Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to the Money Stuff Podcast. You're a weekly podcast where we talk about stuff related to money. I'm Matt Levian 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.
What are we talking about today, Katie?
We're going to talk about farmers markets, We're going to talk about private credit, and then we're going to talk about stealing some trade secrets and moving to China.
That sounds good.
I printed out the pricing charts for like beef, so we have a meaty section.
I was at the one of the farmer's markets near me. I go to two farmers' markets per weekend. I was recognized by a person working at one of the stands. Wow, it works in financial media and also works at the farmer's market to get her mind off things, and she's apparently a fan of mine, and offered me free garlic.
Did you take it? So you took the free garlic, and then you undercut some farm stands. Some farmer who like put in the labor, and you knew what to charge.
Because this is before I knew anything about farmer's market pricing. I was a babe in the woods in terms.
Of oh, I thought this was like last weekend.
No, it was like three weekends.
Okay, if only you had known.
But I do not honestly pay that much attention to pricing at the farmer's markets. But I am aware of the disparity in garlic pricing at the different stands. There's a stand where I have seen but not purchased garlic for three dollars ahead. Seems really high for garlic. But also the farmers garlic is so good, Like I now they got farmer's market garlic can probably pay five x what i'd pat agressory store. Me.
Trying to think of something relatable to say reminds me of the Arrested development scene or Luciel's like it's a banana, Michael, how much could it cost? Or something like that. Yeah, I feel like if you're at a farmer's market, you're kind of a price and sensitive buyer of produce.
I'm pretty close to the ideal of price and sensitive buyer of produce. But even I was like three dollars garlic, hold.
On whoa, it's too rich for my blood. Well, what a timely conversation that we're organically having about pricing at farmers markets.
It's all I think about. Yeah, sorry, I just said if not anything, I think about it at all, and I'm totally which is closer to the truth. But now I'm thinking about pricing at farmer's markets.
Yeah, so is Cornell University question mark great transition. Yeah, why don't you tell me about what they're doing.
They're aggregating prices for farmers. They have like a website that publishes free information on prices of various agricultural goods for farmers at farmers' markets to basically help them set
their prices. Because if you're a farmer at a farmer's market, you you know, are in the business of working the land, ground the produce, and you're maybe not like a savvy pricer of produce at farmers markets, and you know, the buyers at farmer's markets are not necessarily savvy pricers of produce either, so you could probably charge them a lot more than you do, and Cornell is helping you charge them more than you do by telling you what the actual price of garlic is.
Seems like a real antitrust concern potentially, you know, you.
Know, I sort of have jokingly suggested that if you have got kind of mad at me, like from your perspectives, one is like, no, it's not a farmer's no, no, no, like just my regular road. So it was like, no, it's not an antrost concern, which it is not really
an intro trust concern. But the other thing is, like I made that suggestion because the Justice Department a couple of months ago sued Real Page, which is like, I'm gonna exaggerate and say this, but for landlords, right, it's like a software product that tells landlords how much other landlords are charging for rent so they know how to
set the rent on their apartments. And the Justice Department said that Real Page is fostering collusion among landlords and reducing competition in the rental space and raising prices for tenants. And I sort of tongue in cheek compared this Farmer's Market stuff to Real Page, and people got mad because
they're like, but the Real Page case is real. There's more stuff there, right, like the right page case the Farmer's Market stuff they're essentially using fairly straightforward technology to aggregate prices at a bunch of farmers' markets and also supermarkets. Real page is getting private information from landlords, so it's like they get more information than just like what's available
to the public. And they're also using it to suggest the landlords or this is what the Justice Department alledge is. They're using it to suggest that landlords raise their prices, and like they've explicitly said things like a rising tide lifts all butts. It's like they're like, you know, in the business of trying to make landlords try to high rents. This one is, you know, based on publicly available prices.
It's harder to get mad at it. It seems to me that there is a real continuum and that it just used to be the case that it was hard to be sophisticated about knowing your competitors' prices in like all sorts of areas, because yeah, your competitors' prices weren't like easily available on the internet. And now it is so much easier to like aggregate public data about prices, and so now you can anyone can be more sensitive to like what their competitors are charging. And the just
this department gets nervous about that. Not the farmers, but in general.
