Bloomberg Audio Studios, podcasts, radio news. We talked last week about we're so excited. I don't get out of the house much.
Oh my god. The weather in Vegas, though, it's going to be like high eighties.
I don't know what the weather in New Orleans is. It's gonna be great, it's gonna be great whatever.
Yeah, it will be good, humid. Drink a hurricane.
I feel like I'm gonna drink a hurricane.
It's not good. We'll make you feel good.
No, I think the last time I was in New Orleans, I was. I was in high school, okay, And in high school I was on the quiz Bowl team, all right, which is like surely no surprise to anywhere. And we call for some sort of national championship tournament in New Orleans, of course, and I was, you know, seventeen. We definitely drank hurricanes.
That's pretty cool.
Actually, like teacher chaperones are like took us to Bourbon Street and we're like, we're going to walk this way.
Wow. Did anyone have a fake idea or was it just like.
As I recall, no.
Or was it like one kid and he was like.
This is a similar time in New Orleans.
God. Yeah, he just.
Wiped up bar and you were sixteen seventeen years old and you said I'd like a hurricane, and they're like, nobody who's not underage wants a hurricane. So here you.
Go, man, Well you can recreate that.
I'm going to recreate that experience. That's it, like, honestly, like the m and A conference and the quiz Bowl National Championship, very similar. Probably probably people.
Yes, that's cute.
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 Wade the Money Stuff column for Bloomberg.
Opinion, and I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Friend of the Pud Bill Ackman is doing.
The show Lackman returning not as a bird but as the manager.
So I forgot that was a sensitive subject. A friend of the show, Bill Ackman Man, not bird is the thing that he likes to do. Yeah, launch large clothes funds or try or try He's going to get at one of these days. He filed for the IPO of Well, the IPOs of Pershing Square USA, which is the closed end fund that he tried to launch in twenty twenty four and then pulled because he didn't there was very
much money. But also the Pershing Square, Inc. Which is the new form of the Pershing Square Hedgehund management company. So his actual hedgehund firm is going to go public simultaneously with his clothes end fund for the simple reason that if you buy shares of the clothes then fund, you're gonna get shares of the management company as a sweetener to induce you to buy shares of.
The clothes twenty shares the management company.
Right, everyone reported this, and I'm like, you can't be like twenty shares. If you buy one hundred shares of the Pershing Square USA, you get twenty shares of the management company, So you get one fifth as many shares of the manager company. But like shares are a meaningless concept, you can divide a company into as many shares as you want. This is true, and so I haven't looked at it, and going to be four dred million shares
of Pershing Square ink the management company. So basically, if you buy a fifty dollars share of Pershing square USA the clothes un fund. You get fifty dollars worth give or take of the clothes unfund plus zero point two shares of the manager company, which is one two billionth of the management company, which you know, what's the management
company worth? Two years ago or a year and a half ago, they did offering, they raise money at about a ten billion dollar valuation, and they would argue that it's more now. So you know, if the managing company is worth ten or twenty billion dollars, then your bonus as a investor in the clothes unfund is worth five or ten dollars or so that is I think they hope enough of a bonus to overcome the tradition that closed un funds trade a discount. And in fact, but.
There's a rich history of closed un funds trading at a discount.
The rich history includes right Bill Ackman's closed up fund in europ, which is their discount is very complicated because like there's this thing coming. But you know, if you started from that as a starting point, you'd be like, well, twenty five percent discount means if I put fifty dollars into persons through a USA, I'm going to get back thirty seven fifty worth of stock, and then you need enough of the management company stock to make it worth it, which maybe this does.
Yeah, So we were talking a little bit about this earlier and then we quickly stopped ourselves because we should save it for the POD. But it's interesting when it comes to IPOs of companies, there's this stigma around trading below your IPO price. Does the same stigma exist if you IPO closed and fund and immediately traded a discount.
