in doing that business now, like largely in terms of just like being less regulated and also in terms of like being the cool place to go work if you want to work in finance, and so you can kind of get a lot of talent that banks have a
harder time competing for now. Yeah, but a lot of this is like the sort of traditional business of the investment bank has become hard to do because the investment banks are all banks now and they're all pretty highly regulated, and so like the big alternative managers are kind of stepping into do kinds of business that banks used to do.
So does that give you any blueprint about where this expands to? I mean, you have all these lofty projections right now of like private credit being thirty forty trillion dollars if they're sort of like following the blueprint of you know what these big investment banks used to be, Like how does this end?
I mean how much credit is there in the world? Right? Like, you know, like there is this long term push against banks doing a lot of credit on their balancee Right, this long term push through like a little bit narrower banking where like the risk of lending is taken by you know, equity finance investment funds, and you know, the big private credit managers are kind of well set up for that, and there's a lot of like, you know, that's the sort of like stereotypical private credit deal is
like direct lending to finance at LBO. But like all of these big managers are getting into structured investment CREAD stuff. You know, a lot of them are getting into like consumer loans, and like eventually, like why wouldn't these like quote unquote private credit firms be like you know, holding most of the mortgages or whatever. Like, I is a real possibility that like this is like talking about like Blackrock kind of trying to have higher fees by you know,
diversifying its dex funds with like private credit. Right, Like, you could see the kind of the reverse happening in private credit, where like you start with like very risky, expensive direct LBO loans and you end up doing like consumer credit for tighter spreads because you want to become like a financial supermarket, right, Like that's a possible outcome.
Yeah, look forward to that future. And something I was thinking about. I mean, there was been several articles this week that have talked about this grand convergence between private and public, which has been going on for a while now, as a narrative but I mean, when you think about that convergence, is it just the private debt markets becoming
more public? Are the public debt markets going to take on any characteristics of what happens in the shadows, or is this just private becoming more public.
I think it's mostly private becoming more public. But like one way of private becoming more public is ets, right, Like, if there's like liquid trading, then there will be private credit ets, just as there are, like you know, loan ets, which,
like you know, bank loans used to not trade. Yeah, bank loans used to be not a product that you could buy in your retail account, and now like there's loan ETFs, there'll be private credit ets if like this gets off the ground and there's a lot of trading, which I'm sure there.
Eventually will be, this being apollos.
Being someone's private credit trading venue, right, yeah, being like
just private credit trading. Right. I spent three years maybe more writing most days the phrase people are worried about bond market liquidity, because like people were worried about bond market liquidity and the story was something like there are all these like bond mutual funds, but like really bond ETFs people are worried about these ETFs are so liquid and you can just trade them on the Stock exchange anytime you want, and if like, people will want their
money back. At the same time, these ETFs will have effectually redemptions and they'll have to sell or someone will have to sell all these bonds, and the bonds are not as liquid as the ets now, and so it's a disaster waiting to happen, and then disaster never really happened. I made fun of this for a long time.
There are those would argue that it's like real twenty twenty stuff, you know, I want.
To say it was earlier.
I don't know.
Yeah, twenty twenty is when it came to a head because of like was when the theory was tested, but
people are worrying about it for years before that. So I'm just really excited for like the first seventeen times I can write people are worried about private credit liquidity because it's just gonna happen again, right, Like, there will be some trading and then there will be ETFs and like trading and private credit markets will not be as liquid as the easy apps, and then people are like, oh, what happens if and it'll it'll.
Talk about ill liquidity, doom loops. It'll be great, It'll be great.
And like the best part of this is that, I want to say, Tracy Alley was who pointed to this out to me, but our Bloomberg collegue. But in like the sixties, people had this exact worry about equity mutual funds, right, it was like, howint Yeah, it was like, oh, these mutual funds, like if they all get redemptions at once, like they'll have to sell the stocks. There's not enough liquidity for that. And then like you know, they performed
relatively well and like people just forgot about that. And it also stocks are very liquid, but it's gonna keep going, keep moving up the capital structure to private credit.
God, history just repeats itself. Are you excited for the Pro Football Championship?
I am looking forward to the professional football game to be played this weekend between the Philadelphia Squadron and the Kansas City eleven.
Wouldn't it be really cool if you could perhaps bet on that on the place where you also trade stocks? Alas, doesn't that.
Seem like a good day? It looked like it.
Might happen one beautiful shining day in the sun.
Yeah, Robin Hood. I love Robin Hood.
They just like they shoot their shot.
They do him play lawyers like good lawyers, but like they keep years ago, they launched a thing called Robinhood checking in savings. But they're like, it's a bank account. And then like bank examiners are like, it's not a bank account, You're not a bank and they pulled it within like twenty four hours. It's so embarrassing, it's so fun to write about. But yeah, they launched events contracts. Yes,
they launched an events contract on the Big Game. You can't say bold because then you get in trouble.
Shit, pronounce it like brook.
