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Speaker 2 Bloomberg Audio Studios.

Speaker 16 Podcasts, radio, news.

Speaker 18 Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money.

Speaker 18 I'm Matt Levine, and I write the Money Stuff column for Bloomberg Opinion.

Speaker 19 And I'm Katie Greyfeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

Speaker 18 Katie, what are we talking about today?

Speaker 19 We're going to talk about direct TV, buying dish. We're going to talk about fan duel and gambling addiction.
And we're also going to talk about Apollo.

Speaker 19 Hey, Matt, have you ever gotten a really bad haircut?

Speaker 18 I've almost exclusively gotten really bad haircuts. I feel like I recently...
Yeah, you cut that out. I've recently moved on to getting better haircuts, but for much of my life, I got bad haircuts.

Speaker 19 Your last few haircuts, I've said, you got a haircut.

Speaker 18 It looks nice. Thank you.
That's the highest compliment.

Speaker 19 It's really easy to tell with men because you have shorter hair. Anyway, moving slowly along.
So

Speaker 19 DirecTV,

Speaker 19 paying $1 for Dish

Speaker 19 and $9.75 billion of debt.

Speaker 18 Or less than that.

Speaker 19 Yeah. Well, go on.

Speaker 18 Tell us why. They're buying Dish for a slightly negative or

Speaker 18 meaningfully negative amount of money. Or they're trying to.
They are trying to. They're trying to.
So Dish is a company. Sort of.

Speaker 18 It is an entity, but it is owned by EchoStar, Charlie Ergen's satellite conglomerate. And so EchoStar wants to to sell it to DirecTV.
DirecTV wants to buy it.

Speaker 18 But the value of the company is apparently somewhat less than its debt. So it has like $9.75 billion of bonds outstanding.
And DirecTV doesn't want to pay all those bonds back.

Speaker 18 So it wants to buy it for $1,

Speaker 18 you know, a check for $1

Speaker 18 to EchoStar.

Speaker 18 And also for taking on the debt, but taking on less than all of the debt. And basically, to get the deal done, the bondholders have to agree to a bad haircut, an unpleasant haircut.
haircut.

Speaker 19 Yeah.

Speaker 19 So we're talking about $1.6 billion worth of haircutting going on. Yeah.

Speaker 18 So like, you know, the bondholders have to agree. Like, they can just insist on getting their money back.
But if they agree to take $1.6 billion less, so like a total of like $8.2 billion,

Speaker 18 then the deal will go through. And if they say no, then

Speaker 18 technically the deal doesn't have to go through.

Speaker 18 Everyone understands that this is just the opening of negotiations. And so what is happening is that the bondholders have said no.

Speaker 18 and the way it works is you kind of get a vote so like you know basically you need to get like two-thirds of each series of bonds to agree and so some bondholders have said that they have accumulated a blocking position which means basically they have enough bonds to prevent the deal from going through and they don't not want the deal to go through this will be a better company that is more likely to pay off its debts if it gets more money in and what they want is just get less of a haircut right there's different series of bonds with different maturities that were trading at different market prices And like the longest dated was trading in like the 50 cents on the dollar area.

Speaker 18 And they offered to pay it off at 60 cents on the dollar. And the bondholders would like more than 60 cents on the dollar.

Speaker 18 So that's sort of the state of play is they've said no, but it's like an opening of negotiations.

Speaker 19 They would like a slightly less worse haircut, something that doesn't look as bad.

Speaker 18 I'm resisting the temptation to just spend the whole time talking about my own history of quests for getting haircuts.

Speaker 19 You know, I cut hair. Do you? Yeah, I cut men's hair.

Speaker 18 Okay. I cut.
Oh, that's right. I did know that, actually.

Speaker 19 Yeah, I cut my husband's hair during the pandemic.

Speaker 18 Your Instagram if you're cutting your husband's hair.

Speaker 19 My dad, my brother, and my nephew. My nephew's gotten like three haircuts in his life, and I've done all of them.

Speaker 18 This is going to be like the Money Stuff live event. Yeah.

Speaker 19 Actually, I love cutting hair. I'm always looking for opportunities.

Speaker 18 Anyway,

Speaker 19 so yeah, Bloomberg News, that, of course, is according to Bloomberg reporting about that blocking position.

Speaker 19 Bloomberg also expanded on that in the Brink newsletter, going through the various contentions that this group of creditors have.