Well, two things. One, it's not a stigma, it's a total impediment. Like Bill Ackman last time he tried to take Pushing Square USI public, he just didn't. And the reason he didn't is because a lot of investors were like, look, this sounds great, but we think it'll trade at a discount, and we'd rather buy it at a discount on day two than buy it from you at par in the IPO. And if everyone says that, then you don't sell any shares in the IPI and you just don't go public.
Right with a company, stuff is different. Right, Like a company like you set the IPO price at the price the market is willing to bear with. They closed, then fund if you don't raise money at NAV like you kind of can't raise money, so they pulled the IPO. It's anothery're coming back with this thing, which you know you ask, is there are a stigma if that trades down? Well, maybe I'm wrong, but it's going to trade down the way.
The way you know that is because they're giving this bonus. Right, the management company shares and the closed un fund shares are going to trade separately day one, right, And there's just they're two separate companies. And if you buy shares of the closed then fund and the IPO, you get clothes unfund shares and separate management company shares. Yeah, and then day one they trade separately, and you hope the package will trade at above fifty dollars so that you've
made money on the IPO. But if the package trades about fifty dollars, like the closed infund is going to trade down, it's just gonna trade down, and it's you know, it's not gonna be that much think aout because everyone like anticipating it.
I'm glad you said it's going to trade down.
Because maybe I'm wrong.
I mean, maybe i'm wrong too, but that was my knee jerk reaction.
Like, oh, every clothes Why that's why there's a bonus, because it's going to trade down, and so you get these extra shares and you have the package trades up, but the package trades up, it's a win, and so
it's a good IPO. Yeah, maybe over time, like Bill Ackman has always made the case that like if he compounds the clothes End Fund at an above market rate, then you should be willing to pay more than Navy to buy into the clothes down Fund, and maybe over time that argument wins and that they want.
Yeah, it's kind of interesting that Robinhood also just set sale on a close funds, a venture fund that holds private companies that iPod last week. I believe it also it opened at a discount or something like that, and I guess that sort of feeds into my long term thinking that okay, package aside, it feels like this close
end fund is going to trade at a discount. Given that we've talked about how there is all this demand out there for private companies from retail investors, you would expect that they would be drawn to this Robin Hood venture funds. And then you compare that to the portfolio and Bill Ackman's closed end funds.
Which is not not large cap stocks.
What are you talking about?
I said, I said, it's not not large cap stocks.
Right in Bill Ackmans. Yeah, No, I'm not saying that it's not I'm saying it's all public large cap stocks. It's not like the shiny pre IPO.
There's a reason for telling it this way.
Yeah, I know. I'm just saying the portfolio, like if you're looking at this like shiny package of like data bricks, ramp, like a lot of companies that are expected to go public in the near future, versus you know, a close and fund of large cap perhaps the right public stocks, but still public stocks that might not like appeal to people in the open market who might want to buy this.
Oh yeah, the thing you're selling in the clothes n fund is not like the underlying investments, which are kind of a NOLLA. The thing you're selling is one Bill Ackman's future ability to pick good investments, and then two just like his persona, right, I mean, like this is a like to some extent, he's a public figure. He tweets a lot, like if you're interested in that, like this is in the way that Tesla is a way to access Elmus. This is the way to access like
his brand, and maybe some people will buy that. Yeah, I should say like that a lot of this is spoken for, Like they have two point eight billion dollars of like pre IPO commitments.
And those people got thirty shares.
They have thirty Yes, yeah, the extra bonus, but those people are like institutions and family offices and stuff. I do want to tell you a little bit about it, Like the management company is going public, right, so it seems like the management company is going public sort of out of necessity to do the to close them fund deal. But it's also like they're always talking about taking it public.
They're not raising money for the management company. They're just taking it public to give to the closes unfund shoulders. But they have to do a perspectives for the management company. And so you can see things about like comp including Akman got one hundred and forty three million dollars last year and a lot of birds and Brian Israel who is the actual chief investment officer and got forty four million.
I also I want to quote one of the great sentences go on and this is actually from Ackman's letter, I think to shelders not from the actual perspective, but he writes, with one of the highest ratios of fee paying assets to investment professionals in our industry, Pershing Square is also an economically attractive place.
