Meet the SPY Kids

I didn't know about it specifically. I knew Spy was a unit investment trust, but I didn't know this detail and about these kids that were tied to it, and I thought it was fascinating. So to break this down, we brought Rachel in as well as some of the Spy kids. Rachel, how did you find out about the story and what is it all about? Well, as Eric pointed out, like this is something that blew up on Twitter,

and that's actually where we first came across this. Someone posted on Twitter last week or I guess two weeks ago when this goes out that they found this like weird kind of sentence in the documentation for Spy about how it had a set termination date, which is not usual in exchange traded funds, and b that the fund would either end at this termination date or when the

last of eleven people named in the documentation died. So I got sent this email from a colleague of mine out in Hong Kong saying, this is the most fun E t F story ever, and I kind of in Spy. For those who don't know, this is the biggest E t F out there. Eric, you you talked about it all the time because of how much it trades. Yeah, just to just drop some figures on Spy. It is the most traded equity right. There's four to six thousand stocks that are trading every day. Spy trades about twenty

billion a day. That's about three or four times more than the next most which would be Amazon or Apple depending on the day. Um So, in my opinion, Spy has become somewhat of a son that a lot of the market revolves around. There's options, The options activities on Spy is is massive. The trading in his mass if people use it for liquidity, they use it for long

term investing. Um and what's interesting is is probably the product that has the most diversified group of investors from traders, the hedge funds, institutional investors, foreign investors, everybody is in this. And unlike other s and P five e t s, this one, like we mentioned, is a trust. So the structure is a little bit different and that's ultimately where

the bike gets come in. Yeah, so a U I T was basically chosen as the structure for the first e t F we had, you know, after exchange crash, we had a lot of people that the American Stock Exchange looking for a way to make a tradeable products like spy ended up being and to do so, they started looking at what structure might work best and settled on a unit investment trust because it's trades a bit like a it can be used to trade a bit like a stock, but it also has that kind of

investment side of things. But one of the issues with the U I T is that they have to have, or at the time had to have a set termination date to deal with the rule against perpetuities. And let me add a little more to this, because uh, when and when you're talking about e t f s, the regulatory structure is a field we have on Bloomberg to identify what kind of structure because there's different things that

go along with it. U I T s, which there's a handful, maybe half a dozen E t f that are structured as U I T s, but they have of the assets or three hundred and sixty billion SPY the cues d I A, M, d WI are the big popular ones, and a couple of things, not just the termination date, which will get into heavily in a minute.

But they can't invest dividends back every day. They can only invest them quarterly, so there's a little tiny bit of cash drag in a U I T although that can help if it's going down because you don't want to invest back into the market. The other thing is they can't do securities lending. Other E t f s which are open end funds, can lend securities. That isn't a huge deal in large cap stalks, but that can

add a little extra revenue. So all told, SPY is actually the worst performing of the S and p F t f s because of those reasons, and because its fees a little higher, so a lot of sometimes long to an investors will choose I v V or over spy for those reasons, but the liquidity is so paramount that most people all that doesn't matter. They're just going

after that liquidity. And one of the things that Rachel discovered about this was that that trust was actually set to expire in but one of the things that happened was that it was extended because of the trust being able to attach itself to individuals. Yeah, so this was kind of like this weird quirk that that we kind of came across initially that the trust was, yeah, set up for twenty five years, so twenty five years from that puts you up last year, so we could have

seen the spy maturing or terminating at that point. However, when it became apparent that this was going to be more than just a sort of, you know, flash in the pan kind of success, that they worked to extend the trust and they extended it a hundred years, and then to give it a bit of extra juice, they added the names of these eleven individuals and stated that the fund would survive to twenty years. It's beyond the loss of their depths, potentially giving it a little bit

of extra extension. No pressure, guys, that's where this week's episode comes in, this time Montrillian Spy kids, so joining us. This time we've got pomp Avelca, Kevin McGrath and Alexander Most. Alexander Most is actually the grandson of Nathan Most, who actually invented co invented spy in the first place. Guys, welcome to the show. Thanks for joining us, thanks for having us. Good to be here. So trace to us. We'll start with Kevin, what person? What adult when you

were a baby? Put your name in here. Sure, it's my mom, Claire McGrath. She worked for AMEX as a counsel. At the time, she was a lawyer. And um, maybe it's best if I can go back to how this kind of all started. Last Thursday, I was reached out to by a reporter via LinkedIn who contacted me and asked me if my name was Kevin Patrick McGrath, which is strange because I don't really use my middle name in any type of dot like. I think it's maybe only on my passport. And he laid out this whole thing.