The goal here for the farmers is explicitly to raise prices.
Yeah, that's true.
Like there's there's a quote from someone involved in other words, to give them a better day at the farmers market, because they're going to be there for eight or six hours, whether they make four hundred dollars or eight hundred dollars. So we're looking for how we can help them earn more in those hours. So that's the goal.
That's the goal.
They want the farmers to charge more. We should say this is from a Marketplace article. It was a really fun read, I realized. So I was reading your real page column and it occurred to me that perhaps I'm being naive. I just don't see any situation where there wouldn't be a race to the bottom.
What do you mean a race to the bottom line, like in.
Terms of like, okay, we're all only going to charge three thousand dollars per month, guys, that's the bottom. I feel like, why wouldn't you just undercut that?
Right? I mean, these cases are weird, right, This notion of like tacit collusion or algorithmic collusion is different from a classic cartel where you get together in a room and you're like, none of us are going to charge less than three thousand dollars and if you do break your legs, right, there's no suggestion of breaking your legs here, right, this.
Is just not written down.
No, I don't think at all.
Maybe choking. They're not going to break your legs, Matt.
We'll get to a story about that. But there's no like explicit cartel. Right, It's just like everyone wants to charge as much as they can, and like they're limited by competitive pressures where they have to charge less. And there is this suggestion that if you know, oh, your competitors' prices, it is easier to not undercut them or to like undercut them less. Right, Like if you don't, like, if you don't know what everyone else is charging, you might be like, I want to be the low cost provider,
and so I'll charge twenty seven hundred. But if you know what everyone else is charging, you can be like, oh, charge twenty nine ninety nine, right, Like you can it's a little bit easier to coordinate on the same price
if you have complete information. This is the theory. It's not necessarily true, And the Justice Department has been interested in the idea of like price sharing because like there's this theory that if like competitors in an industry are getting together and sharing prices with each other, it's because it's anti competitive, right, you don't have to know exactly
what they're doing at the price. You have to be like, well, if they're sharing prices with each other, that's probably not good for consumers, Like they're probably doing it for a reason that involves maximizing their profits. And the Justice Department has like long been interested in that, and they had guidelines that were like certain kinds of price sharing are okay, including like if it's aggregated and not like broken down
by competitor. If you know what each of your competitors charges, then like you can break the legs of the one who charge with the least, right, Whereas if it's just aggregated, it's like a little bit more just informational. But you know, they say, like aggregated data is okay, and data published by a third party, so like a trade magazine publishing prices rather than the competitors getting together and sharing prices.
They said that stuff was okay and recently, there's been a change in their guidance where they're like, we're gonna actually look at that stuff more closely. And I think the impression is that they are worried that machine learning algorithms are going to make companies better at using this data to price at the maximum level to extract profits, and like the sharing of data is going to make
industries less competitive. So there's also this interesting paper from a couple of months ago by John Jung Jong of University of North Carolina called Salaries on Display Unintended Consequences of Wage Disclosure, or there's a paper about you know, there's a lot of states have wage transparency laws where like when you advertise a position, you have to say yeah, exactly.
And Jong finds that though, seem to lead to lower wages because if you don't have information, like the market is going to have disparities, right, and like some people are going to pay more than others because they're ignorant, right, Whereas like, if you know what everyone else is paying, you're not gonna pay anymore, like a dollar more, or you'll like be a little competitive, but there will be
no outliers. And so I think that's the same intuition with pricing stuff, where if everyone is sharing information, you won't have any outlier cheap providers because everyone knows, like you know, the market price is this, Like I shouldn't charge less.
That's interesting. The thing that I think the wage dis goes your laws lead to is just super wide salary ranges that make no sense.
But that's I agree with that, Like they don't seem to yeah, tell you that much, but.
Yeah, do you want to talk about some meat prices?
Sure?
I actually looked at the website from Cornell. This is monthly data, so I don't think it's the weekly days.
I don't going to be a long podcast where you read out the price.