To work, oh, which is like we're going to pay you.
Like a great flax. Like it's like they have like whatever, they have like twelve employees and they run thirty billion dollars. They all get paid. It gets a great business. And the masging company is also interesting. They do a really interesting thing where they have, like most other hedgehn managers, they charge performance fees and they have what they call
the preferred performance fee. It basically means the performance fee that they get on the first five percent of returns and their funds goes to the managment company to the shareolders basically and everything over that goes to employees. So one that incentivizes is employees because then get real or rich. And two they think they argue that it makes the management company a better investment because like the theory is that people don't like to buy shares of hedge fund
companies because their returns are so variable. Because if they have a good year, they make a lot of money. If they have a bad year, they don't make any money. And so, you know, stereotypically, investors do not place a high multiple on performance fees and pushing squares. Theory is like, well, the first five percent, we'll get that every year, and so that's like almost like a management fee. It's like just like a guaranteed fee. And so investor shop plays
a highmultiple on that. So they're like carving up the fees in a nice way where like shareholders place a high value on the low part of the fees, like the very predictable stuff, and employees plays a high value on the upside lottery tickets, and so we're going to carve it up so that everyone gets the piece they value.
Mm hmm.
So we'll see that works. But it's a good idea.
I feel like we're going to be talking about this more as we get closer.
Maybe yeh.
Can something we've been talking about a lot which we're going to talk about more right now, probably credit. She's the Louis vibes are atrocious.
Yes, I guess they're bad. Yeah, I guess they're bad.
They're bad. Well, if you have an optimistic.
Take the story about a golden executor who said at a conference with that so good credit glans, we're enjoying the war and Iran because at least the distracts from questions about gates and yeah, you really don't want to say that.
I keep that. I feel like that also points to the vibes being atrocious. War.
I guess. Actually, after we recorded last week, eah Lend the HPS slash black Rock Big Private BDC gated itself. Investors requested to a breading about nine percent of their shares and HPS says, nope, our cap is five percent, so we're not giving you back the rest of your money.
They didn't have their employees pitch in, they.
Didn't have their pitch in, and they basically said the correct things, which are the point of private credit, is that you accept some illiquidity in exchange for expected higher returns. And because we own a liquid stuff, we can't just cast you out whenever you want, and so we set a limit of five percent so you can get some money out if you need it, but we're keeping them limit a five percent.
Tough cookies, And.
It's funny you say the vibes are bad the vibes are not good. But a lot of people in the private credits you're like, they did the right thing. The gates are to prodict the clients, and you want to not have a run on the bank and you say, nope, the bank is closed. Then you do prevent that at the cost of getting awkward questions and getting bad headlines and having bad vibes. But I think it is like people in private credit, is the right thing to do?
Was it Blackstone that the employees pitched? Yeah, maybe the employees a Blackstone forked over some cash to meet the x ex redemptions. We're like, God, I wish that black Rocket done that a week earlier so we wouldn't have had to pay off very possibly.
There are like differences in numbers that are kind of kind of matter a little, Like Blackstone got seven point nine percent redemptions, which like you can kind of do seven percent in your ten to offward then it's like zero point nine, Well, we'll find the money somewhere, whereas like HP has got nine point three, where it's like nine point three really got to do something, And there have been since then. There's like cliff Water had a fourteen percent Yeah, and you.
Gotta shut Morgan Stanley as well. Yeah, it just feels like if you haven't, the whole thing.
Has been kind of like the numbers have been creeping up because this is all kind of cumulative, right, Like you go out and you say how many people would like to redeem, and like seven percent say we'd like to redeem, and then you announce that and they're bad headlines, and then like the next fund that does it, it's like eight percent, you know, and so it keeps getting worse.
Kind of like a vicious cycle or feedback loss.
Yeah, it's it's just people get nervouser and nervouser, and these redemption numbers are index of nervousness. But I don't know how much this has to do with like fund by fund like performance or like trusting the matters, and how much of it is just like each fund gets a little bit more redemption requests than the fun before.