Speaker 19 First, they contend that they were being asked to take losses as high as 40% of face value.

Speaker 18 That obviously doesn't sound great.

Speaker 19 While EchoStar owner Charlie Ergen comes out relatively unscathed in all of this.

Speaker 18 Yeah, I don't know the full history of it, but like obviously, you know, they're selling it for $0 of equity value, right?

Speaker 18 So like it's respecting seniority in the sense that the equity is getting nothing and like there's apparently so little value here that in addition to the equity getting nothing, the bondholders have to take a haircut in order to sort of sell the asset.

Speaker 18 Right. And the fact that the bonds are trading at 50 something cents on the dollar is just that

Speaker 18 people did not think there was a ton of equity value here before this deal was announced.

Speaker 18 So yeah, like this is a deal where you look at like the trading prices of the bonds and you're like, oh, if we can get this asset for the valuation implied by these trading prices and also paying a dollar to the equity, then it's a good deal, right?

Speaker 18 And then you're like, oh, we'll pay a little premium to the values implied by the trading prices.

Speaker 18 And like, that's, you know, that's like normal MA, except that here, you know, the thing is underwater. And so instead of paying off the shareholders, you're paying off the bondholders.

Speaker 18 But, you know, you're not paying them that much of a premium to the trading prices. And unlike shareholders, they have a contractual right to demand their money back.
So

Speaker 18 it's a fight.

Speaker 19 Well, to that point, one of the other contentions is that some of them argue, and I'm reading directly from the Brink newsletter, some of them argue that the sale of DirecTV for $1 confirms that the company was already insolvent when it completed a contentious deal in January to strip them of their collateral.

Speaker 19 If the company was insolvent at the time, that transaction could be voided and the whole plan could be called off.

Speaker 18 Yes, but you have like your legal rights, but you also have like

Speaker 18 you know, like if you win those arguments, like what, the company goes into bankruptcy?

Speaker 18 We won. Like, yeah, you like,

Speaker 18 there is going to be some intercreditor fighting about, like, you know, who gets the collateral or whatever.

Speaker 18 But like, I think in general, you would rather have the company be solvent and get paid a premium to the market value of the bonds than have the company not be solvent and sort of take your chances.

Speaker 18 But you want to get paid a premium to the market value of the bonds. And this premium was a little slim.

Speaker 19 It's interesting that this might be what kills the deal because I remember when this was. This is the whole deal.
I know, but people were talking about regulatory concerns.

Speaker 19 While was it going to get blocked?

Speaker 19 Because you remember the history of these two companies, DirecTV and Dish, they've been flirting with merging for like two decades and that regulators sued in 2002 to block a previous attempt to combine.

Speaker 19 Now they're coming back together. It's sort of like Jay Lowe and Ben Afflick.
And we know how that ended. They recently filed for a divorce.

Speaker 18 Followed that closely. I don't know.
The world has changed since 2002. And

Speaker 18 the idea that Dish and DirecTV are monopolists in the provision of television is a lot less compelling than it was 20 years ago, right? I mean, like, who has Dish or Direct TV?

Speaker 18 Like, it's just streaming has overtaken them. And so it is now like these two somewhat troubled players are trying to merge.

Speaker 19 Well, that's the thing. Like, what are we fighting over?

Speaker 19 There's some great Bloomberg Intelligence data that shows that together, Dish and DirecTV have lost 63% of their satellite customers since 2016. That's according to the companies.

Speaker 19 And then Bloomberg Intelligence says that nearly 30% of that loss of their user base or 6 million subscribers has been since the start of 2022. So, I mean, it's ugly.

Speaker 19 Like, this is a tough, tough business. And you're right.
Things have obviously changed dramatically in the past 22 years. Right.

Speaker 18 It's a tough business. And I mean, trading for lower than the value of the dude, you know, there's maybe something to be done.
Yeah.

Speaker 18 The other thing that's interesting is, like, you know, we say like Direct TV is buying Dish, but like, kind of what's happening here is TPG is buying both of them, right?

Speaker 18 Like, Direct TV is like an ATT subsidiary that like ATT saw the writing on the wall and sold the part of it to TPG, the private equity firm.

