Guy on Twitter: PSUS, Left, ETFs

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

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

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

Katie, we got some news this week.

Oh, big time.

We're going to talk about Bill Ackman, obviously.

We're going to talk about Andrew Left, which should be fun.

And then we're going to talk about Bond ETFs, which maybe will be fun.

Maybe will be fun.

We'll find out.

Bill Ackman.

Where to start?

Having the best week.

Oh, my gosh.

Yeah.

So we went from $25 billion

to $2.50 to $4 billion to $2 billion.

Now we're at, I think, $0.

There was kind of a pits up at $10 billion as well.

That was in there somewhere.

There was a hard cap at $10 billion, which

they did not hit the hard cap.

No, no.

So I don't even know what to say.

I mean, this was pretty...

spectacular to follow.

We knew that he was roadshowing this IPO, the closed-down funds.

Pershing Square USA.

Exactly.

He has a European version, which trades at a big discount, which is a material part of this story.

And it kept getting downsized.

And now it was pulled entirely.

They're re-evaluating it.

And along that path, we got a letter that was released, which maybe Bill Ackman didn't know was going to be released.

And then we had some investors bowing out as well.

Right.

So

the story started with they're doing a roadshow for this IPO.

There was talk of it being $25 billion, which would be a lot of money for a closed-end fund, or just in general, it would be a very, very, very large IPO.

So he's got all these companies, right?

So he runs a hedge fund called Pushing Square.

There's a management company that runs the hedge funds and that collects the fees from the hedge funds and the closed-end funds.

And he recently sold about a 10% stake in the management company to a few institutional and high-net worth investors.

And last week, he sent a letter to those guys, those people who were investors in his management company, saying, essentially, hey, it would be really helpful if you would put in some orders in the Pushing Square USA closed-unfund IPO.

And I read that letter and

it seemed to me that that's not a good sign.

I probably underplayed this when I wrote about it because there are other possible interpretations, right?

Like one possible interpretation is that Bill Ackman is just unusually candid about how the IPO process works to his management company investors.

But it sort of seemed like he was saying, hey guys, it would really help out a lot if you could put it in order.

You know, I used to be a a capital markets banker and you would do a deal and you would get calls from investors and they would say, how is the deal going?

And there's only one answer you can give them.

You say, the deal is going great.

There's so much demand.

You really better put your order in because otherwise you're going to miss out because this deal is going so good.

So many people wanted to buy it.

You can't like necessarily lie if the deal is going poorly.

But you say things like, oh, there's a lot of interest.

We're having a lot of meetings.

The feedback is really good.

You should put in your order quick, right?

You try to create the sense of excitement.

If the deal is not going well, then like you might call up your best friend investor and say, hey, it would really help out if you would put in a big order because that would get us over the line, that would create some momentum.

And it sort of seemed like that was what Ackman was doing by sending this letter to the people who were already in his management company.

Problem is if you do that publicly, everyone can read it and they're like, oh, that's a bad sign.

So I do think that like the letter did not necessarily help very much because I do think that some people read it and think, well, this suggests that there's not a ton of demand.

Yeah.

And I was just going to bring up Balpost because he did name a few investors.

In that letter to investors saying, hey, it would help if you could invest more, he mentioned that Balpost Capital had previously committed to investing $150 million.

And then Bloomberg News broke the news that actually they were pulling out.

There weren't reasons given, but reportedly he didn't like being named.

Yeah.

I mean, no one wants to be named as the endorser for a deal unless they've sort of explicitly agreed to that.

I think the Blueberg story suggested that there's some political Seth Clarman is a Democrat and Bill Ackman has become like a very vocal Trump supporter.

But I don't know.

I think that either of those are possible explanations, but like, here's another explanation.

If you interpreted that letter to mean there's not a ton of demand, then even if you were already in the book, you would take your murder out of the book, right?

Yeah.

Because this is the problem with this thing is like, you can be a

long-term investor, right?

You can say, I like Bill Ackman, Ackman.

I think that he's going to compound my money at a high rate.

And so I want to be invested in his fund.

And I'll invest, you know, this month and hold it for 10 years and expect Bill Ackman to compound my money for me.

But the problem is that

on the first day of trading, this thing is either going to trade up or it's going to trade down.