Well, I think it's interesting. So at the farmers market in September, we're looking at price summary statistics across multiple meat products collected from ten farms selling in twenty one different farmers' markets in New York State. For chuck roast in September, your weighted average price per pound was nine dollars and sixty cents. Can you guess what it was from the grocery store?
Seven dollars and twenty cents.
Eight dollars and twenty five.
Cents I don't know if I was close.
I think you're doing it. But that's the average price per pound versus the weighted average price.
So farmer's market's barely charging more than the gross well, and like your experience can't be beat.
Hold your horses there, my friends, a big farmer's market. Propose non organic bacon from the farmer's market in September according to this data, seventeen dollars and twenty one cents per pound. What do you think it was from the grocery store?
Seven dollars per pound?
So close, seven dollars and ninety eight cents per pounds. I said, eight, Quite a mark up, your baby.
That farmer's market bacon. It's going to be delicious, is it.
I don't know. I'm not a bacon person on.
The big farmer's market. Great experience, great food. Yeah, garlic cannot be beat. The ginger I got up my local farmer's market astonishingly expensive, so good.
We were driving back from Albany this past weekend and we went to a rest stop and there was a farmer's market outside, like on the highway.
I'm sure that was great.
I got some dried beat chips and.
I got I know that stand but okay.
Yeah it was on the cusp of New Jersey.
No, I just mean, like, oh, there's like stands that you see a lot of.
You also at the rest stop on the highway. Yeah, but I don't think I'm a farmer's market person. I don't think I have the patience. Anyway, that was a robust discussion.
I want to add one more thing, which I did write about, but I love it so much. Yeah, I got an email from a reader about the Ottawa Farmer's market where this reader sold strawberries for a while. Yeah, and like out of those farmer's market had explicit price fixing, where like the rules of the farmer's market said you couldn't undercut the prices that they that were agreed on, and you didn't say that legs were broken. But a
little bit of ploot. He found a loophole where it was like, you know, a four liter container of strawberries had to cost this much, and he realized that if he sold the two and a half liter container, non standard size container, he could undercut because there was no rule about selling that size container. Wow, so he would sell two and a half leaders for half the price
of four leaders and get more business. The kicker to the story is that he's now a data scientist at a tech fron because because I assumed that like a tech FIM recruiter is like walking through the market and be like this guy, yeah knows how to price ad auctions.
I wouldn't have guessed that the pipeline worked in that direction. But that's pretty cool. You're right.
It would normally go and like, I don't know if he was a data scientist taking a break but strawberries, but.
Maybe he was on gardening leaves. So private credit, in the sofer world of private credit, there's a lot going on, is there or are there just a lot of headlines?
I don't know. There's a really interesting Financial Time story the title something like State Street is shopping for a private credit man.
That's exactly what it is.
Photographic memory. The thing that I thought was interesting is that the C States trade is like, yes, we're desperate for a private credit manager. Do you know any I need to I need to buy one right away. It's just like the like intensity of the search for like every big asset manager, Yeah really wants to buy a private credit manager, which is just like a great position to be in a few a few years ago launched your private credit for people are like, yeah, that's weird.
Does that do? It was like a little bit of time where private credit was like, you know, like a little bit in the wilderness, like a little bit of a niche strategy. And now it's like all these managers are like State Street is kicking down their door.
Yeah, I wish that that's how I had spent my pandemic. But here I am recording this podcast. But i's great. I kind of like the honesty and the aggression. So this is a CEO of State Street Global Advisors. It's their asset management arm. She said, this area is so well established, and given the size of our clients and their need to build and invest in a meaningful size, I think it just makes more sense for us to either partner or take a stake in a much more
established firm where it's one plus one equals three. That's interesting, rather than trying to do it organically. They're like, we're behind already, let's go by the way.
Do it organically isn't even a thing like do it organically means like, hey, huge guarantee is to the people you hire, right, there's no like the market for people in private credit is just really a pricey whether you're hiring them or buying their firms.