Speaker 18 And now as part of this deal, TPG is buying the rest of it and also putting in cash directly to finance Dish like before the deal closes and also buying Dish, right? So this is like

Speaker 18 going from being a big part of two public companies to being a private equity roll-up that,

Speaker 18 you know, it sort of sounds like the classic private equity playbook of like a declining business and like, you know, sort of extracting as much money as they can for as long as they can.

Speaker 19 Well, I was kind of wondering about the creditor dynamics here, and you wrote a bit about this.

Speaker 19 I was wondering if this is like a beautiful moment of like the creditors banding together to stop themselves from being screwed, but it seems like you're saying that things will get ugly between creditors.

Speaker 18 No, they're banding together. It's nice.

Speaker 18 But you can't just be like, oh, we want 100 cents on the dollar because there's some risk there, right?

Speaker 18 The other thing that I wrote is that Charlie Ergen clearly has some ability to put on past creditors, you know? But it is interesting to me that this is a private equity roll-up.

Speaker 18 What I wrote was that you could have a model that is like an important skill set of private equity is extracting value from creditors, right?

Speaker 18 Like they're repeat players at doing liability management transactions. And if you get good at that, then like you can make a troubled company worth more than anyone else could because you can

Speaker 18 make the creditors take back less money.

Speaker 18 And if you own a troubled company, you might be like, well, I got to sell this to private equity because they're the only people who can kind of extract some value from it.

Speaker 18 Although, here, you know, the equity owner got one dollar, so it's not that much value for him.

Speaker 19 Watch this space. Unless you have anything else to say.

Speaker 18 I like that you end every segment with Watch this.

Speaker 19 Watch this space.

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Speaker 19 Let's talk about FanDuel and gambling addiction. I really enjoyed listening to this or reading

Speaker 19 from the robot told me all about this.

Speaker 18 So there's this guy, Amid Patel. He worked for the Jacksonville Jaguars, which is a football team.
Yeah. You might know.

Speaker 18 I heard of him. And

Speaker 18 he

Speaker 18 stole $22 million from the Jaguars to do a bunch of things. He was arrested, indicted.
He's in prison right now. He pleaded guilty.
He did a bunch of things with the $22 million.

Speaker 18 And the prosecutors, of course, listed them all. He like bought some fancy watches.
He like paid for trips on private jets with his friends.

Speaker 19 Normal stuff.

Speaker 18 He put some of the money towards a retainer with a criminal defense lawyer, which is an amazing thing to do with money that you've stolen, right? It's like, I know I'm going to get caught.

Speaker 18 I'm going to hire my... my criminal defense lawyer in advance so that when I get caught, at least I'll have a well-paid criminal defense lawyer.

Speaker 18 Just amazing, like real indication of his state of mind. He was not like, oh, great, I'm committing the perfect crime.
He was like, oh, my God, I am stealing all this money and I'm going to prison.

Speaker 19 Borrowed time here.

Speaker 18 So why did he steal all this money, even though he knew it was a bad idea? Because he was a gambling addict.

Speaker 18 Because most of the money that he stole went not to his lawyers or to watches, but to FanDuel. I read an article saying that he was known as the biggest loser ever on FanDuel.

Speaker 18 Like he lost the most money. And so that was bad and he went to prison.
And this week, the news is that he is suing FanDuel for letting him do that.

Speaker 18 And

Speaker 18 I have like a lot of sympathy to him.

Speaker 18 i have no way of handicapping like how this lawsuit will go i think there's like a real common reaction of like come on man you stole this money you voluntarily betted on fan duel and now you're suing fan duel for letting you but i kind of think he's got a point what is he suing for does he want his stolen money back he wants money does he want his stolen money back he wants money for like fraud damages and right and like his emotional distress he wants he's suing for more than the 22 million dollars yeah i think the number in the lawsuit is like 250 million dollars But, you know, he's not going to get like, I think he'd be happy with some money.

Speaker 18 But yeah, I mean, there's a bunch of theories, but basically they're like, you exploited my gambling addiction.

Speaker 18 And even though you had policies to not take money from addicted gamblers, you went around those policies. So there's things like, you know, he had like a VIP host, right?

Speaker 19 That was the craziest part to me. The VIP host that he was texting with.

Speaker 18 Oh, yeah.

Speaker 19 A hundred texts a day. Yeah.

Speaker 18 Any casino business, right? Like if you are a whale, if you're like gambling a lot of money, they will do nice things for you.

Speaker 18 Like he got like tickets to sporting events and things, but they also have like a customer service representative whose job is to make you feel special so that you gamble more with them.