Well, the private credit titans would tell you that this is totally disconnected from fundamentals of the portfolios. Apollo trying to maybe combat that by offering more frequent.
Marks, more frequent marks.
That was one of the stories out this week.
Yeah, no, they're going to mark their stuff more frequently.
Monthly with ambition to get to daily.
Yeah, and also with ambition to get third party marks, which I think is interesting, right, Like if you're a hedge fund and you're just like, well, we think all our stuff is worth one hundred cents on the dollar, Like that's bad. You can't do that. Like someone's like you're supposed to have like some sort of third party justifiable marks. If you're private credit fund, you're like, yeah, it's our loans. We think it's good. And I think that Apollo certainly sees it shifting to a world war.
You have third party evaluations and you can say no, these marks are right. The value of that is like, like why are people redeeming One reason might be they want to quit it to Another reason is they think things worse, But like it does sort of seem like part of it is that people don't trust the marks. Yeah.
You see stories about like private credit funds carrying a loan at one hundred cents on the dollar and then marking it down to zero, Like that's like it's like kind of no step, that's kind of like that kind of makes sense, Like yeah, in terms of like, yeah, you're a lender, like either paying the loan or they're not. If they're paying, it's worth a hundred. If they're not, it's maybe wor zero. Yeah, But like that's not how people in public markets think. And so you kind of
want the intermediate moves. And so if you have some person, some outside person saying yeah, today it's worth ninety seven, that like might inspire some confidence among your investors.
Well that's what I was wondering. What the hope from Apollo that you know, we show you your marks more frequently, you can see that this portfolio isn't actually going down the tube, so you'll be less likely to redeem.
Yeah. And also just like redemptions are like a nav arbitrage, Like if you think the fund is worth ninety five and the fund says it's worth one hundred, then you should redeem because they'll give you one hundred for something you think is worth ninety five. And if you're right, that's really bad for the investors who stay in because they're giving you one hundred for something it's worth ninety five.
And so like everyone else has less, and so it's a run on the bank, right, And if Apollo is really confident and it's marks, then doesn't have to worry about a run on the bank because you can pay people at what it thinks is it the right value. And if you believe that as an investor, then you won't redeem because you're like, well, if it's worth ninety five, they'll give me ninety five, and so like there's no point in me redeeming and so so it's that right,
it's to avoid the run on the bank problem. If you and all of your investors are confident in the marks, then you're less likely to have a run. The other thing, it is just like weird, like Apollo has like has a trading desk, Like they just have a different vision of what private credit will be than other people, and like they're, you know, they're trying to make their vision
come true. And some of that is like if they can move the world to a marked to market world, then like their trading desk is going to have more business. They're going to be providing the third party marks to other firms, you know, So it's a differentiated business decision.
Have we talked about the push to put private assets in retirement ETFs? Have we ever talked about that well, Apollo famously has an ETF with State Street that has daily marks, right, all.
Right, put private credit and retirement funds? Have we probably probably I read about it a lot.
I was thinking about it yesterday because there was a comment from Elizabeth Warren saying that, you know, we need to stop this push right now.
It's just incredibly awkward time.
We also heard from the Treasury Secretary of Scott Besson saying the DOUBLET no saying actually agreeing, saying.
That we need to no one like no one's going around right this minute, being like, you know, what we need is to put more private credit in to retirement funds. Two weeks ago they were sure.
But it's like it's kind of beautiful to right, It's like a bipartisan moment among our government, two leading figures in the US government uniting on this issue in this wrought time.
And I've written this like structurally, it actually makes a lot of sense to put private credit and retirement funds because like your money and your retirement funds, you shouldn't need until you retire, so you can lock it up for a long time, right, And like you know, it's a percent interest or whatever, So it's nice to have been in a text the fur retirement account.
But Elizabeth Warren is listening right now.
