Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to The Money Stuff Podcast, your weekly podcast where we talked about stuff related to money. I'm Matt Levina, 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.
And Today.
Mail Back, I didn't even say that, all right, I said it. Don't worry about it.
Actually, that's what everyone wants.
A lot of great questions, a lot of great questions.
Thanks for sending us to your questions. They really tied us over imperious where I'm on vacation.
It's also nice. Yeah, that's true. It's nice because I don't think we really solicited people for questions this time around. Yeah, but like not like, hey, we're recording.
Under this as standing solicitation. True. Thanks, time you have a question, send it to us, and periodically we'll put them in a batch and think about answering them.
Yeah. So shall we start off with Mark.
Sure, let's start off with Mark. Mail Bag.
Mail Bag Mark asks, do you think we'll see a law firm do an IPO for itself in the next few years, I e. Will retail investors be able to trade shares in k and E or Paul Weiss in five years. From a business model perspective, would a public company structure even makes sense. I'm sure they'd at least get the disclosures right. That's funny, Mark.
Are you sure I worked at a law firm. I would make sure. So there are law firms like in other countries, like I think, including in the UK, you can trade shares of law firms. In the US, it has historically been prohibited because US legal ethics suggests that it's unethical for law firms to be owned by non lawyers.
This is in part for genuine ethical reasons, like you want lawyers to have fidiial duties only to their clients and not to the share alders, and in part for like killed protectionism reasons, where like you want lawyers to to control their own terms of employment. That's changing a little bit. Like you see like a few states allow outside ownership of law firms, and like, yeah, we might see law firm atpos in a few years. I don't know.
I think of a law firm as being not like a super capital intensive business, where like most of what a law firm is is like lawyers, and so on the one hand, that means that you don't need to go to public markets to raise hundreds of millions of dollars right to fund AI research because you're just like you know, you're just doing deals and law stuff getting paid by the deal. So like there's not a lot of like long term investment that only pays off heres later.
That's not entirely true, right, And like you you know, I've written a little bit about like the litigation finance market, and like one thing that litigation finances is law firms that take on incredibly complicated, very long term consumer class actions where they invest a lot of resources over years and don't get paid, and then five years later they
win some massive vertige and get paid a billion dollars. Right, Like that sort of investment is a little bit hard to do when you're just like some lawyers who need to make a living, and so they get like outside investors for that. And it's not like share ownership, right, it's like a sort of special financing vehicle. But you could imagine doing that in IPO forum, where you like just have a publicly traded law firm that can make
long term investments. And also just like you know, there's some level of long term investments that you would make if acquiring a new team that does some kind of work, right, and like you're hoping for to pay from the long term. The other problem with law rooms is like because they are just people, they can leave it. It'd be funny to like be a law firm and go public and then sell your shares and collect money and then like
go leave and start another law firm and do it again. Right, Like there's not a ton of stuff there other than the lawyers. Right, Like there's some fise value in the name, but like probably less so than there is like a big investment bank, and like you don't have as much capital intensive business. So like if you just leave, you can capture most of the value that you previously sold
to investors. And you see that like where law firms like, like law firms are pretty fragile businesses, and like if a law firm runs into trouble, like it's very easy for it to break up because you know, like some law firm, it's like main business stops working and it's not making money. Like the people who like, you know, the m and a team who are really good can just go somewhere else, and like it's not that jarring for them to leave, Like they don't lose a lot
of franchise value. So yeah, it's like a little bit of a fragile business to take public, but people do it elsewhere.
So it kind of reminds me of publicly listed hedge funds. Like there's a lot of key Man risk there.
Yeah, right, there's a lot of key Man risk, And it's the same thing where like the assets walk out the door or whatever. But like you know, hedge funds are still better because like the hedge fund has long
term contractual relationships with its investors. Now they might be like key Man provisions and that, Like law firms don't really have that right, Like law firms like two things by engagements most of the time, like often don't have like long term contracts with their customers, and so you know, anyone can leave and take the clients with them.
Yeah, well, I wish that there were publicly listed law firms just because I think it would be interesting to see how they trade and how they move as a group.
Like a lot of like information and law firms stock prices like now yea like law firms are under attack and so forth. But yeah, I don't know that it's a great idea for the law firms.
Well, it was a great question mark.
Yeah, also from Mark, I assume the same mark for Katie. Would you buy a cyber horse? Kawasaki just announced one Google Kawasaki Corleo and it looks absolutely wild?