Speaker 19 There's just so many texts. Like even in the height of my texting days in like high school, I don't think I was exchanging that many text messages.

Speaker 18 Well, I think that a lot of his texts were like.

Speaker 19 Gambling orders.

Speaker 18 Please give me more credit on FanDuel so I can bet more.

Speaker 19 It's just so much.

Speaker 18 Yeah.

Speaker 18 But like also like the texts were like they moved it from the guy's like work account to like his personal phone for like the reasons that you know I talk about a lot when the SEC goes after you know it's like easier to avoid compliance when you're texting from your personal phone.

Speaker 18 And like they were doing dummy texts like they were making sure to text from the guy's work account like a few times a day so that compliance wasn't like why did you stop texting with this guy?

Speaker 18 Because if compliance saw that, they would know he was texting somewhere else.

Speaker 18 But anyway, so like he had this VIP host and the VIP host was like getting around all of, you know, first of all, he was doing it from his personal phone, but secondly, he was allegedly getting around limitations on how much credit the guy could get.

Speaker 18 And there's other claims like he was doing a lot of gambling with just his Jaguar's corporate credit card.

Speaker 18 And FanDuel is sort of regulated like a financial institution. It has anti-money laundering requirements.

Speaker 18 And those requirements, you know, they're sort of geared towards you should not be taking stolen money.

Speaker 18 And because he was gambling with stolen money, he is now arguing, you should have known, and you probably did know that I was gambling with stolen money because because I was, for instance, using my corporate card to make bets.

Speaker 18 And you should have stopped me, and I should get the money back because you didn't do the anti-money laundering and know your customer checks.

Speaker 18 Which I think is like a really interesting theory that like traditionally

Speaker 18 when a bank fails to do its money laundering checks, it will get in trouble with the government if it like allows a terrorist or a drug trafficker to use its payment systems.

Speaker 18 But you never hear about like the drug trafficker saying, well, you should have to give me the money back because you didn't do your KYC checks.

Speaker 18 But here it's like, I was doing crimes and you didn't check, so I should get the money back.

Speaker 18 It's a good theory.

Speaker 19 Okay, so he stole the money from the Jaguars, but he was using his Jaguars' corporate card.

Speaker 18 That was the theft. Like, he would just play his bet on sports cards.
He would play his bets with his corporate card.

Speaker 19 I feel like that in and of itself should be a no-no.

Speaker 18 That's what he's saying.

Speaker 19 No, I know, but like the fact that it's a sports organization, you know, like it's a sports thing.

Speaker 18 Oh, right, right. Separately from it being stolen.
Yes, I agree with that, too.

Speaker 19 They were like, oh my God, why are we getting millions of dollars from a sports footman?

Speaker 18 Yeah, yeah, you're right. You're right.
That's also bad.

Speaker 19 That's bananas. I agree with you.
Yeah.

Speaker 19 I do wonder, so as you write about, of course, this is good business for FanDuel.

Speaker 18 I mean, the biggest ever loser on Fenduel is, you know, like $20 million to Fenduel.

Speaker 19 But like, how many of him are there? I'm wondering. I wonder how many cases like this, this man there are.
Maybe to a lesser extent, but.

Speaker 18 I think it's a really, it's a really dicey business right because like there are clearly people who are billionaires who like a gamble who will lose a million dollars oh yeah in a week and be like yeah that was fun and it's fine and like those are the best customers right like those are the customers who can lose a lot of money and not feel it are great but there's not that many of them right then there are the customers who lose a lot of money and can't really afford to lose a lot of money and like you know all these sports books have policies about safe gambling and you know they're in a regulated business and they don't want to look like they are exploiting addicted gamblers.

Speaker 18 But clearly they make money by people losing money and the more money people lose, the more money they make.

Speaker 18 And not all of those people can afford to lose the money that they lose. And I've written about there's a subset of sports gamblers who are advantage gamblers, who win, right?

Speaker 18 Who can identify exploitable bets and make money at the expense of sports books. And those people, their problem is that sports books don't like them and won't let them bet very much.

Speaker 18 And so a lot of the business of being a professional sports gambler is not knowing who will win, but it's knowing how to bet a lot of money at a sports book.

Speaker 18 And there are stories about how people do it. And one thing they do is they try to look like addicted gamblers because that's what the sports book wants.