Did you have a family member who was in finance? Uh? Uh, you know you're connected to this very large fund. To me, I'm reading this as a you know, this is like a very elaborate scam, Nigerian prince scam. It's like, wow, this is uh you guys are really getting into that. Uh So I was like, Okay, send me the copy of the filing. I want to see it, not thinking

this would turn into anything. Not only sends me the filing link, but he sends the an attachment with our names and it's my name, his name, cousin Paul, and uh our cousin Pete. So now then like like I was like, whoa, this is weird. And another thing that triggered it for me just scrolling through the filing was Spider. Um. I recognized the name Spider. I went visiting my mom's

office as a kid. There was a lot of you know, the one thing every kid does is go to the swag room and uh I remember seeing the Spider logo and you know, eight a ten year old boy, it's like, oh wow, cool Spider. Yeah, like awesome. Um, that definitely lit a bell. I knew it had to be related to something she did. My concert is like did she get involved in the sketchy or is this like I assumed it was normal. You know my mom wouldn't do that, and yeah, it was just kind of off from there.

It was pretty wild. Rachel contacted us, I spoke to her and it's just been a very surreal week. So, Paul, what memories of SPI do you have? Because you and Kevin actually have known each other outside of the spy kid relationship, right, Yes, that's right. We uh, we grew up together. Um, my dad is originally from Long Island, so for holidays in the summer, we would as a family go and visit Kevin and his mom and dad and so as far as Spider goes, Uh, this was

all completely new to me as of last Thursday. Kevin reached out to me as I'm getting ready for work. I work in Philadelphia. I am a bartender, and all of a sudden I get a text message from Kevin, who goes, are reporters trying to reach out to you? Now you know, I'm sitting on the bus on my way to work, and like why why why are reporters reaching out? Like you know, there's like a certain panic.

That's what did I do exactly exactly? Why is my cousin that lives in New York asking me and my brother. If we're hearing from reporters, Okay, there's just like a fair amount for a regular Joe Schmoe person, there's like a fair amount of like horror that goes into what

went viral this time? You know, And come to find out, I spoke with Rachel as well, you know, standing in an alleyway waiting to you know, go into work, and I'm on the phone with her and she explains how all this happened, and between Kevin sort of giving me a heads up that hey, there's this reporter from Blueberg that's going to reach out to you and actually speaking to her properly. Is is how I've been brought up to speed, if you want to even call it that.

This is still pretty much the intro was a little over my head. It's still at this point that's all Alexander's fault. Actually, maybe Alexander, maybe it's your grandfather's fault. What memories of Nathan Most do you have, Alexander? Yeah, so you know, I remember Nathan Most pretty well. He passed away when I was younger, but he was always you know, a large figure patriarch in my family, someone who lived a couple of towns away. From me in California.

But I really didn't know much about his history and involvement in the finance world and the history of the E T S really until last Thursday, when I got a lot more context and learned a lot more about it. Do you even remember him telling you stories about the E T F or or him being the godfather of the E T F or anything like that. I'm not a single thing about that, to be honest. Conversations revolved

around what was for dinner that night. Okay, it's just like old school godfather you don't discuss business at the dinner table, so come on, I should have known better yet. I also spoke with Alexander's father and uncle about their memories of Native for for the story. I was pretty much tracking down everybody's immediate family and then having a conversation.

So that was kind of like great, just to get some real color about what they remember about, you know, Nathan at that time and visiting the American Stock Exchange and hearing about his work. So I think, you know, it's given us all a lot more history about actually how Spy kind of came into being. Then maybe we knew this time last week, and um, so there was eleven of them. What was there like an email like now, I guess it was ninety three where they have sending

an email. Maybe they actually had a memo back in the day or whatever. Did they get the word get around the office that we need like baby names and can you just talk about how that how they how the eleven got chosen. Yeah, so, I mean I had a hunch when I was trying to figure out who the eleven were that maybe they were connected to the American Stock Exchange, and that that proved to be largely correct. Yeah. My understanding is basically they just put out a call

for baby names. I'm not sure whether that was done by email or carrier pigeon or what. But yeah, Claire spoke to me, Kevin's mom spoke to me about how she remembers hearing people just asking for for names of younger relatives that they could put in this trust. Obviously the parents kind of were involved and the AMEX many of them directly with actually setting up the e t F, so they were relatively comfortable with their kids names being used.