Yeah, I started thinking about Apollo because she also said we're shopping for either a full acquisition or a minority state combined with product partnerships. And they have a planned product partnership with Apollo. That ETF filing heard around the world between Apollo and State Street for private credit ETF which I don't know if that one is going to launch. There's a lot of skepticism over that. But that's interesting.
Oh sure, but like they want a private credit offering for their clients, right, Like they want to be able to chuck billions of dollars institutional money into a private credit offering, and everyone wants to that. Yeah, you know, if you are running a private credit firm, you're raising funds and like you're getting all these offers from all
these traditional firms. Yeah, you know. There's another article in the Wall Street Journal about black Rock looking for alts managers like private credit or other like alternatives, and the reason for it is so clear, Like you can charge like roughly one order of magnitude more n fees for running alternatives than for running you know, traditional long only money.
Well to the point that State Street be shopping, Blackrock has been shopping in a big way. I mean they bought Prequin for example, that was you know, for data Global Infrastructure Partners that finally closed.
Yeah, by the way, I think I forget it was the State Street or something else. But like one of the articles is like they're shopping for a private credit or infrastructure, but it's like anything at all.
Yeah, yeah, as long as it's alts. And also maybe Blackrock is going to buy HPS. I don't know.
There's a fascinating story about HBS a while back. Hs is like nominally preparing an IPO, but like also shopping themselves hard to probably Blackrock. But also like there's talks of talk of like JP Morgan is like maybe like yeah, like Jamie Diamond, like I think was asked about buying a private credit for him and he's like, no, we would never do that, and then like came back later and it's like my team tells.
Me we might Yeah, I've been in form Yeah.
Yeah, Like they're like they're like pulled them back. But a lot of ways that HPS could go but one of those ways is selling themselves the black Rock for an enormous premium.
This strategy has worked out for black Rock. They have like four hundred and fifty billion dollars in alts. At least one hundred and sixteen billion dollars is coming from GIP for example. So it's a really easy way to just scale up.
Yeah, I mean like scale up, Like you know, it's like what like four percent of black Rocks assets, right, but it's like the very juicy four percent, right, It's like the.
Four percent that makes a lot of money.
Yeah, you charge, it makes a lot of the money, and it gets a higher multiple, and it's like, yeah, it's just like really attractive. And like, you know, saying we're a giant index fund provider is just less appealing to investors now than saying we're a giant ults provider.
I have some numbers in your column. You reference this Wall Street Journal article that pointed out that Blackrocks market cap is similar to those of Blackstone, Apollo, KKR, et cetera, even though Blackrock manages like eleven and a half trillion and they manage a fraction of that. I wrote about this in mid October following BlackRock's earnings, just about how much money they make per dollar of AUM. And for Blackrock, it's like, according to Bloomberg Intelligence, they have an annualized
fee rate of fourteen point six basis points. You compare that to Apollo, and it's something like fifty two basis points. So I would have guessed the higher number for Apollo. Well, apparently for Blackstone and KKR and Ares, that figure ranges from fifty basis points to like one hundred basis points, right, So.
Yeah, classically two and twenty right, Yeah, but like it's a much, much, much richer fee product. And like a lot of the stories about private credit are like, wow, there's so much more money in this.
Oh my gosh.
This is a Bloomberg article from September Bonus starved bankers are a jumping ship for private credit riches. Yeah, why wouldn't you do that?
That makes sense?
You know, all these like private credit funds are started by people who are like you know, lib fin bankers at Coldman and like went to start their own funds when that was like a somewhat contrariy and move, and now they can sell their firms for billions of dollars to Blackrock.
If I could do it, I would.
It's just like, you know, one thing I write about this is like it seems hard to run a private credit fund now from the perspective of like being an investor. Josh Harris said to David Rubinston the other day that like a lot of these alts funds are like the
beata of aults. Right, private credit like its core is like direct lending to leverage biots, And so you are in a business of like being friends with twenty private equity sponsors, and when they do a biot, they call you and they say, would you like to lend us the money? And you say yes? Because you say no, and they stop calling you, and then you don't have
the paper to feed your hungry investors. And so there's this sense in prior credit that, like, it is hard to be a disciplined investor, and it's hard to look for value and make do really careful credit work because you're essentially in the business of saying yes to every buyout that gets offered to you because you just have
to do deals. But it's a great time to be selling your private credit front, right, Yeah, you know, it's a huge boom that like any huge room makes it hard to be like a careful investor because like you have to deploy a lot of money, but like it's a great time to be a seller.