Speaker 18 So there's a story of like a guy who has a bot log into his. sportsbook account every night between 2 and 4 a.m because that just looks desperate.
Yeah.

Speaker 18 So if you look desperate, they're like, oh, this guy's an addict. So we'll give him more credit.
And like, he seems to think that that worked. So there's like this real tension where

Speaker 18 these companies really do not want to look like they are exploiting addicted gamblers, but like that is where the money is.

Speaker 19 Reading this and thinking about it kind of made me think about

Speaker 19 the conversations around Robinhood when the meme stock era was really in full swing, of course.

Speaker 19 Yeah, like what is the responsibility of like Robinhood to make sure people aren't trading more than they can afford to lose? And there, of course, are tragic stories about that.

Speaker 18 Yeah. And Robinhood will tell you that they are, and I think there's a lot of truth to this, that they are sort of a gateway drug to a sensible 401k investing, right?

Speaker 18 Like you come to Robinhood because it's fun, and then like it stops being that fun. And you're like, I'll just put it in like an SP index fund.

Speaker 19 You like graduate up.

Speaker 18 You just get bored of like day trading GameStop and you put money into an SP fund. That seems plausible to me.

Speaker 19 Because you're like, man, why does the stock

Speaker 19 SPX keep beating me?

Speaker 18 Right.

Speaker 18 So, like, I think there's some plausibility to that. At the same time,

Speaker 18 like, you look at how Robin Hood makes money. They make a lot of money on options, right? Yeah.
Like, a lot of money on options, right?

Speaker 18 It's hard to argue that like a lot of retail traders are responsibly saving for retirement by day trading options, but that's where the money is for these firms.

Speaker 18 I will say, I wrote about like there's a move to make

Speaker 18 more

Speaker 18 single stock daily expiry options, which I don't want to say is a pure gambling product because I think you could imagine a hedging use for it for somebody, but it's like it's

Speaker 18 pretty much a gambling product.

Speaker 18 And

Speaker 18 the articles I read about it, you know, there's a lot of

Speaker 18 push from some market makers to do that because it's a gusher of money.

Speaker 18 But Robinhood has pushed back on it because, you know, if single-stock zero-day XPRY options become a big thing, Robinhood will offer them and robinhood's customers will use them and there will be terrible stories and like robinhood doesn't want that headache right they're like we would make a lot of money doing this but we don't want that that looks like catering to gamblers and uh and they have they have like they don't want it you know yeah well it would give us something to talk about on the money stuff podcast uh zero day single stock options yeah because we just talked about them i know there it is

Speaker 18 what was it

Speaker 18 i mean yeah it's a gambling pilot it's like they expire at four and so like if you're hedging earnings and earnings come at 4.15, you're like exercising at a stale price. It's a crazy product.

Speaker 19 I'm really glad that that's a sandbox I can't play in because that sounds fun.

Speaker 18 What, zero day single-stock options?

Speaker 19 If I wasn't here,

Speaker 19 I would be the most degenerate day trader. I would have a great time.

Speaker 18 Really? Yeah.

Speaker 18 I didn't know this about you.

Speaker 19 I love adrenaline. You can't tell.

Speaker 18 Okay, but like that particular form of adrenaline. I would not be a day trader.
I find it scary. Well,

Speaker 19 there's two sides to a trade or something.

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Speaker 5 But with Easy Cater, you get a single workplace food vendor with the tools and resources to make it easy, giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform.

Speaker 9 All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting.

Speaker 12 EasyCater, your business tool for food.

Speaker 11 To learn more, visit easycater.com slash podcast.

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Speaker 17 So, have you heard the story about the prescription plan with savings automatically built in? It's where a family of any size can feel confident the cost of their medication won't hold them back.

Speaker 17 Go to cmk.co/slash/stories to learn how CBS CareMark helps members save just by being members. That's cmk.co/slash/sto S-T-O-R-I-E-S.

Speaker 19 Let's talk about Apollo. A lot of Apollo headlines recently.

Speaker 18 Yeah, they did it on Investor Day. They're like doing some stuff.
Tell me about it.

Speaker 19 Well, I was going to turn it over to you. So, Apollo's Investor Day.

Speaker 19 They came out with a big projection, $10 billion of annual earnings in five years. Before that, they joined forces with Citigroup for this $25 billion private credit push.

Speaker 19 It just feels like Apollo has been particularly in the news lately.