And as you said, his existing closed-down fund trades at a big discount to its net asset value.

Most closed-down funds trade at discounts to their net asset value.

And so if you're an investor,

instead of buying the shares at $50 in the IPO, you might say, well, I'll just wait until the next day and I'll buy them at a discount.

I'll buy them at like 45 or whatever.

So it would be sort of silly to buy in the IPO if you could wait to buy at a discount.

The whole point of the IPO process is for Bill Ackman to tell people, no, no, it's going to trade at a premium, right?

And so he makes that case in this letter that he sent to these investors and that was then made public sort of by accident.

He makes the case that it's going to trade at a premium.

You know, the essential case is that a lot of retail investors, for one reason or another, aren't going to get shares in the IPO.

Like the main one is that most retail investors, most retail brokerages aren't going to get allocated anything in the IPO.

Also, there are some European retail investors who would want to buy shares, but who can't buy them in the IPO.

So all these retail investors want to buy shares in the Bill Ackman IPO.

They can't buy it at the time of the IPO, so they'll buy it the next day in the aftermarket.

And there'll be so much retail demand and maybe so much institutional demand that the IPO will trade up.

And so if you wait to buy in the aftermarket, you'll have to pay $55 a share instead of $50 a share.

But the IPO was so big that the really essential question is, is there going to be enough institutional demand in the aftermarket?

Is there going to be institutional demand the next day?

And there were just kept being indications that there was just not enough institutional demand to like price a really tight, large IPO.

And so if you thought that there wasn't that much institutional demand, then you'd say, well, it'll trade down to to 45 and I'll wait till the buy the next day.

And then there will be no institutional demand, right?

Right.

If everyone's going to wait to buy it, then no one will buy it in the IPO.

Well, two points on that.

The first one being the statement that they put out did acknowledge that.

They said that this question.

Oh, yeah, it's the whole thing.

Yeah.

The whole story.

Basically, would investors be better served waiting to invest in the aftermarket than the IPO?

Yes, it sounds like.

I mean, if you just look at the history of closed-end funds, also to the point of retail demand.

I mean, Bill Ackman has a million-something followers on Twitter, which is a lot.

That's a huge audience, but it seems quite tricky to turn followers into investors.

That's not necessarily guaranteed.

And you think about the following that he has on Twitter, I would imagine that the majority of those people, or at least a sizable portion, aren't necessarily following him for his investing acumen.

He'd be stabbing her.

I mean, I hear you, right?

I mean, he's courting controversy in a lot of Twitter opinions and not mainly tweeting about part of that, by the way, is like he has said that he wants to be able to tweet more about investing.

And because of like the legal structures that he currently operates in, he can't just go tout his stock picks on Twitter.

And once he launches Pershing Square USA, he can.

But yeah, I hear you, right?

I mean, like, his Twitter following is not purely about investing.

What I am wondering is what this means for the overall Pershing Square IPO, because he did sell that 10% stake for a billion dollars, just over a billion dollars.

And And I mean, they've said that the success of this PSOS IPO is very important to the eventual IPO of Pershing Square.

Oh, yeah.

I mean, he sold the 10% stake in the management company.

The management company is just like the thing that collects fees from the funds that he runs, right?

Right now, he runs about $18 billion worth of funds.

And they sold the stake in the management company at a $10 billion valuation.

It's sort of crazy to imagine that the entity that collects fees on $18 billion worth of funds is worth $10 billion, right?

Like, that can't be right, right?

That implies that he would take like half of the value from like his investors' funds for himself or for his investors.

Now, the only way you can get to a $10 billion valuation for the management company is if you think that the management company is very soon going to manage a lot more money.

And I think, obviously, the case that was made to these management company investors is we are going to transform from a smallish hedge fundish manager to a sort of more institutional asset manager that attracts a lot of retail interest and a lot of institutional interest and runs tens of billions of dollars and has a publicly traded permanent capital vehicle and has like this steady stream of large earnings from running large amounts of money.

And then, you know, I think if you were investing in the management company,

somewhere in your mind was the notion of a $25 billion PSIS IPO.

And a zero dollar PSUS IPO makes that case more challenging.

