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It was a painful game. I don't know if I enjoyed watching it. It was really stressful.
Had the experience the entire game of being like, well, obviously the Knicks are going to win this.
Yeah. I felt that way too.
I said jokingly, but not I was like, well, we haven't right where they want them. MIxS were down like fifteen or whatever.
I knew that they were going to win in my long tenure of watching basketball for two weeks, because that's how they started every game. But I was watching with my dad who was having a heart attack like the entire time, so he was not as confident.
But I was also so tired. Yeah, I'm not cut out for late night sports. Why I love the World Cup? Yeah, because actually I prefer the World Cup in other parts of the world, even not going to any games, And I'd rather it be in like Asia and have games out of like eight in the morning New York times, because like then I can watch the games.
I think, you're you're a rare bird.
Like there are games in this World Cup that are at like nine pm.
It's it's too late.
They start at midnight and like never.
I just don't know if I have the emotional energy to like get invested in another sport that I so casually follow, you know, I feel like.
The World Cup is extremely great for not getting very invested. Yeah, you can watch two countries you've never thought about play each other and it's just fun. It's just like there's no stakes. I mean there's stakes, are that that's true.
I just think basketball is the perfect sport for someone who doesn't follow it to watch it because it's super fast, they score a ton, They're all like kind of concentrated together. You always know where the basketball is, whereas you know, soccer, it's bigger and they don't score as much.
I hear you, But as a crotchity old man, I really appreciate the way that soccer works where they start the clock and then they play soccer, yeah, and then they finish the half for the game, whereas like in bascowball, when there's five minutes of eighteen seconds of game time left, you're like, yeah, another two hours.
Yeah right, I gotta go to bed, go to the bathroom again.
This is a real sports podcast. You're hosted by and for people who don't really go out attention to sports. We talked the other day about my very slight desire to coach little league. Yes, and I got an email from a reader being like, please coach little league. He's like, I do some administration for our league. And like the dads who are like, I must coach little league like need to be balanced.
Yeah.
Other dads are like, yeah, yes, sure you've got you need. You need some low commitment little league catches.
That's good. Yeah. Remind everyone that they should be having fun.
Right yeah, sportsmanship. Hello, and welcome to The Money Stuff Podcast, your weekly podcasts where youre talking about stuff related to money. I'm Matt Levian, r at the Money Stuff column.
For Bloomberg Opinion, and I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
I think you're just not talking about.
I'm spacexed out, even though I will say, as we're recording this on fed Day, by the way, we're going to miss the starting minutes of Kevin Worrish at the podium for the first time. Not that I don't think you care. I care a little bit. SpaceX is a little bit lower today on this Wednesday the line hasn't moved in that direction before, and its short life is a publicly listed equity. But we don't have to talk.
About I feel like I have a lot of like ill formed thoughts about it's not gying up. Who cares?
I tweeted something about SpaceX today.
It's funny that tweeting is now business.
Yeah, that's true, that's true. I tweeted on X or post it on X owned by the parent company SpaceX. Would the discovery of aliens be bullish or bearish for SpaceX's valuation.
That's a great question.
It's kind of fun to think about.
I've joked that, like their medium term plan is like data centers in space to run like Enterprise ai yah, but their long term plan is to like colonize the universe and sell spice to alien civilizations. So I'm gonna be with bullish. But you know, obviously, if like the aliens have better spacefaring technology and also like robustly developed capital markets, then like you don't need to don one SpaceX when you can know and you know that's intergalactic space conglomerate.
I do think it would introduce some shortly volatility as we sort through those questions.
But possibly long with volatility.
Yeah, that's true anyways, SpaceX So, I mean it's like, which hedge fund ish do you want to talk about?
I don't know what do you want to talking about?
I mean we could talk about Ken Griffin.
First in The New Yorker by Carrie Cernowitz, who's the guy I know in his book I've blurped, and he was photographed for that story. But oh yeah, Jeff Brown, who photographed me for my no kidding, I very cool publicity stills like me slept in a chair the past time during the start issue. Ye, Jeff Fron's a genius and photographed and it's a profile of what makes Ken Griffin tick.
I really enjoyed it. I have to say my attention span is so shot.
This was the most I've never read article.
Yeah, exactly. I couldn't quite get there. I do make it through money stuff, but I made it probably three fourths the way through. That's why I asked to push to two TE. I was wondering at what point Ken Griffin's eyes would come up, and they came up pretty quickly. Here's the sentence in particular, Griffin's blue eyes are unsettlingly bright. Colleagues debate half in jest about whether he lacks the normal need to blink.