Well, is that all your questions are real? All my questions or I do appreciate the question mark. I can tell that you're not an equestrian, not so sad, not just sound too much like a horse girl. It does look awesome. I did see the video. It looks like a lot of fun. But having a horse is about much more than just riding it. It's about your relationship with your horse, and I actually really value that. My childhood pony is named Batman. He's still with us, but
he is very much retired. He's only a couple of years younger than I am. I haven't been able to ride him since like twenty twenty. He's been out of commission and I bought the course that I currently ride, whose name is Gus. I bought him, you know, as a three year old in twenty one the summer of twenty twenty one, but there was a solid year there where I was just driving out to the barn to hang out with Batman, literally just hang out with him, which is a lot of driving and a lot of time.
But it's a relationship. So I would not buy a cyber horse.
I like my you the bond to hang out here.
I just put that in the garage.
Would you buy the cyber horse for like riding when you can't get to the barn? No, like like an exercise bike when you can't get outside.
I don't drink, so no, I don't. I don't really think. So it's not like I like if I go for a long time without horseback riding, obviously I miss it because it's fun. But it's like like.
When like horse treadmill in your apartment.
Like if I'm on vacation with my parents, for example, my parents, But like people go on rides like trail rides and stuff. I like having, you know, one dance partner. I don't really like crave to ride any horse with a robot horse. It's weird. It's like a it's a long term relationship. Batman has been in my life since I was eleven and I like to just have one horse, one relationship at a time, so I probably wouldn't buy a cyber horse. But thank you for the question mark anyway,
moving swiftly long. I feel like I shared part of my soul there mailbag. This one comes from will he says love the podcast. I have a question about private credit moving to marketplaces. It strikes me that the underlying companies with this type of debt, like private equity portfolio companies,
have little interest in their debt trading. I worked at a PE fund and now work at a portfolio company, and a lot of the value from lenders is that you are a repeat client with a relationship in case you want to change the agreement e g. Or example to acquisitions, or are under duress. We have debt in our debt documents that debt holders are not allowed to transfer their debt without our permission, which I imagine is
a pretty standard term. Given the negotiating leverage hot demand for lenders to issue more private credit, why would a firm be okay with their debt trading. With these dynamics, it seems pretty unlikely that private credit would materially move to a marketplace.
I think that's absolutely right that, like a lot of the value proposition of private credit to borrowers is you will have a long term relationship with your lenders who will be nice and won't sell your debt to like distress that vultures. I'm not sure that that would prevent
a marketplace from developing. So first of all, one thing we've seen is like quasi marketplaces for LP stakes in private credit funds, which is a different thing, right, Like instead of actually your debt trading, like you're still facing as a barrow, You're still facing the same private credit fund, but like the ultimate owners of that fund can shift
a little bit. So that's not quite the same thing as a private credit marketplace, but it does like give the LPs like some ability to get liquidity and some ability to get like marks like I don't know, even within like the private credit like loans themselves actually treading.
You know, a polo is setting of a trading desk, right, Yeah, I think that one thing that is possible is to have some sort of marketplace where you have like the bars have some ability to limit who can buy their bonds, right, And you see a little bit of this like the probably syndicated loan market where like there's approved lists of who can buy the loans, but you could have a thing where you know, the marketplace says, you know, each bar can specify who's allowed to buy their loans, or
like can specify who's not allowed to buy their loans, so like they don't get bad distress the vultures. But one thing is that, like private credit is kind of new and hasn't seen like distress cycles, and like some of the talk about like private credit is nicer to companies that run into distress. Like you can imagine a world where there's like a broad downturn and that stops being true because it's sort of stopped being true for
everyone at once. And similarly, you can imagine a world where like you know, credit funds need to sell and they all need to sell, and so there's like some amount of leverage for them to be like, look, we got to have ability to trade and where some more
trading springs up. But I agree that like in a dynamic where there's a real huge demand for paper and the bars have a lot of leverage, it does seem hard to be like we're gonna have total free tradeability where anyone can buy your loans because like that is the thing that the barers don't want.
Yeah, it's interesting, and I mean Apollo is, you know, on one end of the spectrum, and then you have like Blue Oul on maybe the opposite end, because they think private credit should stay private. They're not setting up a marketplace. I believe they're on the record saying that.
Yeah. I think everyone will talk about relationships are really important, and like being a buy and hold investor is really important. But you know, at the same time, Apolo is like, you know, getting this to retail investors is really important.
Because it'll we want this in your four one ke.
Yeah, and like ultimately the pitch of that has to be we can get better rates if there's more liquidity and more Yeah, like a broader audience for it. Right, Like at some level, if you go to a borrower and you say, in exchange for not having a warm personal relationship with you for the rest of the time, we'll charge you fifty bases points less, some borrowers will say into that, Yeah, I like that.