Speaker 18 Their investor day, they sort of positioned themselves as everyone's retirement fund.

Speaker 19 Yep, they certainly did. CEO Mark Rowan, he said that privates can produce 50 to 60% better outcomes for 401ks.
And you would expect him to say that.

Speaker 18 I don't know. That's it.

Speaker 19 Well, of course, I mean, that's the thing. Like, of course, he would say that.
Do we need privates in 401ks? I don't know.

Speaker 18 I don't know. I was thinking about this.
Katie, you are ETF, Bill.

Speaker 18 You're a big believer in ETF.

Speaker 19 You can't even get an ETF in a 401k.

Speaker 18 You're a big believer in daily liquidity.

Speaker 19 Sure am.

Speaker 19 I'm sorry, I just value transparency and intraday liquidity.

Speaker 18 But it is possible. Like, a 401k is really a perfect place to not have those things.
Like, it is. Yeah, I know, I know.
Like, it is and it isn't, right?

Speaker 18 Because, like, you, because it's for small investors, you do want like transparency and low fees and not like, you don't want people to like lock their money away for 30 years and forget about it and have someone stealing it, you know?

Speaker 18 Yeah, no, definitely.

Speaker 18 It is a place where you can lock your money away for 30 years. And that does suggest that you don't need daily liquidity, right? Yeah.

Speaker 18 And if it is the case that illiquid things pay a premium, And like, you know, Apollo sort of looks around and it's like, we are in the business of investing in illiquid things, right?

Speaker 18 And so, who do we find on the other side? Like, who will give us the money to invest in illiquid things? It's like, well, you know, it's pensions and endowments.

Speaker 18 And like, oh, let's have a, you know, Athene is like, I always thought of Athene as sort of like a life insurance company, but it's not really. It's like an annuities company, right?

Speaker 18 It's like a, or like, those are kind of two sides of the same thing, but like, it's, you know, they position in the investor day as a, as a retirement services company, which is what it is, right?

Speaker 18 And so eventually you sort of get to the point of saying, you know, we need all the money. And the place where people

Speaker 18 have long time horizons and so some ability to take illiquidity is like in their retirement accounts. Yeah.
It makes a lot of sense to me.

Speaker 18 When I think of it that way, it's like a little weird that retail products and like mutual funds have liquidity requirements because it's not exactly addressing the problem of retirement savings, which is why people have annuities and stuff, right?

Speaker 18 I mean, that's like the classic way to do this is like Athene sells people an annuity and then Apollo is in charge of figuring out how to invest their money for the next 40 years or whatever.

Speaker 19 Yeah. No, I hear what you're saying and it does make sense.
Like again, you're locking away your money for 30 years. You don't need that intraday liquidity.

Speaker 19 I guess it's just what I like about public markets and public assets is just knowing the performance.

Speaker 18 So Cliff Astus has this great blog post from a couple of years ago. Cliff Astus is like a public markets value investor, right?

Speaker 18 One thing he doesn't like is that private equity, which is kind of like, you know, value investing in companies, private equity has what appears to be a much better sharp ratio because it has much better risk-adjusted performance because it has high performance or, you know, has sort of vaguely SP-like performance, but it has much less volatility.

Speaker 18 And the reason it has much less volatility is because it doesn't report market prices every day, right?

Speaker 18 Like a lot of what happens in the public market is prices go up and down without that much change in fundamental value. And so it looks like your stocks are very volatile.

Speaker 18 Private equity doesn't look volatile because they report marks once a year or whatever, and like they have, you know, they have some flexibility to say, oh, nothing's changed.

Speaker 18 And he is like kind of mad about that, but he's also saying,

Speaker 18 he says in this piece, you can see why that's actually good. Because like what happens is if your stocks move around every day, you'll be tempted to sell them at the worst time.
You'll panic, right?

Speaker 18 Buying private equity is a way to like discipline yourself and prevent yourself from panicking when market prices move around.

Speaker 18 And that story about private equity is traditionally a story about pensions and endowments, right?

Speaker 18 Who are maybe prey to political factors and will take their money out if prices go down and can stop that by investing in things that don't report prices.

Speaker 18 But it's also equally true of retirement savers, right? Like

Speaker 18 if you're looking at your 401k every day and saying, oh no, stocks went down, you take my money out, maybe it's better to be locked up in something that doesn't have price transparency.