But nobody believes that. And I do think that, like the last couple of weeks demonstrate why no one believes that, because like, in fact, retail investors do not want to lock up their money for twenty years, and you have real structural problems giving even a little bit of liquidity to indivitional investors in private credit cands, right, I mean, like part of what what's happening here is like structurally these funds are fine, like they don't need to give
money back because they're set up in a way where they can keep the money and only return five percent per quarter and so forth. But the vibes of doing it that way are bad.
So do you want to mention JP Morgan as well?
Oh yeah, JP Morgan is like allegedly marking down some private credit loans because they're like they provide back leverage to these private credit funds, and they lend money against private credit loans that some loan to value ratio. And when I say some loan to value ratio, like private credit firms can tell their retail customers these are what
the loans are worth. But when they go to JP Morgan, JP Morgan tells them what the loans are worth, and so JP Morgan told them the loans are worth less than they thought.
It's funny because you know, we heard from Jamie Diamond famously CEO of JP Morgan saying that there's probably more cockroaches around if you see one, and turns out he was right.
JP Morgan marking down these loans doesn't prove that you A Morgan is right. It just pears that JP Morgan is marking down the lens. The FC article about the JP Morgan markedown like quoted some private credit people anonymously being like they're more nervous than everyone else, right, Like, it's always evaluation dispute, but when you're getting your levers from JP Morgan, they kind of win the evaluation disputes.
Yeah, this one was interesting because again, when we're talking about redemptions, it's mostly psychological. Again, we're not really talking about the fundamentals.
Whereas maybe, well you say that, like, it's possible that all the retail private credit investors who are like I would like my money back are just like looking around at the macro environment and being like these companies are gonna get destroyed by AI. Like maybe they're right, Like maybe they are the people running the private credit firms who are like there's no fundamental problem here, Like they
have they have money on the line. On that view, the people taking their money they have they have their own potentially valid opinions.
What I'm saying is like, we don't know that. Whereas JP Morgan it gets back to the software sort of apocalypse story that we were talking about a couple.
Of weeks ago, looking after themselves, like.
Guess that's what you do.
That's definitely what you do. I heard this week about Calshi is getting sued for not paying out bets on Ali Kimenya off leaving office as Supreme Leader of Iran. Calshi had markets on Camanie leaving office as of certain dates, including as of April first, and as it became clear that he was going to leave office, those prices spite because people were betting on him leaving office and then
he left office. But Calshi said those bets will not pay off that one hundred cents on the dollar because there's an exception if he leaves office due to death, which is why he left office. Then you don't get paid the full amount and you get paid just the last trading price before his death, which is very hard to measure because these markets are trading minute by minute, as like the US is conducting military operations. So I
don't even know what the last trade was. I mean, like the last trade before they paused it was like in the forties, but like it got up to the sixties, so we don't really know what the last trade was. But yeah, so they were not paying those bets at
one hundred cents on the dollar. And the reason for that, I think is that the US commodities rules for prediction markets specifically do say you can't have bets on war or assassination fair for pretty good reasons about not wanting to encourage assassinations.
Yeah, there's an easy but extreme way to.
Manipulate that market, so it is not technically allowed. And so the way cal she deals with that is by having bats on people leaving office, but specifically excluding leaving office by death. And they apparently didn't exclude it clearly enough because there's like a lawsuit filed against them saying no, we should get our or hold money back, which you know the lawsuit is basically like sure it was in the fine print, but it wasn't on the front page.
And the way I think about it's like, as a matter of consumer protection and like you know the user interface on your consumer facing financial site, like that's kind of a reasonable claim, right it should be on the front page. And then as a matter of like this is a commodity derivatives exchange, like you should be reading the whole contract when you try to commodity futures contract. And if you don't, like that's kind of on you. So I'm unsympathetic about side too.
Yeah, I wonder what if you're calci, what you're going to do.
They've done their best to be like we've refounded everyone. Nobody lost money. It was just whatever, Like they're going to pay out some amount of money to make everyone as whole as possible. But they can't really go to we'll pay one hundred cents on the dollar because that would probably violate their rules, the safety c rules there and presumably these people one hundredth in.