I love that I just made a joke today about hedgehund managers not having time to blink. Now this market moves, maybe he's evolved to keep his eyes up in all the time.
I feel like he might like that joke, right. But yeah, No, it was a great profile. There were a lot of interesting things. I like when I'm reading a thing that I know that we're going to talk about, and then I find the angle while i'm reading it, then I know that you're going to want to.
Talk about behind the scenes, Yeah, is making presses? What am I going to want to talk about?
You want to talk You do my part for me, the quality of earning?
Yes, exactly, you did right about that too, right. My stick for a while has been that I think people have this view of what a hedgehund manager is, or what a hedgehund is, that it's like an investing firm, And my view is that these multistat funds are much more more like what investment banks were twenty years ago, and they're they're not the best thought of as like making investment decisions, but rather as like running businesses that
provide services to the market. Some of those services are like making prices more efficient, they're like long short equity trading. But some of those services are liquidity services, and like you know, like the dispersion trade in the index ARB trades are really like just real liquidity provision services that used to be done by bank center now being done by these hedge ones. And what is pleasing in this article is like that thesis has sort of been enshrined.
In The New Yorker, carry Sernovis writes about ken Griffin being in college at Cabot House, which is also where I lived in college. He and I are among the illustrious cabin house Alonia. Ken Griffin was like doing options trades, and he was like, well, I've made money on these options trades, but like the market maker on the other side explaining all of the options trades, I should do that. So I eventually started a market maker. But also he had like the more holistic view of like I want
to hire earnings quality even in my regular trading. So he got into like a convert our business that used to be done by banks and is now like convert harvest, just the standard hedge fund trade. So he got into these businesses that are repeatable liquidity provision, almost like fee for service businesses, where like you do stuff that gets a steady return because you're providing a service to the market, rather than like picking the stock that'll go up.
Yeah. I thought that was an interesting anecdote in sort of explaining the starting point of his thinking, because I can connect that story easily into why he started a market maker eventually, Yes, but.
He even started a marketmaker, initially started a hedge fund that did trades that sort of had that shape of like being repeatable businesses rather than being like stock picking.
Yeah. I did think it's interesting that when Starner Woods sort of asked him, like, who are your heroes, Ken Griffin didn't really have anyone to name.
Yeah, because like there are a lot of hegemon managers, Bill Ackman being perhaps the most prominent among them.
Who also has piercing blue eyes or.
Hazel a matter of some controversy. He would be the first to tell you that he wants to be Warren Buffett, right, And there's like a lot of hedgemo matters like that, and like that is the opposite of what Ken Griffin's approaches, right, Like he is not like I'm going to pick good businesses and on their stocks forever. He is like, I'm going to have a high quality earnings. I'm gonna have
recurring earnings every quarter, you know. And so that model like the sort of like big swing headshow manager the you know, Gary mentioned George Soros as a as a name of you know who other hedge matters have admired. Like, that's not what he's trying to do, right, He's trying to build high quality of earnings and repeatable business.
Yeah, there was a great one here from Lloyd Blankfine, the former CEO of Goldman, who told Cernawitz that he still can't figure out who mentored him to who he has a debt because I mean Griffin also, I mean he started Todel so early, like.
In like the cable House, Yeah more or less, I mean not literally, but like he started the stuff he was doing at cabin House grew very quickly into being said at all.
Yeah, no real time to like find a mentor if you just start out the gate. Also, it's also a very different model from like a Bridgewater for example. Oh yeah, oh yeah.
Yeah, two important things about Ken Griffin. One is that he owns all the houses. Also, all the constitutions, yes, all the dinosaurs, Yeah, all the art. If you're in the business of like generating billions of dollars of profits from doing financial trades, like, I appreciate people who are like I mean to like turn that as rapidly as possible into tangible wealth. Yeah, Like all this stuff feels somewhat imaginary, but a stegosaurus that's real.
Well, the the profile does go into you know, he had a really rough time during the financial crisis and made the decision at that point that he wanted to have non financial assets. Yeah, from that point on.
You out of market making businesses into stegosaurus constitutions.
Yeah, that cartis and a lot of pieces he does have on loan to actual museums, which is cool versus just sitting in the various basements of his billion and a half dollar real estate portfolio.
Right. I don't know if he has a dinosaur at any of his houses. If I had a billion dollar collection of stuff, I would probably want a stegosaurus in my living room because that is very cool. Like I get that having it at a museum is also also cool.
It might just because I'm sick, but I did get the shivers thinking about that. Like here's a dinosaurs. This is something that was a live once a long time ago, and now I own it. I have a lot of a live horses. Yeah, right, alive being.