The other thing I want to say about the management company is, so I wrote on Thursday about the problem here, which is that it's very hard to sell these shares at NAV because you expect a closed down fund to trade at a discount.

Everyone wants a discount.

Well, how do you sell the shares at a discount?

Because the shares are just, it's a pot of money, right?

So you can't sell, you know, $100 worth of money at $90 because then you only have $90.

So how do you create a discount?

And I wrote about some possible ways to do that, which come down to kind of pushing square, putting in some money.

But several readers emailed me immediately to be like, Well, here's the obvious way to do it.

The obvious way to do it is to put some of the management company into PISAS.

So instead of Bill Ackman seeding the fund with like a billion dollars of his own money for free, he could seed it with 10% of Pershing Square, the management company, for free.

And then PSAS would have a net asset value more than just the cash that investors put in.

And then the investors would say, okay, I'm getting a discount and they'd put in their money.

I think this is a good idea.

And, you know, someone drew the analogy to like Vanguard, where Vanguard investors do own a piece of the management company because it's a mutual company.

But the problem here is you sort of already promised the management company in an IPO to these other investors, right?

So to say we're going to push the management company into PSAS is a little bit more challenging.

So

what does it mean for the IPO?

I don't know.

It's like a setback, right?

I mean, the IPO was, I think, premised on the

PCI's IPO going really well.

And with him having a hard time raising money for Pisces, it's harder to get to a $10 billion valuation for the management company.

There's also the question of why does he want to be public?

Like, why does he want to take the overall hedge fund company public?

I mean, there aren't many of them.

The obvious example is the sculptor rhythm thing, which didn't exactly turn out well, which also had Bill Ackman involvement.

Yeah, minor involvement.

Yeah, I don't know.

You know, the reason for launching the close-in fund is quite straightforward, right?

I mean, you have a permanent capital vehicle.

You get to go on TV and tweet your stock picks, and then hopefully you can create some momentum in your stocks.

I mean, he could just launch an ETF.

I'll just say it.

I know, I know, permanent capital.

That's very exciting.

I still don't quite understand

close-end funds.

I get it from the manager's point of view, permanent capital.

That seems really great.

But from the investor point of view, I don't know why you would do that.

No, I think he can make a good case for that here because he is not possibly like takeover inclined investor.

Then knowing how much money you have for the long term is actually really important, right?

I mean, if you have an ETF and there are withdrawals and you sell half of your positions, right?

That is easy to do if you are just the index fund, right?

But it's harder to do if you are doing the kinds of trades that Bill Ackman wants to do, which are like these like long-term fundamental equity trades, but also like, you know, derivative trades.

I mean, like some of their track record is from CDX bets going into COVID.

And And again, that's harder to do if your capital can vanish overnight.

So, I think that from his perspective, it's obviously good to have permanent capital.

And I think he can make the case to investors that actually, like, permanent capital is the way that I create value.

And ETF doesn't make sense for the kind of investing that I do.

And I think that's a reasonable case.

Yeah.

So, the question of why does he want to take the management company public, I don't know.

I mean, some of it is like, I think anyone else, like, you know, you want some legacy, right?

I mean, like, there's this perception that with like the sort of famous hedge fund managers of like Ackman's Vintage,

there's a perception that the management company is like that one guy.

And I think that they would like to have a proof of concept that actually it's an institution and really the investing team has kind of transitioned away from him and it's not just him and it's a permanent entity that will exist forever and provide wealth for him forever, right?

Instead of like when he quits, the thing vanishes.

So I think there is a temptation for anyone who runs a company to take that company public so you can, you know, take money off the table and have permanent shares instead of just like your own labor.

But the track record of it is kind of challenging.

Yeah.

Well, let's see if PSAS gets off the ground when it comes to the eventual Pershing Square IPO.

Apparently, he's already thought of how to make this structure work.

That was also in the press release that they'll be doing.

Yeah, I'm excited.

Yeah.

Excited to see like next week's PSUS structure.

I think putting part of the management company into it, putting some cash into it that doesn't come from investors are possibilities.

Yeah.

like I, you know, I wrote it in a footnote: like, SPACs

do kind of provide the technology for this, right?

Like, a SPAC

at a very high level is a sponsor puts in some money to pay the startup costs.

Then the sponsor kind of sells shares at net asset value to investors.