You also wrote that polymarket doesn't care, just paid one It's weird.
Polymarket is like creeping into being as regulated commodities exchange, but it's like all the way the area. Yeah, I think they have like a US site that is only sports betting, but I could be wrong about that. But yeah, like there can many leaving office bets paid out no problem because they are not subject to the same rules.
I don't want to talk about ETFs, but I know you want to time think about ETFs because you know, this was a a hullabaloo over like the concept of complex ETFs where it's really easy to lose your money. But we live in a disclosure based system and you know on all of these funds perspectuses that risk is spelled out that there's a big chance of losing your money here. So like the idea that like this was in the fine print, but the print was too fine. I don't know.
Yeah, you're right. Part of it is like you're right, and they probably won't win this lawsuit. Yeah, legal advice, But part of it is like this is a new thing, Like there is widespread acceptance of the disclosure rules in the stock market, and you're like if you're like, oh I didn't read the perspectives, I lost money. I think the lawyers are not going to take that case, it's like you're supposed to the perspectives right, and even that, we.
Know no one reads this, but I'll just scroll past it.
But with a consumer gambling site, it feels more reasonable to make complaints about the user interface. I mean part of it is like the SEC really regulates the user interface for things like ets, right, Like your perspectus is not designed by the world's best user interface engineers to be attractive and informative. Your perspectus is designed by decades of accretion of like SEC lawyers, and so your perspectives works the way it works, and if it's not readable, like,
that's not your fault, that's like the law's fault. But with the consumer gambling site, everyone's kind of making it up as they go along, and some maybe they should make it up better.
I really want to talk about this quote that you included from Shane Coplan, the founder of Polymarket, from a conference in twenty twenty six. I don't know why I thought this would have been a couple of years ago, but it's right now. Not necessarily about the Iran War, obviously that time stamps it, but just like the concept of warbats, given that it is a.
Top of mind.
Yeah, a touchy topic. So he said, there's still a lot of resistance to innovation that kind of also seems daring to begin with.
I love when people are like selling the worst possible products. They're like, people are so resistant to innovation. Like when you say, when you hear innovation, that means like scam. Like, if you have something good, you're like, this is good. Here's why it's good. But you have something bad, you're like, it's innovative. Yeah, you're just an exaggerating MELLINGI a little.
Man, resisting innovation man. But he also said when I get hit up by people.
Nobody's resist nobody's like, nobody wakes up at the morning like I want to resist innovation. The thing I don't like is innovation. So I'm going to stop innovation. What they say is I'm going to stop people from betting on assassinations, which is a different thing from resisting innovation.
It's different. Okay, this quote though, it's so amazing.
Sorry, go on.
When I get hit up by people in the Middle East who are saying, hey, we're looking at poly market to decide whether we sleep near the bomb shelter. We look at it every day and I'm like, oh, it's really that popular over there. That's the first reaction that's very powerful. That's an undeniable value of proposition that did not exist before.
Ah yeah, I mean what I wrote about that is like the other value proposition that didn't exist before is right now, if you are launching a missile strike, you can make money on it by betting on poly market.
That's the thing. Like, if you see those different value proposition going up, one of the questions I have is like, why are they going up? Who is bidding this up?
If you're like in the Middle East debating whether to sleep in your bomb shelter, and you see the odds going up and you think, well, that's probably an insider trader, then you should sleep in the bomb shelter. Yeah right, yeah, it is. It is more informative if there's insider trading, which has always been the like taboo thing that real prediction markets heads will say is like, yeah, it should
be insider trading. Is that makes it more informative. On the other hand, if it's the better training making money by dropping moms, maybe.
The US military is also watching these odds on poll market.
Yeah, I would hope so, and if the odds of a like Iranian action go up, then they should prepare for that action. And if the odds of a US action go up too much, they should like check to see who's insider trading. Yeah, yeah, pretty grammar. And that was the Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
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