Right, key right, totally different collecting impulse. The other thing about cityl yeah kindo, friends saidst is no one is a tough place to work. Yeah, And the story gets into things like someone someone calls it a highway wreck of human bodies, not meaning that the bodies have been wrecked, but rather that the people get fired a lot when
they like transition, turnover, a lot of turnover. Someone kept a book of souls about all their friends who go and again it's like it's like there's something about like quality of earnings, right, It's like it's like if you think about hedgehns generating alpha, there are alphas that are just repeatable forever because you're providing a service. But there's a lot of stuff that's like yeah, like people didn't
notice it, and then you notice it. You made a little money, and then like people notice it and it stops making money, and so there's a real like you know, constant churn as signals the kay when the cigneal partner says in the story, it's not about a portfolio, it's about a business that can recreate great portfolios again and again, which is like you think about like what a person does, like often a person is good at finding your particular portfolio,
and like if you need to totally recreate the portfolios, then that means getting only people. So another hedge fund is yeah, Bridge Wader.
Yeah, capacity constraints, tensions between GPS and LPs.
I don't want to say this, but you shouldn't. The Bridge Order had this reputation for a while, okay, forgetting you know, like a load of mid single digit returns, being very stable, leading with its reputations being the biggest hedge fund in the world and being you know sort of like not a like taking big swings, making lots of money kind of place, right, And that reputation was not entirely a positive thing.
They were going to talk about their other reputation, Oh sure, sure.
Sure, they had a reputation for being very interpersonally weird.
Yeah, they're actually got a name drop in the New Yorker profile about Ray Dalio being a pregnant woman cry.
Yeah, yeah, like it being just so ostentatiously weird personally, but like they were doing all of that and like doing all that ruthless self examination and like struggle sessions or they all got in a room and berated each other. Well, their performance is like kind of mediocre. Yes, it, take a step back and do a struggle session about that.
Yeah. It wasn't in service of like improving their returns, right, it was just like it was just its own thing. Yeah, like a weird social experience exactly.
If you talk about that to a like an investor, an alligator, like that sounds bad, right. It's like, no, I want a good return rather than a bad return. But I'd rather be in a good fund that generates high returns than in like a giant fund that doesn't. But as a business matter, it's nice to run a giant fund that has very sticky capital for a variety of reasons and that generates steady, you know, mediocre returns
because it's a business matter. You're charging management fees, and it is nice to have a very predictable recurring management fee revenue. And so arguably it was a good business for Bridgewater to be running as much money as possible and like, yeah, I have an okay returns. Yeah, but they moved on from that, and so Bloomberg's Emma Parmer are pretty singing and Lionoda I have a story about how basically near Bardea, who's like the I was gonna
say new CEO. He's not that new, but he's a guy who took over when Ray Dalio kind of retired from from Bridgewater. He has been trying to make it a smaller, more focused, higher performance fund.
Yeah, I think I think it's.
Operating a little bit more like a hedge fund than it.
Used to, which makes sense.
Which makes sense because like when it was Ray Dalio's baby, it was just like a strange, giant institution. But now it's like the guy, you got a round a hedge fund, you know.
Yeah.
And so one thing that means is the performance is better. Another thing it means is that they've returned capital to investors because they don't think they have the capacity to run as much money as they used to run. And the third thing it means they sold stakes to in their general partner. They sold stakes in the management company to a bunch of investors, including like some people who like swapped out hedge fund steaks into management company steaks,
which is a very strange signal. But anyway, those people are now disappointed because they were like I was signing up for a steady stream of management fees on this giant pool of capital, and now I'm getting good but variable performance fees on a smaller pool of capital. And that's not what I wanted. I wanted like a high quality of earnings, you know.
Yeah, No, it's great reporting Bloomberg saying that two of the firms seven institutional owners have sold their shares back to Bridgewater at a discount to their purchase price.
Right, because like when you buy the thing and it's like, you know, the stream of management fees on a giant pool of money, like then it goes down when it has a smaller pool of money.
Yeah, but they're not alone. There's a third the Teacher Retirement System of Texas. It's also looking to sell. It's already slashed its value of its holding by nine percent last year. So that's the rub, right, Like you would think before you think of like really think about it. That Okay, it makes sense the new CEO would come in and be like, we need to improve returns. We are way too big. We're constrained by how big we are.
Let's improve this. But even though I mean, twenty twenty five was a great year for their pure Alpha fund, which had been sort of having a middling decade or so. But I guess the anxiety there is that, in addition to your earning less on the big pool of money, that there's no guarantee that they're going to be able to replicate their twenty twenty five.