They launched the contracts on the Big Game where you could bet on Philadelphia Kansas City, not the Eagles or the Chiefs, Philadelphia Kansas City. And they said they called it an emerging asset class like event contracts in their announcement, which is now deleted from their website. But they didn't
lunch football betting. They launched the event contract where you could buy a contract that pays off a dollar if Philadelphia wins the Pro Football Championship, pays off zero dollars if Kansas City wins, or you could buy the other contract that pays off of Kansas City wins, and that is a football bet, but they don't call it that because it's like there's this weird gray area where you can launch commodity futures, and commodity sutures used to be
like futures on soybeans, and then people were like, we can have financial commodity s features that are like bets on what the ten year interest rate will be. And then people are like, well, if you can do that, what about bets on whether the Eagles will win the Super Bowl? And the line between like a financial futures contract and an events contract is a little blurry, and
there's a lot of interest in events contracts. And so the CFTC, the Commodity Futures Trading Commission, which regulates commodity futures, it's like put out rules that they're like proposed rules that haven't been finalized and probably won't be saying like certain things are not okay, and those things include elections. They're like lost on that one, like the elections are now fair game. Assassinations timely, timely, timely.
We had several assassination attempts on President Trump.
Yeah, we also like, in fact, I think Calshi, one of the prediction markets, briefly listed contracts on what would happened to Luigi, like whether Lujiman Johnny, which like Cleve, which is like kind of an assassination contract. It's not like it's related to assassinations. But anyway. Another thing that's excluded is sports betting because like obviously like sports betting is something else. Gambling is now, you know, largely legalized
in the US. You can like batance sports on your sports book gap, but is that sports that a financial futures that is allowed on your burgragee. Apparently not, because Robinhood launched it and pulled it twenty four hours later because the SAFTC told them to knock it off, and they were very agreed about it. They said, we were in regular contact with the CFTC prior to launching this product, and we believe we were in full compliance with all applicable regulations. But nonetheless they pulled it.
Well, who knows where this will go.
I'm pretty sure we'll go to not being able to bet on the Big Game this weekend this particular next year.
Yeah, Well, reading our Bloomberg News Coverage. Apparently, Robinhood said it will continue to collaborate with the CFTC as it works on unveiling a more comprehensive events contract platform later this year, So their ambition is unscathed, right.
I mean the whole trend is in the direction of like free, lightly regulated events contract platforms, and like it's just weird to have an events contract platform that doesn't feature sports, right, because that's like the main event people want to bet on.
Yeah.
Yeah, the CFTC also wanted to exclude like betting on the oscars, like some point that.
I'm not going to be able to manipulate the oscars.
Right, I mean I don't really.
Know why, like why they would be against it.
Yeah, Like part of it is like when you think about like soybean futures, they're for like farmers to hedge their risk and for like soy sauce producers to heads their risk. Right, Like you have natural counterparties on either side who are like doing real economic activity and are
hedging that or like raising money to do it. Like there's some like underlying economic activity for all the like financial betting, right, And so you can be like, oh, this commodities exchange is just like evil speculators betting, and they can be like no, no, no, it's like supporting
real economic activity. And then betting is just betting, right, Like no one really thinks maybe maybe I'm wrong, but I've never heard anyone being like, oh, yeah, sports betting is like building wealth, right, like people something to say it, but it's it's like wells an emerging asset class. It's a very cynical thing to say. Yeah, it's not an asset class. The stock market goes up over time, not
because of magic. It goes up over time because it's like an investment in economic activity, and like the economy grows with like technological process and demographic growth, like the size of the sports betting market does go up over time, but like the outcome of the Eagles game doesn't go up over time. Right, it's like you bad, and like some people win and some people lose, and like that's it and most people lose, right, And it's like you
negative some game for the betters. And if I were a financial markets regulator, I would be like, look, I'll approve a lot of stuff that is pretty tangentially related to real economic activity. I understand that like the speculation begets liquidity that like a lot of complicated products are useful and hedging, you want to trade zero day options on meum stocks like fine, Like that's really loosely related to real financial activity, but like it's all in a continuum.
But then it's like sports betting is like there's nothing this is embarrassing to a financial regulator. Now I think probably entering an era of like unembarrassable financial regulators, and
so like yeah, they'll like whatever. You can definitely buy futures contracts on the Super Bowl, but like I just think that like turning over the financial markets purely to gambling is kind of a scary stuff, right, Yeah, But it's like you can understand why, right, because you look at like the work of a sports book and the work of like a high frequency equity trading shop is like very similar, right, It's like similar techniques, it's similar skills,
it's like similar risks, Like you're really doing the same kind of work, and there is a lot of movement between you know, people who are market makers for stocks and people who are book makers for sports and then on like the retail side, Like you look at like there's so much stuff in like retail stock markets. There's a Bloomberg article this week about people betting on sports and like people who got like thousands of dollars a weekend on football, and like a lot of what they
say is like it's a social thing. It's like I'm texting with my friends and like getting our bets in and like it's my way to keep up with my college buddies or whatever. And you see that in like you know the memes phenomenon too, where it's like a very social phenomenon and it's like gives people like a sense of fun and a sense of identity. It's not
just like we expect these tacks to go up. There's like some more social, very community based, Yeah, And it's just that like one of them is like financial markets and one of them is gambling. But like there's like an obvious convergence like socially, and so you know, it is a little weird for the regulators to say, no, robinhood, you can offer some kinds of like fun gambling, but not other kinds of fun gambling, and like eventually I think that will erode.
Yeah, another great convergence indeed in those Shining twenty four hours where you could do this on robin Hood. Apparently it had been rolled out to one percent of their customers, so robin Hood said it will give those investors the option to close their positions or take them to resolution. It would be fun to talk to some of those folks who are caught in this limbo.
I think it's to take it to resolution. Yeah, I guess because they.
Are pretty cool. Yeah, Okay, everything hurts.
And that was The Money Stuff Podcast.
I'm Matt Levy and I'm Katie Greifeld.
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