And then, if the sponsor does a good job and finds a good deal, the sponsor gets a lot of like free upside.

So, there's this like corridor where, like,

if the things those kind of meh, the

shareholders get all their money back.

So they are protected against the problems of investing at NAV and then having the NAV go down.

If the thing does poorly, then the manager, the sponsor, eats the loss.

And if the thing does really, really well, the shareholders give up some of the upside and it goes to the sponsor.

And so the sponsor has this sort of asymmetric trade where the sponsor puts in some money that's at risk.

But then if it does really well, the sponsor makes a lot of money.

You could imagine a structure like that for PSAS where, you know, Bill Ackman Ackman seeds it with money.

And if it trades below net asset value, he kind of bears the first loss so that the investors who buy in the IPO still get at least the amount of money they put in.

And then if the thing does really well, he gets warrants or something so that he gets upside to compensate him for that.

Like that's a structure that could work.

You could do something like that.

That's easy enough.

Got some good ideas here.

Part of me wants to, you know, quit podcasting and go structure PSOS Mark 2, but most of me doesn't.

Most of me just wants to podcast about it.

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Andrew left.

Andrew left.

So this story broke, I think it was on Friday.

Yeah, that's right, because I wrote on Friday and then I published on Saturday because I didn't hit the send button on my email.

It's really

funny stuff Sasa just made.

Rookie mistake there.

Amateur out.

I posted a column on Friday on the web and the terminal.

And

then I didn't hit send on the email.

And no one told me until I told my wife I published the column.

She's like, oh, I didn't get it.

And I was like, wow, I feel like there's some arbitrage to do there.

If you had the inside information about my column, you could have traded Andrew Left features a day early.

I don't know.

I bring that up, the timeline, because it feels crazy that we haven't talked about this yet.

Yeah, we just missed it last week.

So set the scene for us, set the table.

So Andrew Left is a guy on Twitter.

There's a lot of people like this who are activist short sellers.

So, what he does is he finds companies that he thinks are bad, sometimes on valuation, often because he thinks they're frauds, and he shorts their stock, and then he publishes angry reports saying what a fraud they are.

And then he tweets those reports, and then their stock goes down, and that's how he makes money.

A lot of these people are guys on Twitter who may or may not have something like a hedge fund or something called a hedge fund.

But when Andrew Left got in trouble last week, the SEC, one of its complaints about him was that he wasn't really running a hedge fund.

He didn't have outside money.

He was just the guy investing his personal account.

I assume a lot of activists, shorts, are just guys investing their personal accounts, but it just sounds nicer.

So Andrew Left is Andrew Left, but he's also Citroen Research, which just sounds fancier than just being a guy on Twitter.

And honestly, I think he's kind of earned it.

Like he's had a good track record of spotting frauds.

You know, he really was instrumental in spotting big problems at Valiant Pharmaceuticals a few years ago in a way that really took billions of dollars off that market cap and was good investigative work.

And he has a good track record of finding companies that will go down.

So that's his deal.

And last Friday, the SEC and the Department of Justice brought charges against him for doing alleged fraud.

And basically they're accusing him of doing a reverse pump and dump, right?

Instead of like...

saying, hey, you should buy this stock and then selling it, he said, hey, you should short this stock and then he bought it.

So the accusation is that he would short these stocks.

He would publish angry reports calling them frauds, and then kind of the minute he hit publish, the stock would go down and he would buy back the stock.

So five minutes or an hour or a day after he published his report, he was no longer short.

So he took all the risk off the table.

And the SEC,

one, I think, just doesn't like that because it just seems like if you're doing it that way, you don't really think the stock is a fraud.

You just want to move the stock down so you can make money and you don't care what happens after that.

I don't think that's right.

I think the SEC is wrong about that.

I think that Andrew Left has a lot of incentive to care about what happens after that first day because this is his livelihood.

And

if he's always wrong, the stocks will stop going down and this will stop working.

The only way this works is that every time he says this company is a fraud, there's a good chance the company is actually a fraud.

And if he keeps having a pretty good hit rate, then the stocks will keep going down and he can keep collecting profits on the first day.

And he doesn't have to wait until, a year later when the company goes bankrupt.

But the whole thing doesn't work unless he's got a pretty good hit rate.