Will brought his own personal experience to the question as well. Great question. Will should we move along to Max Max mail Bag mailbag regarding Matt's story on equity funding costs increasing costs of SMP futures. This seems like a great place for dot dot dot in ETF question mark two exclamation points. I think the ETFs that sell zero day options are very fun and selling S and P futures then collecting the spreads does seem to rhyme with this in some way. Could an ETF do this while still
being liquid and tradable? Does this already exist in the form of covered call ETFs or is selling future is different in some way ps. I'm a molecular biologist, not a finance person, so sorry, this question is totally obvious to exclamation points. That was charming, Max, So I love this.
So we talked on the podcast last week about the
basis trade. Yeah, this is the basis trade for S and P five hundred futures, right, Like, this is the trade here is that people want to buy S and P five hundred futures to basically like LeVert exposure to the S and P, and it is hard for them to do that because nobody or banks don't want to use their balance sheet to buy the S and P and sell futures against it right, Like, so someone needs to provide the funding to buy the S and P, buy the actual stocks and then sell the futures to
people who want to buy the futures. Who should provide that Well, one answer is money market funds basically like that trade. It's not a stock trade. It's just like a cash trade. It's like lending balance sheet to provide people with access to the stocks. So you buy stocks, you sell stock futures. You have no risk. You're just
like providing funding. And if, as has been the case, that funding is expensive because like no one wants banks don't want to do it, and there's a lot to demand for these futures, then you can get paid a lot for providing that funding. And the reason it's like no one wants to do it and it's expensive. This
is kind of a weird trade, right. If you are a money market fund, someone can come to you and be like, look, what you should do is you should buy the S and P and sell S and P futures and you'll get paid a very high cash return for that, and you can get at any time you want. It's like a money market investment. You'd say, no, it's not a money market investment. I'm not allowed to buy stocks, I'm not allowed to sell futures, Like none of this is allowed, and so money market funds don't do it.
And you know, I wrote about this because like there was a story about like some like long only fund managers who have like some ability to be pretty tactical. They're like, yeah, we're doing that instead of buying treasury bills or doing repo or whatever, we are buying the S and P and selling futures and getting paid you know, ten percent instead of four percent. But not a lot doing that. And so the question here is white not
an ETF. And it reminds me of do you remember the ETF called the box boxs CAET So this is the same thing, right, box is like a crazy trade where it's like they like buy and sell options to get cash returns and have no equity risk and also they think get a really good tax treatmental though that is highly debated. But this is the same thing, right. It's like boxes, Like basically there is demand for lending in the options market, and we are going to be
the lender into the options market. We're not buying options selling options. We're not doing any options trades. I mean we are, but like not to do options trades. We're doing them just to be a lender into the options market, because the options market will pay more for cash than like treasure reboil markets. Well, and this is the same thing. It's like the S and P five hundred futures market right now will pay for cash. So someone should set
up a ETF that will provide that cash. I think the reason there's not an need dev for this probably when lunching next week. But like I think the reason there's not an ETF is like it is not at all clear that this is a permanent trade right right, Like this can go away at any time, and so it's a little weird to set up an ETF that will do this trade for years.
If like you know flash in the pan.
Yeah, Like it's a little tending to be like there should be a weird cash trade ETF. Like you have an ETF that's like we're a money market ETF, but like we're not constrained to regular money market instrments, so we can do anything that's like a short term cash investment. Yeah, And like when S and P five hundred future is basis is wide will do that trade and like when something else works, we'll do something else.
Well, I mean, I hear what you're saying that you know, it's hard to know if this is permanent. To that point, I'm really surprised that there isn't a treasury basis trade ETF. Not that because I think it should exist, because there's so many opportunistic filers.
That trade is we borrow a hundred times, are an asset value to buy treasure? You can't do that in ATF.
There's some issuers that I talked too often. I wouldn't put it past them.
Now I would put it past them, but you're not allowed to do that.
I'll see.
I feel like you're foreshadowing actual basis.
Max, great question, Good luck with the biology.
Mail bag.
Mail bag, all right, Sal Sal has a question. Sel asks what is the value of the option to declare personal bankruptcy and how would you monetize it? Couldn't investor recruit a bunch of eighteen year olds to take levered risks.