Yeah. I was actually just having this conversation with a private credit person, and this person was talking about how there's private credit beta right now, and you know you have to get more esoteric to find the alpha, et cetera.
You don't have to find the alpha. You charged two percent and you know you judge, you judge fifty vasis points.
And you can at least this person would like to.
That's why I'm saying it's hard because like everyone is like constitutionally like wants to be doing good deals and not doing bad deals. But there's a lot of money in doing like private credit paida.
Let's talk about some trade secrets.
So there's a Bloomberg story about Shao Xiang, who's the founder of Pinestone, which is a big and very successful quant fund in China. He was charged criminally in Boston Federal Court in Boston for allegedly he had a former job at an American asset manager and he like allegedly they downloaded all the models. It's like left for Actually he left for China and downloaded all the models.
He was out of the country first, out of the country.
First, which is smart. There's another story a while back about a guy who did the reverse, Like he downloaded the models and then he left the country like that night, and like by the time he landed, they have them to tand and like it. It didn't work out for him. But this guy left the country first, wasn't supposed to be able to get into his corporate hard drive, but right used the VP and to somehow log into work from China, which I think is probably not technically feasible
anymore at most quant firms. But he allegedly did it, and he allegedly downloaded all the models, and it's an indictment. It's not full of detail. There's a suggestion that he used these models to set up his now very successful Chinese quand fundt. I don't know if that's even what they're charging, but like there's a hint that like these things were useful in his subsequent career.
So well, I would like to know his returns.
Well, they're great.
Well, you point out on your column that the US market is different than the Chinese market.
It's very different. You know, there's been a lot of stories about like Chinese quand funds getting wrecked in like regime changes, where yes, the Chinese governments like oh, you like can't bet again stocks or whatever, and like you know, your long short fund just that you know, explodes because you can't be short anymore. You know. You think of like a quant fund stereotypically being trained on some relatively recent history and being bad at like adapting to sharp
changes and like how the world works. Yeah, it's like probably an overly simplified stereotype. And like some quant algorithms are really good at adjusting to new information, but like you know, that's the stereotype, and like it does seem hard to run a quant fund that is, like these are the returns of going along this basket of stocks and going short that basket of stocks, and then like you updated for you can't short stocks anymore.
Like this seems hard, yeah, Or the government comes in with like a ton of stimulus and just completely changes the narrative, right exactly right, they develop it, which we saw a couple of weeks ago.
It's not necessarily that's right, Like the economic environment can change rapidly, and it does seem very hard to deal with that, and like there were a lot of quant funds that blew up, And as a sort of like amateur tourist reading those stories, I'm like the lessons of like the sort of classical development of like quantu investing in the US might not apply perfectly to China, but presumably people know that, right, But it's like, well, they stole the code, but like, by the way, his firm
is doing great if you just stole the card and like plugged in like us trading into Chinese markets, Like either that worked really well or like there's something we're missing there.
Perhaps he tweaked it a little bit. You could draw parallels to another case we've talked about that was Jane Street and Millennium's trade secrets. Tell us about the nuances here.
Well, I mean one thing is like there's actually a lot of these cases where the person gets charged criminally. I was going to say arrested, but this guy's not been arrested because he was out of the country. But like the number of them get arrested, you know, like the one that is famous as Sergei Atlanikov, who allegedly stole code from Goldman Sachs and got arrested and so quite a long time in jail before It's like, I think his convictions are ultimately overturned, and he was like
he had kind of a rough go of it. He was arrested roughly the time that I left Goldman, And although I did not steal any.
Code, I like, do you want to say that again?