You've got to remember this is a pretty arcane legal document and to your point about email, you know, the Internet hadn't really begun doing its thing in the early nineties, so the likelihood that their names would ever come to light from this, you know, they're going to be buried in a document in that the SECS vaults. Um, So yeah, that they kind of came forward with these names. You know,

we had communications people like giving their step grandkids. We had you know, sort of some of the specialists at the time that we're going to be trading the E T F giving their daughter. So yeah, it was a very odd thing, but that's how it kind of came about. And why eleven, that's a great question. I have absolutely no idea. I think they wanted to move if you

have one, obviously that's a bit risky, so neverification. I don't know whether any of the Spike kids though this, but my kind of sense is that it was just a large enough group whereby you're not putting all of that pressure on one person to stay alive. Did you guys look at the other eleven names? How many do you guys know? I don't know any of them, but my mom just I mean, yeah, yeah, my younger brother is also one of the eleven, but he works for

the water department, so he didn't get off today. Uncle, he's not a bartender like so and Alexander. Um, how many names did you know? Absolutely not at all to you. It's ben't surprised that anyone do anyone at all cost very here. Yeah, I think part of it was also I don't know why the number, but I think part of why my cousins and I were chosen because I think they wanted some geographical diversity as well. It's like another big thing. But um, yeah, a lot of the

people were names my mom recognized. Webber I think who you spoke? Claire Webber's Cliff Webber's daughter. He was a big part of this. Rachel, I have a question for you. How did you track them down? Just cure? I'm not sure if you can unveil your methods. But it was like Google to LinkedIn to all that. Yeah, I mean it's kind of like rule on. I wanted a reporter

just be dugged and keep looking. Um so, I mean, given I had a list of full names, had a list of some addresses, the subdates of birth, really Google and then just hitting the phones, you can't be a good bit of a sort of old fashioned footwork and trying to track people down. Did you reach out to anybody who was like, no carment, stay away from me.

Kevin alluded to thinking that this was a scam when he was first reaked out to you on LinkedIn, and I definitely spoke with a couple of other people directly who were like, m uh huh, yeah, my work says, you're trying to fish me. Um. So there were a few people that were very suspicious of this, and completely understandably so, I mean, it's not every day you get a call completely out of the blue where somebody has your full name, your address, your relationships with various people.

I can totally understand how it would freak anybody out, and trying to reassure people that I wasn't there to fish them. I just had this like really odd story about how they were connected to two fifty billion fund, which again sounds very scammy. It was a little bit of a challenge. How would you like to make two it's reach the Nigerian Princess of I do have a question for Rachel actually, so you're the one who did

like a lot of the search on on this. We're eleven individuals we are named in this document is there in your research? Is there somebody keeping track of us? I mean, and Claire said that she didn't give them, Like our social security numbers are my parents don't remember giving my aunt our social security numbers to be attached to this document. So like, what if we change our names? What if we like decide to go underground, Like how will that impact? Yes, hit up deed Pole, get that

name change? I don't know, I don't know. It's a great question, um. And we actually reached out to State Street that currently runs the fund to see if they had any comment on this or any color on what they were doing is to keep tabs on things, and they refer comment to the New York Stock Exchange, which obviously bought the AMX, who declined to comment. So we

don't know. I mean, it seems as though at the moment your your names are out there and I'm sure people are keeping a closer watch on you than maybe they were before. But a sort of room that has all of our pictures and heartbeats and current locations known alias is now you should do that at the bar? Well? I'm yeah, No, I don't know if anyone's actually keeping a direct record, So I mean, it seems like you guys are probably safe in that respect for now. All right,

very cool, good to know. I can sleep easy tonight. So what if you wanted to get your name removed from this? I am not sure you would have to ask a unit investment trust lawyer. My understanding is that these things can be amended, so you could replace the list with other babies, But I'm not sure whether you could remove one name, right, I um, I have some lawyer regulars that sit at the bar who will remain nameless. And after the first few like questions of do you