Right, it's a quality earnings think, right, Like outside investors love management fees because they are the same every year, and they don't like performance fees because who knows what performance will be next year. I think that most people who like work at hedge funds think like you were saying, like what you would expect, which is like, of course, our job is to make the returns good, right, right? Of course, our job is to make as much money
as possible for our clients. Yes, And if you don't have outside money at your GP, if you don't have outside money at the imagement company, like you just sort of think that now you might not think that you might like in your secret evil heart, think I'm just gonna like gather as much capital as I can and charge two percent fees and who cares about their performance?
But like you don't say that out loud. Inside that you probably don't even really think it, right, like like that's like a that's like a that's like an insulting thing you might say about someone else. But you wouldn't like do that because like your whole life is devoted to like having the best possible performance and like winning at the edge fund game and all this, and so it would be very embarrassing and like psychologically damaging to sit there and be like, yeah, I just gather assets.
I'm not worry about performance. But once you have outside capital at the management company, then like those people to gather assets and charge two percent fees.
Yeah, they can say that out loud.
Yeah, so it's a different or they can give you the they can that's for their money back. If you don't do it. If you own your own hedgehund from you are thinking like a hedgphone manager. But once you have outside capital, you're like, you know, steward of shareholder
value and you're becoming a asset accumulator. And this, by the way, has some relevance to the publicly traded aults managers, who you know, why is private credit so big because you can charge fees on them capital I was wont to briefly Bi Blackman, who I don't think I've ever actually written about this, but we've talked about on the podcast.
When he took his management company public, he had this structure that he thought and I think is really interesting, which is where basically, like the company the management company, and thus the shareholders get a preferred return on the
incentive fees. So like, they get the incentive fees in the first like, let's say five percent of performance, so I like Pershing Square funds go up five percent a year the management company, the shareholders get the performance fees on that, and then the rest, like if they go up thirty percent a year, the other twenty five percent the employees get that. So basically the employees get the like upper tail performance fees and the shareholders get the
like preferred performance fees. So they've turned the performance fees into something more like a management fee that is a little bit more stable, a little bit more high quality of earnings, and so they're giving that to their public shaholders well, they take the like juicy upside options for the hedge on managers, which I think is a good way to like, yeah, split this and like give the public shareholders what they want, which is steady returns, and
give the actual hedge on management employees the incentives to make returns go up. Yeah, possibly Bridgewater should it on that.
Yeah. I will say, you make the point and money stuff that the employees probably care more about returns, Like it's it's it's more exciting to work.
It's not necessarily true, right, like if yeah, if you just get a bigger check for running a giant pull of assets, then like a good big check. But I think it's I think it's true. I think most of them would rather have higher time. Then they go beat their hedgehund friends and we're up thirty five percent this year. It's like great, Yeah, it's good.
Well. Bloomberg reported that it looks like Bridgewater employees are on board with this sort of reset. Apparently, the hedge fund recently offered current and former staffers a chance to sell their shares back to the company. In all but four said no, according to people familiar with the matter. So I mean it has the backing of the people who actually work there.
There's like ten market structure. Sick guys who listen to this podcast or read my newsletter and you know what market structure cechos don't like.
Tell me right, NMS, Well, what a wonderful week that they've been having.
So like twenty years ago, the SEC two and created rules that say that if a stock is available for sale at a lower price on one stock exchange, you can't buy it at a higher price on another stocking change. But that's not a correct summary of the rule, and like there's like a technical error there that people will complain about. It's essentially useful summary of the rule. Basically, it's like there's like twelve stock exchanges now are fourteen.
There's a lot of stock exchanges, and the SEC twenty years ago created what's called a National Market System or NMS, where essentially all those stocking changes are linked and like whichever exchange offers the best price, like you trade there. And I'm sure that that seemed very intuitive and sensible.
It does, right, I mean I had to really read hence and search for the unintended consequences because at first blush, that seems reasonable, right, and so like brokers have a.