So the SEC doesn't like it for, I think, some reasons that are wrong, but the SEC also doesn't like it because he lied about it a lot.

Like, he would go on television and the reporters would say, so are you still short?

And he'd say, I'm still short.

But he actually had covered.

So it's like bad.

You can't do that.

Yeah.

And, you know, you think about like a pump and dump, like a classic pump and dump.

There's like nothing to it.

It's like some guy in a Telegram chat room saying, We got to buy this microcap stock stock because it's going to go to the moon.

And like, maybe they give some business case for it, but everyone knows they're kidding.

You know, they're like, oh, it's just discovered a cure for cancer.

And then the stock goes up a little bit and the pump and dumper dumps the stock.

And the pump and dumper says, oh, I'm holding on until it gets to 100.

I'm all in on this.

But he's lying.

And he's already sold the stock.

And the SEC sort of sees that in reverse and Andrew left.

But I think the difference really is that a pump and dumper normally has no basis for recommending the stock other than like, if we all buy the stock, it'll go up, right?

It's just a pure social market dynamic thing.

And the only thing that the audience cares about is that this pump and number is buying the stock.

And if the pump and number is actually selling the stock, then like, yeah, that looks like fraud.

With Andrew Left, I don't think that's how it works.

Like, I don't think people were shorting those stocks or selling those stocks because they're like, oh, Andrew Left is short.

I'd better be short too.

I think they were shorting the stocks because Andrew Left published reports saying this company is a fraud.

And they thought, that's probably true.

Like, often it was true.

The SEC complains about this company called Kronos Group, which is like cannabis company, and it was trading like nine or ten dollars.

And Andrew Left said,

I think this is a fraud, and I have a price target of three dollars and fifty cents.

And then, like, the next minute, you know, the stock goes down and he covers his short, and he never waits for it to get to three dollars and fifty cents.

And he gets out of the trade, and then you know, he lies about it and says, I'm still short, even though he's he's actually not short.

But that stock got to like two dollars and settled an SEC case case for fraud.

He was not wrong.

Yeah.

So like, there's a lot of that where the SEC focuses on what he said about his own trading, but it doesn't focus on whether his reports were honest or accurate.

And to me, this is not the law, but to me, like, if the reports were honest and he was, you know, largely right, then like, eh, no harm, no fell.

So let's talk about what the bright red bad thing was.

Was it that he was lying about his actual position in the stock?

Had he not said, oh, I'm still short when he actually had closed out his position would we be having this conversation i think not i mean the actual stuff that he's accused of lying about is mostly that and then a lot of like he occasionally did deals with other investors where they would pay him for research or they he would you know they would he would give them ideas they'd like have profit shares there's some like economic deals with other investors where

He would deny.

He would go around saying, we've never been paid for research.

We've never like partnered with any hedge fund.

we're always independent.

And in fact, that wasn't really true.

And again, the SEC really did get mad at him for saying he was a hedge fund.

He would like tweet things like, you know, we want to reassure our investors that blah, blah, blah.

And it's like, oh, you don't have investors.

Like, yeah, like, that's dishonest.

And like, some pump and dumpers do sort of create the impression that they run a lot of money for outside investors in order to like gin up an audience.

But I mean, I don't know.

I feel like everyone kind of knew he was a guy on Twitter with like airs.

And like, that's kind of of normal.

I loved what you had in your column about like

him tweeting that about like, we want to reinsure investors.

And you compared that to, you know, you want to reassure your 401k investors as the manager of your 401k.

I did LOL in my car at that.

I love that, by the way, you were reading my column in your car, which I know means listening to a robot read it.

Exactly.

I just feel like there's a lot of people in financial markets who...

are like i bought an etf in my personal account once so like i basically am a fund manager yeah You know, anyone can be a fun manager.

Those are the things that the SAC is mad about.

And I think if he didn't do any of those things, which are all really ancillary to like what people were reading him for, then I think he probably wouldn't get in trouble.

I would caveat that by saying, again, I really do think that a lot of people really, really, really dislike the business model of shorting a company.

publishing bad stuff about the company and then immediately covering.

Like even if he never lied about that, even if he said in the fine print of his report, like I could cover it anytime.

And then when he went on TV and they said, have you covered?