get the money? Are they going to put it here on you? Like? The next question that of course the lawyers asked is how does this make you feel? Do you feel harmed by this? Is this causing emotional dress for you? That reporters are coming out of the woodwork, and and and and how does it feel that your yeah, how do how do you feel that your existence is tied to this multibillion dollar thing? Right? So the question was like, well, can we can we maybe get some

legal money ont of this some damages situation? And listen, if you bring a claim against whoever would be that is like the person that the claim would be brought against UM. I mean, I'm obviously not suing Aunt Claire because I love my Christmas presents. UM, if if we try to bring suit, then they'll just amend us out. They'll just be like, all right, well we're not gonna give you damagees, You're just not part of this anymore. And then me, I won't have the fun fact that

Alexander and Kevin and I and Pete all have. So when when you went to Aunt Claire or your mom your aunt, right mom mom? For him? Did she have I'm picturing a movie where they go. I knew this day would come like did she sit you down and you know, explain like who you are, like the special superpower you have her? No, it was morea did I do that now? Yeah? You know? Again to go back to kind of Rachel's point that we were discussing a little bit earlier, these were I think it's like a

sixty plus page document that nobody was expecting. I mean, people don't read their iTunes terms and conditions nowadays. That's like actual legal things that they should care about. And like, now somebody's fishing through the sixty page filing for this E T I mean, obviously it being the biggest ETF probably garner that attention. Um, but yeah it was interesting. Yeah. She was totally like, yeah, I guess I must have. Um. So, Alexander.

When we talk to people in our in all of our conversations about exchange traded funds, Nathan Most is sort of viewed as as basically the guy who you know created the thing, and so everything that we've seen e t f s do in in finance and foreign investors basically goes back to your grandfather. Uh. Eric, When you kind of think about the impact that that's had in finance, like what you know, put it in context for us,

I can't understate it. Um. I think, you know, besides Vanguard and John Bogel and introducing index funds and the mutual ownership structure, this is right up there in terms of things that have affected the financial markets in the last fifty years. UM. Nathan Most, who I researched a lot. I talked with your your grandfather's colleague named Steve Bloom when I was researching a book. He's hard to reach.

He's like Professor Faulkner from War Games. You can find him, but he it's hard and I did get him on on the call on a call for an hour and he spoke highly reference. Thank you. It's it's totally appropriate.

And just so you know, UM, this was a big deal. Um. Him and your grandfather were in an office in the American Stock is Change, which was in third place, right, So it was kind of a story of the down and out um exchange looking for an idea and they found it in spy and your grandfather and Steve developed this product and it took a while, but now e t f s take in you know, the majority of all new flows that in America. I mean, this is

a big, big deal. Thirty a half of the top thirty biggest asset managers have ETFs and a lot of people are using them because they're cheap, tax efficient, YadA, YadA. I equate them to the MP three. I think what he did was similar to what the MP three did

the music. So what do you think of that? You know, I think it's really interesting, especially because I myself a few investments I have are invested in e t s and seen saying that's really democratized investing and made accessible to just average people outside of actual manager's a fascinating piece of history and kind of interesting. Can you give

us any of the E t F you own? I actually invest in by the Okay, I have to say so, Um, if you google Nate most John Bogel, your grandfather went to see Bogel to try to get the Vanguard five hundred to be the first E t F and Bogel told him, no way, I don't want trading any anywhere near my E t F. But apparently Bogel says he gave him some ideas. So long story short, there's a lot of history in your video of it is so ironic. Okay, So, Paul, you're a bartender twenty something. I knew nothing about E

t F before this article published. How is this going to change your life? Well, for the record, I'm the oldest member of the spy group. Um so, the de facto patriarch in my opinion. Um So, you know I've been telling my bar guests about this, right because you know, when you sit at a bar, it's dinner in a show and the first question that they ask is am I going to get any money out of this? And you know they're disappointed to hear no, I'm not. But how do you how do you get into that? Is

it like a little trivia about myself? Oh, it's actually ridiculously difficult to explain to anybody, Like, hey, read this article that my name is in like four yeah, yeah, and they're like and it and it's like twenty minutes later, they're done their drink. There's there's tickets printing in the back that I'm just ignoring because I'm trying to explain this to my bar guests and most of the time

they still don't get it. So the question that I get asked after that is, well, do they want to kill you to make the to make the trust mature? And that was you know, that was my second question, Like, is Rachel putting me on a hit list right now? Is this is this happening? And um, I mean you're the financial experts. I'm safe, I hope right. I mean, there are some desperate active mutual funds out there, but I don't think they go that far. Yeah, it's funny.