Best execution requirement, so Burger's supposed to get their clients the best price for stock, and so separate from that, but obviously related to that, is like this Raygani Mass rule that says, you know, if it's available at a low price, you got to buy it at a low price and not at a high price. And so this is like a sensible rule, and everyone's like, sure, yeah,
let's do it. And that's not true. People objected at the time, but that's a long time yo, But I think that since then, many people have decided that there are some unintended consequence, that there are some unintended consequences
of it that are bad. And one of them, which I think we maybe talked about in this podcast, is that like if I start a stock exchange, every hyper insistrator, every broker has to connect to my stock exchange because like, what if I have the lower price, he might I might never have the lower price, but like they don't know that until they pay me a lot for a data feed and like a fast connection and all this stuff. So it like essentially subsidizes the creation of weird new
stock exchanges. So you put all these were new stock exchanges, like you know, the Texas Stock Exchange, and I've written about all of them. Like, some of what's going on here is like marketing positioning, like really thinking you've got a better mouse shrap. But some of it is just like you start a stock exchange and every trader is like, okay, we got to connect to your stock exchange. How much you charge in? So there is some inefficiencies there.
Yeah, that was interesting to me. I mean, I have to admit I haven't spent a lot of time thinking about Reagan MS, but I mean looking at this proposal, there is that feeling there that there are too many stock exchanges that you know, the.
Calls that out specifically, yeah, exactly fewer stock exchanges to a.
Casual person, you just think it's so top heavy, the exchanges that you don't really think about like the little guys.
Right in a world where it was just competitive, a burger might say, look, I'm sad it's my best execution obligations by sending orders to a big liquid exchange for most of the orders. And if like somewhere there's one share available at a penny better price, like it doesn't matter, Like I'm doing the best I can for my clients, and I'm saving on connection fees and everything. That's like
kind of a reasonable judgment to make. But in a world of reage n MS, you sort of have to send the orders wherever you know the best order is, and so you all those smaller exchanges just kind of continue bopping along, whereas like in a more competitive world, maybe like more volume would be consolidated at the biggest exchanges.
Reagan ms also became very controversial around the flashboys ix situation because basically AX launched an exchange with like a sort of speed bump situation more or less just called the speed bump, so we'll keep calling it. A few don't and a lot of people are like, well, how can I be forced to connect to this thing that
delays quotes? And basically, I guess it sees like it's fine, but every decision that an exchange makes is more fraud and controversial when you have to route to that exchange and you have to trade on that exchange, And so getting rid of rag animss might just make it a little bit easier for exchange just to like do different things, because if you don't like it, you don't have to
trade there. I do want to say that the other thing that is like going on with this is crypto Crypto really doesn't like the trade through rules, no, because it just does not work with crypto and market structure. For one, thing, like the funding mechanisms are different, where like stock exchange trades settle t plus one, and so you could do a trade on whichever exchange has the
best price and then settle out the next day. Crypto, like if you're pre funding trades, if you're like doing trades on a blockchain, like it is harder to do that if you're forced to execute wherever the best price is.
And then also like crypto is just slower in regular markets, like crypto operates on block time, where like you know, blockchain does a batch of trends actions every six seconds or every second or whatever the lifetime the lifetime f equity market structure, and so it's very hard to think about how a crypto exchange could be held to these rules. Now you might say crypto exchanges aren't held to these rules,
but everyone wants to tokenize thoughts. Everyone's list stocks on crypto exchanges, and if you list stocks on crypto exchanges, you have to get around regain MS and the simplest way to do that is to get rid of these rules.
Yeah, that was definitely the reaction on crypto Twitter. And there's a great piece out by Scott Patterson on the Bloomberg terminal and he does quote Alex Thorn, who's you know at Galaxy and Alex Thorn, I think he tweeted something to the effect of this is one of the biggest unlocks yet for tokenized stocks, right, so it's all happening.
It's all happening.
Tokenization is one of those things that's been on my list to take seriously and like really like do some homework on for a while now, and I keep hoping that maybe when I'm on attorney leave, I'm going to get serious about it, which is really naive. I think it's been on.
My list of things to not take seriously. I've made fun of it. Tokenization is to think some of it is like market structure stuff, where like crypto people would love, love, love to just list all the stocks on coinbase rather than listening on the stock exchange. But then some of it is like genuinely getting around US registration requirements and like listing all the private stocks on coinbase, so that
like you can go public without going public. I will say that like that was how I interpreted tokenization for a long time, because it's like what everyone said, and I don't think that's what's happening. Like, I think that has been kind of like pushed back a little bit. Like everyone's like, no, you can't really like just list tokens on robinhood of like you know, anthropic stock that's
not allowed. No, But the other stuff, the market structure stuff, They're like, well, let's list stocks on crypto exchange is happening, and this is part of that.
Yeah, I don't know. I feel like getting rid as a trade through rule would suggest that maybe I should take tokenization seriously. Alex Thorn says this is one of the biggest unlocks yet for toke my stocks. Probably yeah, but I mean that's a future problem. I'm here for five more weeks.
And that was the Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
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