Speaker 19 That's a fair point. I do find it fun that, of course, Apollo is publicly traded.
And it's interesting to consider its market cap. It's something like

Speaker 19 $74 billion.

Speaker 19 Their AUM is like $662 billion, somewhere around there. It's a fun thought exercise to compare that to BlackRock, which has $10 trillion in AUM, and their market cap is like $140 billion.

Speaker 19 And this is something that we've talked about a little bit before.

Speaker 18 Crushing Square.

Speaker 19 Yeah, exactly. Like how

Speaker 19 the stock market values these different asset managers.

Speaker 18 I think it is pretty straightforward, right? Crudely, if you put a 10 times multiple on earnings right like Apollo

Speaker 18 can kind of extract kind of 1% in fees I have some numbers right here oh yeah I printed it out

Speaker 19 I hope I'm reading this right so if you take a look at Apollo's AUM

Speaker 19 the cents earned per $1 of AUM is 0.89 cents yeah so close to 1% yeah and then you compare that to BlackRock and it's like 0.06

Speaker 18 cents. Well, like six basis points.
I think like there's two kinds of asset managers.

Speaker 18 There's like expensive asset managers who charge 1%, and there's cheap asset managers who charge like one basis point, right?

Speaker 18 And then you put a 10 times multiple on them, and like BlackRock should trade at like 1% of AUM, and Apollo should trade at 10% of AUM, right?

Speaker 18 Because they're charging 1% of AUM versus charging 10 basis points of AUM.

Speaker 18 And I wrote about this in the context of Bushing Square, where they raised money at a valuation for the management company of something like 50% of AUM, which implies quite insane things about the fees they can charge or about their expected growth.

Speaker 18 But that's neither here nor there. The point is, yeah, like Apollo is in the business of being an expensive asset manager.

Speaker 18 And one thing that might happen, one thing you could imagine, is like if all of their pushes to be like mass market and retirement savings and all these things all come true, then like possibly there'll be some fee compression, right?

Speaker 18 Possibly you can't charge the same fees for everyone's retirement account that you can charge for like private equity.

Speaker 19 I would imagine so.

Speaker 19 Also, John Farrell and BTV interviewed Mark Rowan the day after the Investor Day, and he asked the good question, which is that you have rates coming down, the economy is looking pretty good right now, financial conditions are easy.

Speaker 19 Why would

Speaker 19 people keep going to the private credit markets versus issuing in the public markets? Which I think is a fair question.

Speaker 19 Mark Rowan said something like, you know, we're doing things that the the public markets wouldn't allow. And then he talked about infrastructure for a while.

Speaker 19 But there was also an interesting story on the terminal from Ellen Schneider and Michael Toblin

Speaker 19 quoting Bank of America research that said almost $30 billion of private debt has been refinanced through broadly syndicated loans across more than 70 deals so far this year.

Speaker 19 So banks reclaiming some ground there from private credit.

Speaker 18 Yeah, that makes sense. As you said, they just did a big partnership with the city, right? So I think there's a real view that private credit is going to stick around.

Speaker 18 You can imagine a story of like a lot of private credit funds raised a lot of money because it's very hot. And then, like,

Speaker 18 in a year, they need to deploy that money and they are possibly giving better terms than the public markets, right?

Speaker 18 I think a lot of the story of private credit in recent years has been like when public markets seized up, private credit seized a lot of share. But

Speaker 18 you can imagine a story of just like there's so much money in private credit, it's going to be cheap. And watch the space, goodbye.

Speaker 19 Watch the space, bye-bye.

Speaker 18 And that was the Money Stuff Podcast. I'm Matt Levian.

Speaker 19 And I'm Katie Greifeld.

Speaker 18 You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

Speaker 19 And you can find me on Bloomberg TV every day on Open Interest between 9 to 11 a.m. Eastern.

Speaker 18 We'd love to hear from you. You can send an email to moneypot at bloomberg.net.
Ask us a question and we might answer it on air.

Speaker 19 You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

Speaker 18 The Money Stuff Podcast is produced by Anna Mazarakis and Moses Aina. And special thanks this week to Cal Brooks.

Speaker 19 Our theme music was composed by Blake Maples.

Speaker 18 Brendan Francis Newnham is our executive producer.

Speaker 19 And Sage Bauman is Bloomberg's head of podcasts.

Speaker 18 Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.

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