I feel the option really is very low because you can't get that much money when you're eighteen. The question is, in general, if you borrow money, you have to pay it back and so if you borrow money to buy lottery tickets and you lose all the money, then you're in trouble because you have to pay back all the money and you're allowed you types didn't pan out, But if you declare bankruptcy, then you don't have to pay
the money back. This is the theory, right, you effectively like can structure your financial life like a call option, where like if everything works out, you get all the upside, and if it doesn't work out, you don't get any of the downside because you declare bankruptcy and move on. Now, there are several problems that it's one of those, like declaring markruptcy is in some ways a downside, Right, I
don't necessarily want to declare bankruptcy. And the reason that sal asks about eighteen year olds is that, like, if you're forty six and have a house, you probably don't want to declare bankruptcy if it only get to keep your house. But that's not legal advice. But like, you know, your life will get worse if you declare personal bankrupcy, whereas if you're eighteen, your life may not get significantly
worse if you declared personal vanqucy. But that's why they won't lend you money, like you can only borrow so much money when you're eighteen, because they know that this option exists. And the one huge exception to that is student loans. They're not dischargeable in bankruptcy. Yeah, it's like you can borrow hundreds of thousand dollars an eighteen year old to go to college, not because that's a particularly get credit risk, but because like you're not allowed to
get rid of that debt yikes. Yeah. And then the other part of the question is could an investor recruit a bunch of eighteen year olds to take levered risks? Like even if you could do that, and like you'd structure to deal with them, like someone would define you and be like, this wasn't really an eighteen year old borrowing this money. This was you, the investor, borrowing the money, and then they kind of look through it and get
you to pay it back. So I think that it is pretty hard to monetize the option to declare personal bankruptcy. But one reason I wanted to ask this question on the show is I'm sure we will get emails people who are like, this is how I monetize the option to declare personal vankruptcy.
It's beautiful and we can talk about that in our next meal Bag episode possibly.
Or even in the regular episode.
That's true, that's true. The possibilities are limitless. Mail mail Bag.
Here's a question from John on the podcast. Some time ago. Katie quipped that she might name a kid Xanadu someday. I feel like Katie would be more likely to name kids hers or other people's after ETF tickers. What ETF tickers would be the best children's names? What about horses names? I don't know that we have an answer to this question, but it was a funny question.
John. I'm not sure if I like the way your brain works.
But what do we doing about Katie ets?
Yeah? So, no, I don't think I would. No one's asking me to name their children, and I actually have a lot of children's names that I love.
Okay, they don't have to be ets.
John Corrado is a name that I would love to unleash. At some point, I loved it. I love the name Corrado so much. It's like an old Italian name made famous by the Sopranos. I feel like you can't name just a kid your first name Coroto anymore. You don't really hear it, but if you put John in front of it, then he becomes J. C. John Carrato.
I love that it's answer.
I think about this a lot, and then I have a lot of ladies' names that I like. I guess girls' names. In terms of ETF tickers, there are some fun ETF tickers out there, none that I would name a child or a horse after. I'm sure there's a GUS ticker out there, and if not, maybe there should be. I love the name Gus for a horse, for a horse for a kid too, but it'd be weird to name your child after your horse. Probably certain husbands would might take issue.
With that uncertainty when you referred to guess.
Yeah, that's true. At first, I thought this question was you know, what is an ETF ticker that you think should exist, which is not this question. But I have an answer to the question that wasn't asked. There's all these, not all these, but there's been a lot of interest in Texas lately from the ETF community. Blackrock filed for a Texas equity ETF a few weeks back, and it wasn't listed with a ticker. The ticker, y'all is already taken. I think why H A W would be cute? Like ehaw, Yeah,
So Larry Fink front of the show. If you're listening, there we have it, mail nail bag Neil rounding us out. Listening to Friday's money stuff got me to wondering, why not just split the difference and put a bunch of different BDCs into an ETF. All the exposure to private credit and the BDC assets, all the shiny exchange traded rapper that the kids today enjoy something for met, something for Katie met Neil rather, Neil, I like how your brain works.
This definitely exists. There's one minute of googling family bus D which is the van k b DC income ETF, which is in fact BDCs for I know there's millions of them. Yeah. I have said that BDCs are the publicly traded form of private credit, and so you don't need the convolutions of putting private credits intof because you can just have a BDC. There's like some limits on that, Like BDCs are not like the full spectrum of private credit, right,
They're like sort of designed for small and medium enterprises. Yeah, so it's like not exactly the same as saying every private credit fund could be wrapped in public form as a BDC, but many can and are, And there are BDCs for a lot of the big private credit funds, and you can eat them if you want. Yeah, should I say that? I was going to say if I said what a BDC is doesn't matter, that's true.
Thirty seven of the Mailbag episode for the Money So podcast.
We're on like you're oh, yeah, it's like the anniversary, Happy.
Universary, Happy universary. It was actually last week's episode, which we recorded today.
Yeah, we're recording them simultaneously.
So we just passed that back again on April twelfth.
Wow. Yeah, between last week's episode and this week's episode Money Stuff, the podcast turned one.
Yeah, it is crazy that it's been that long. Yeah, you've listened to the last episode. Have a good life.
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I'm Matt Levian and I'm Katie Greifeld.
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