He said, no comment or even yes.

Like, I think that people would still be really mad about that because it just seems like that is dishonest.

And I don't think it is.

But I do realize that people find it.

upsetting.

People think that if you're doing that, you can't really believe that the company is a fraud.

And to me, it's just there's like a division of labor where he is in the business of spotting the frauds, calling attention to them, profiting from that first day move, and then moving on to the next thing.

And other people provide the long-term capital to short the frauds all the way down or whatever.

Yeah, and we should probably point out that he has pleaded not guilty to fraud charges.

Oh, I think he might win.

I think he might win.

Well, yeah, his lawyer is basically, I mean, he's making similar arguments to what you're saying, that left had no duty to disclose his personal trading intentions.

He also added that the government wasn't accusing left of publishing false information.

And that feels important.

That's true.

And it's so important.

You know, it's not not important, I think, to the SEC's, like, to the government's analysis of its legal case, but it's so important to everyone else.

It's so important to me.

If he's publishing reports saying these companies are frauds and they're all frauds, like, what is the problem with that?

Maybe he should just be a journalist.

I mean, he'd make a lot less money.

That's the thing, Rich.

He'd make less money.

He'd win the moral argument every time.

Would he?

Would he?

That's true.

That's a good question to pose to the broader public.

Which do you dislike more, journalists or short sellers?

I don't know who would win or lose, however you want to phrase it.

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Robin Wigglesworth had a really long and interesting piece on fixed-income ETFs, basically eating the bond market.

He wrote it with Will Schmidt.

And I have to say that the headline, ETFs are eating the bond market.

I thought this was going to be a negative story, but I don't think this is necessarily a negative piece.

So he quotes me a little bit because I used to have a running guy.

That's the important part.

People are worried about bond market liquidity.

And the notion was like, there was the, I don't know, a four-year period where financial journalists kept saying bond ETFs are eating the bond market.

And it's so bad because in a crisis, people will be so used to the liquidity of bond ETFs.

And then when they get their bonds out, they won't be able to sell them and bond prices will go down.

And I never understood this concern and thought it was very silly.

And now it seems to have gone away.

And Robin now has this piece saying that bond ETFs are eating the bond market.

And that's good.

And I think that I agree.

It seems right.

It does seem good.

I mean, there is, or there used to be, and maybe there still is, but now it just seems a little bit silly, a lot of doom and gloom about bond ETFs.

We talked a little bit about the liquidity mismatch last week.

I feel like all of those fears were put to rest in March 2020 when the Fed started buying ETFs.

Specifically, they started buying corporate bond ETFs.

And they didn't buy that many, but they bought bond ETFs.

So you have the Fed's stamp of approval on the structure and everything turned out fine.

Like, I can't imagine a better test.

Yeah, I think that, I mean, it's not just the Fed, right?

I mean, it's like in that period of crisis,

it was hard to trade bonds.

I think because it's always hard to trade bonds in a crisis, but it was very easy to trade ETFs.

And so I think the perception is that most market participants felt that the ETFs were adding to liquidity rather than subtracting because at least you could trade the ETF, right?

Which allowed you to do some sort of like macro positioning around credit, even if it was hard to get off individual bond trades.

But I think the other point of Robin's piece is that

the ETFs have largely made it easier to get off actual bond trades for a combination of reasons, one of which is that

there are all these new dealers who, you know, the sort of Jane Streets of the world who are big ETF market makers.

And if you're a big ETF market maker, then as bond ETFs get bigger, you have to get into bond ETF market making.

And if you're an ETF market maker, you have to trade both the ETF and the underlying.

And so Jane Street and all the other inflow trading and all the big ETF firms have gotten into bond trading.

And so that's another source of liquidity, another set of market makers, another set of balance sheets.

And as banks have retreated from market making in a lot of financial products, you have new bond traders that have made bond trading a little bit more liquid.

And he also talks about portfolio trading, where instead of trading one bond at a time, you can call up Jane Street and say, I have 400 bonds I want to sell.

And they're like, yeah, we could probably stuff most of those into an ETF.

So it's fine.

Yeah, we'll take them all.

And so instead of kind of paying 400 bit ask spreads, you kind of pay a tighter bit-ask spread on a single portfolio.