I did not steal any code, to be clear, but I was worried because I was going into media and I was like, what if they get mad at me and say that I stole code. It's a real time of like looked like Goldman could have you put in prison if they didn't like you, right, look to me like that because I was a parent. Anyway, they put
him in prison. But like you know, the Jane Street stuff, no one's going to get put in prison for a variety of reasons, but a big one is like, there's no allegation of code stealing, right, There's a difference between stealing ideas, which is like a really fuzzy area, right, Like Jane Street is like convinced that these traders stole a proprietary, complicated trading strategy that was developed with like much work and investment at Jane Street and belongs to
Jane Street, and like Millennium is like, no, these guys like you know, they how to trade options and now they're trading options for us. There's nothing proprietary about that. I think probably the truth of somewhere in between. But like even if Chain Street is right, that kind of like know how you can get mad, you can get sued, you can be like stopped from working at the new firm.
You like have to pay them back, but you're not gonna go to jail for that, probably not legal advice, whereas like if you like download code from a VPN, like, yeah, you can go to jail.
Yeah if you're caught, Well, this guy, what's gonna happen to him? Because he isn't trya nothing.
So this is interesting take it back to the US. It's like it's like a real consequence.
Yeah, that is a consequence. Does his firm get to keep doing great and using these models?
There's a widespread assumption that like this stuff decays. Yeah, maybe he downloaded like the whole like framework for how
to build you know, a quantitative trading firm. But like that stuff is kind of public domain, you know, to the extent he downloaded, like signals, those decay, Like no one, no one thinks that like three years after you're stolen stuff from your firm, it's still I mean maybe if it was renaissance, but like yeah, for the most part, like the Stuffycays and so there's like there's this notion that like you have to be stopped from using it for some period of time, but then after that it's
probably not worth worrying about. Yeah, Like you see that in the Jane Street case where it's like whatever secret trade they're doing options in India, but Options in India doesn't tell you very much about the trade. Like Jane secretal sides out like some very complicated, you know, clever implementation, but uh, no one thinks that's going to make one
hundred million dollars a year forever. You know. Like it's like Jane Street had some window in which to use that in which to do that trade, and then like Millennium butted in and now they you know, have to put the profits where the profits go away. Probably that's what's happening here. But also I can't be like shooting the lights out trading Quantu and China solely with stolen models.
He's only thirty three, yeah, yeah, and he stole these secrets allegedly in twenty twenty one.
That's the other cool thing is like the indictment says that he was an associate and was not responsible for these models. Like often you have some dispute about like whether the person was like downloading their own work, yeah, or but here the implication is kind of like you like shut up as an associate, did the training and then like downloaded all the models and left. You know, there's like your implication that like he was he was just taking other people's work.
This did prompt a response from your readers, as I understand it.
Oh yeah, so I wrote about like the high level problems with doing this, right, like if you just download code and then go start your own firm, like the big problem is that you get arrested. Yeah, it was like you know, moving to China like solves that problem. But then like a secondary problem is like you're crowding a trade that is there's not that much profit in it necessarily, so like if you and your your old firm are both doing it, like you're both make less money.
One reader pointed out that actually the biggest problem with this because of getting arrested is raising money clients. Yeah, because like if you work at a hedge fund and you download their code, then like how do you raise money? You're like I still could from my old hedge fund, Like no one's gonna invest with you that. Or you can be like I'm just really smart, I have some great ideas, but it's like or you should be.
Like I'm gonna undercut that hedge fund and I'm going to give it to you at a cheaper price, which gets us neatly back to farmers' markets.
It does, but I do think that that pitch, well, it might work for garlic, is very bad for a hedge fund client, Yeah, because you're just like you're taking out a lot of like operational and regulatory and reputational risk for like saving some money because like you know, like this hedgehund strategy fell off the back of a truck and I'll give it to you for cheap. Like that thought that's not a good like long term strategy
for like an endowment. But moving to China and saying, hey, we've developed our skills at like a leading US institution and now we can apply them to this. It's somewhat like less fully efficient market. That's a good pitch. And if you're like nudge, nudge, wink wink. Also we stole the models like maybe that's a fine touch too, don't Yeah, And that was the Money Stuff Podcast.
I'm Matt Livian and I'm Katie for myself.
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