I got a number of pitches for potential thrillers based on the spike. It's how they're all bumped off secretly over a period of time and what happens to this. But no rest assured is twenty years after the death of the last person. Definitely enough time for the managers of the fund to sort out, making bumping you guys off very very unnecessary. Indeed, right, if somebody wants to make money from this trust, they can just sell their shares, right, And so I mean, don't please keep that in mind.

What would be hit people? Uh So, what actually does happen when this you know, expiration it gets hit and so we will see the termination of Spy if we get to that point. However, the lawyers that I have spoken to since have emphasized the fact that the rule of perpetuities has now been taken off the books in New York. So there is the potential to just amend SPY again and extend the termination date out further, or

remove the termination date altogether. Potentially you could have another group of babies put into to give it that lifespan aspect, but you don't need to given that the rule of perpetuities has ended, So you could have a new fund set up to gradually take the assets. You could have another amendment, but ultimately it seems like Spy or equivalent is not going anywhere, so Kevin, how did this article you you work in finance a little bit, you're in

pr How did this this article change things for you? Um? Well, I just kind of learned a lot um. That's probably the most interesting thing. I mean, I knew what my mom did. I always was kind of just being changed gently you here talk over the dinner table, you know, that type of thing. But it was just interesting to hear really like the story of how this you know,

why they chose to Unitary Investment Trust. You know, it was really because at the time they had to push this through the SEC and they actually had to get two divisions of the SEC to work on this, so they wanted to keep it as simple as possible and they had to basically take a known vehicle for this investment. And that's how they basically it settled on this Unitary Investment Trust. And that's why they had to put our names in. And that's you know, again the rural perpetuities

like you're saying before. I mean, I think that's really the fascinating story of just persistence in like creating this new vehicle for investment. Maybe Michael Lewis book and for me, it always speaks to the fact that you know, behind all of the finance industry there are people, right and like you know, we've interviewed a lot of people who were around the creation of it, and there was so much pride in it because people were just like, hey,

we can create something new. I think finance sometimes gets a bad rap, rightfully so. But the other side of it is a lot of people have made a lot of money thanks to the innovations that have come through this, and those are rooted in people and ideas. Alexander, how do you think this article will change things for you? Well, I have the greatest fun fact of all time now.

But besides that, I really just wonder. You know, we talked about the potential intrigue around us being assassinated or something. I think that the people in the financial industry should pay to keep me healthy. So this stays around. And Alexander, did anybody from your family say anything or have any reaction? I mean, too is actually my mom got the phone call on our family office, and then she's the one who contacted me with the ridiculous two billion dollar number

many times mentioned seemed like a scamp. Everyone said it's pretty cool and been talking about it I've been reached out to plenty of time, um, and we all want some sort of money out of it, but it doesn't amen out. Yeah, and I have to say, I mean I spoke with a lot of the parents here. I spoke with Claire and with her husband George, and they were both kind of like, oh, I vaguely remember something like this, but I didn't expect it to come back

to me years later. What they should have done is given you a couple of shares a spy when I guess how much it is up since a cool one percent? Yeah, so ten dollars would be whatever Joel you told me the math on that you know a few more than it was. Then all right, Alexander Paul Kevin, thank you so much for joining us on Trillians. Rachel the Nigerian

Princess as always pleasure. Thank you. If you're interested in learning more about the creation of spin, Eric and I actually have a special season of Trillions called The et F Story that you can find on Boomberg or iTunes or wherever else you listen to podcasts, and you'll get to hear from the very people around the creation of Spy and how it came. Then just being Thanks for

listening to truckings until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you like to listen. We'd love to hear from you. We're on Twitter. I'm at Joel Weber Show. He's at Eric Faltunist. I find Rachel at Rachel Evans. Underscore in Why Trillions is produced by Magnus Hendrickson. Francesca Levy is the head of Bloomberg podcast by