And that's, I think, improved liquidity for a lot of actual bond managers.

So it's a very rosy story of like bond ETFs have made bond market liquidity nicer.

It's really a beautiful tale, and I love listening to it and reading it over over and over again.

I am interested to see how it evolves.

CLO ETFs, I remember when those launched sometime in the past three to four years, there was a lot of pearl clutching about that.

And there's one ETF in particular.

Anything with CLOs is going to lead to some pearl clutching.

Oh, definitely.

It's a very scary three-letter acronym.

But there's this one CLO ETF.

The ticker is JAAA.

It is so big.

I think it recently got to $10 billion.

It's by far the biggest.

And there's some people who have pointed out that there's so much demand for this specific ETF.

And, you know, some of that flow is starting to increase to the other ETFs as well, that it's starting to potentially tighten spreads on CLOs just because all this money keeps pouring in.

The ETF has to keep buying CLOs.

And that's actually having an impact in the cash markets as well.

Which is interesting.

Like, the question that that raises in my mind is, you know, now you have this super accessible wrapper.

Maybe it's introducing a new class of investors into that asset class who didn't want to take the time to figure out how to do the mechanics of it before.

But now it's super easy.

And now you're seeing the ETFs potentially impact that market.

Oh, yeah.

Like a CLO is a relatively painful thing to hold compared to an ETF, which is the stock, right?

So like if you're a retail investor and you want CLO exposure, you can buy a CLO ETF.

But also if you're an institution, it's an easier thing to get your head around.

And it's an easier thing to trade too, right?

If you want one day of CLO exposure, you can buy the ETF in the morning and sell it in the afternoon, which you can't do as easily with a big diversified portfolio of CLOs.

The story that you told of spreads coming in is just in any product, if liquidity is improved, you should expect

the valuation of the product to go up, right?

The spreads to come in.

And the ETF technology just improves the liquidity of anything it wraps.

And so if you have some audience that would have said, oh, it's like a pain to hold whatever, but we can hold it in ETF form and you put it in an ETF form, then the liquidity of that product, of the underlying product goes up and the spreads go down.

And obviously, you know, the example that we've talked about before is Bitcoin, right?

I mean, Bitcoin was for some subset of investors a pain to hold.

And then you put it in ETF and Bitcoin prices go up.

So I think it's a sort of general use technology.

Yeah, I feel like the story of ETF, so much of it just comes back to convenience.

Like, there's a few ETFs out there that just hold two-year treasuries, and I remember when those launched, there were a lot of cranks saying, Why bother?

Why would I pay someone to do this for me?

It's like, because it's easy, it's the easiest thing on earth to just click a button, you buy an ETF, and then you don't have to worry about buying those bonds yourself.

You know, I was about to say, I wonder how we're going to fit ETFs into next week's episode, but I'm going to Paris.

So, oh, yeah, that's an important programming note.

Katie's in Paris and Money's Thuck podcast will be off next week, right?

Yeah, I'm so excited for me.

Are you watching Horse Olympics?

I am going to the Olympics.

I am definitely going to see track and field.

I'm so excited.

Oh, right.

Yeah.

Your other sporting love.

Is there a best track and field event to watch other than like just running around?

Like, is there like, is like Javelin really exciting?

My favorite event to watch is probably the 800 meters because that's what I ran very averagely in college.

So I really like the middle distance events.

Everyone loves the sprints though, obviously.

Like the 100, 200 meter relays are fun because it feels like Team USA manages to drop the baton a lot.

So hopefully we don't do a lot of that this time around.

We'll see.

We'll see.

Enjoy your time in Paris and we will

be back here in two weeks with more stuff.

Peace and love.

And that was the Money Stuff Podcast.

I'm Matt Levine.

And I'm Katie Greife.

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

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

Eastern.

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 the air.

You can also subscribe to our show wherever you're listening right now and leave us a review.

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The Money Stuff Podcast is produced by Anna Mazarakis and Moses Adam, and special thanks this week to Cal Brooks.

Our theme music was composed by Blake Maples.

Brendan Francis Newnham is our executive producer.

And Sage Falman is Bloomberg's head of podcasts.

Thanks for listening to the Money Stuff Podcast.

We'll be back next week with more stuff.

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