Latest / Bloomberg Intelligence / Stability Risks Have Moved From Banks to Asset Managers: Algebris' Gallo

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Stability Risks Have Moved From Banks to Asset Managers: Algebris' Gallo · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg P M L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Humana
• 0:34
  Speaker 1: has joined together with TPG and Welsh Carson and a
• 0:37
  Speaker 1: four point one billion dollar bid for Kindred. It is
• 0:42
  Speaker 1: a healthcare and hospice and various medical service provider. Here
• 0:47
  Speaker 1: to explain more and better than I could is Max Neeson,
• 0:50
  Speaker 1: who covers the biotech, farma and healthcare industries for us
• 0:53
  Speaker 1: here at Bloomberg gad Fly and always has fantastic insights
• 0:57
  Speaker 1: into these worlds. So give us your take on this transaction. Sure,
• 1:02
  Speaker 1: So it's some kind of pretty interesting and complex transaction.
• 1:05
  Speaker 1: They're gonna take this business, which is, you know, the
• 1:08
  Speaker 1: combination of those home care and hospice assets and then
• 1:11
  Speaker 1: specialty hospitals and kind of splitting them in half. So
• 1:14
  Speaker 1: those those private equity companies will run a new special
• 1:17
  Speaker 1: specialty hospital company, and human Uh is gonna enter into
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  Speaker 1: joint venture with them on the home care stuff. And
• 1:23
  Speaker 1: the reason that Human had got involved is, um, they're
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  Speaker 1: really big into Medicare, Medicare advantage, and um, you know
• 1:30
  Speaker 1: they want these kind of home care assets in order
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  Speaker 1: to basically care for more people at home, prevent them
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  Speaker 1: from getting to the hospital, and generally find ways to
• 1:40
  Speaker 1: to bring costs down because once you get into the hospital,
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  Speaker 1: as anyone who's ever made it their nos, it gets
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  Speaker 1: really really expensive. Quickly, can you comment on this idea
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  Speaker 1: that Medicare which obviously available to people over the age
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  Speaker 1: of sixty and in some cases younger than sixty, But
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  Speaker 1: if Medicare is going to cover certain kinds of hospitalization
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  Speaker 1: but not certain types of home care, is that going
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  Speaker 1: to have to change in order to make this merger
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  Speaker 1: make any sense? This combination. Yeah, so so reimbursement with
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  Speaker 1: with Medicare is always pretty tricky, but I imagined Human
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  Speaker 1: had that in mind. You know, certain things that at
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  Speaker 1: the end of the day, even if they have to
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  Speaker 1: cover more of the costs themselves, the cost of paying
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  Speaker 1: for some of the home care relative to being built
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  Speaker 1: at the hospital is probably so vast that they'll they'll
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  Speaker 1: take that any day, I want to ask you about
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  Speaker 1: this concept that Humanna as an insurance provider, is getting
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  Speaker 1: into the healthcare business directly. I mean, we kind of
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  Speaker 1: saw that, um with the CVS merger, but this is
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  Speaker 1: a whole new ball game, right, I mean, what's the
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  Speaker 1: what's the logic here? Um, So this is the logic
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  Speaker 1: that that particularly United Health has been following for a
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  Speaker 1: long time. Basically, when you have kind of this integrat
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  Speaker 1: aided model where you're both to insure and the provider, UM,
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  Speaker 1: you can direct people to to your kind of in
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  Speaker 1: house providers, which you know, it's it's a lower cost option.
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  Speaker 1: They're not taking, you know, an extra bit of profit.
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  Speaker 1: It's all the same company, and UM, they're gonna basically
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  Speaker 1: do the the procedures that you want in the order
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  Speaker 1: you want them, for the people you want. I also
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  Speaker 1: provide you a lot of data about your enrollees and um,
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  Speaker 1: you know, the marketplace in general, so you can provide
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  Speaker 1: care at a lower cost and price your insurance products better.
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  Speaker 1: Are there any big insurance companies that haven't made a
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  Speaker 1: move like this that you expect to at some point
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  Speaker 1: in the near future. I mean, I I've been expecting
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  Speaker 1: that this from human or from another company for for
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  Speaker 1: some time, basically because you just look at how successful
• 3:45
  Speaker 1: United Health has been. UM. I think I have a
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  Speaker 1: chart in my latest column. Their optim unit alone books
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  Speaker 1: more revenue than UM or just about as much as
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  Speaker 1: one bit more than most of the other large insurance
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  Speaker 1: companies in the United States. And also they've written the
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  Speaker 1: kind of cost savings and analytic benefits of that to
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  Speaker 1: becoming the largest health insurer in the United States. It's
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  Speaker 1: worked incredibly well for them. I'm a little surprised to
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  Speaker 1: taken other insurers so long to emulate them, and now
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  Speaker 1: you finally have you know, the big and a CVS deal,
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  Speaker 1: which which is an interesting step, and and then HUMANO
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  Speaker 1: were just taking kind of a narrower targeted approach aimed
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  Speaker 1: at a particular market medicare in this case. Is this
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  Speaker 1: good or bad for hospitals? Uh, this is bad for hospitals. UM.
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  Speaker 1: You know they're not going to say, I need to
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  Speaker 1: think this is terrific for them. So you know, any
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  Speaker 1: time when insure, you know, has UM more leverage, is
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  Speaker 1: doing more of the hospital's job themselves, that that's not good.
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  Speaker 1: I mean, part of the reason that you had such
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  Speaker 1: aggressive hospital consolidation. You know two reasons. One to kind
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  Speaker 1: of fight back about against insures that are ever larger
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  Speaker 1: and more powerful and have you know, can push back
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  Speaker 1: on reimbursement. And also to kind of prevent patient leakage,
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  Speaker 1: so patients from leaving your health her system to go
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  Speaker 1: somewhere else. Um. You know, if if you own everything
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  Speaker 1: in area, they can't go anywhere else. That's why you
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  Speaker 1: have this consultation. But now if ensures own you know,
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  Speaker 1: their own providers and are actively pushing people there that
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  Speaker 1: that's pretty bad for prospitals. And just quickly, what about
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  Speaker 1: for people that are not necessarily in these insurance plans? Um,
• 5:20
  Speaker 1: you know, that gets a little trickier for them. You
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  Speaker 1: you don't get the same kind of discount or or
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  Speaker 1: synergy when you're when you're trying to, you know, use
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  Speaker 1: a human owned product and you're on another company's insurance,
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  Speaker 1: probably gonna be a little more expensive. All right, Thanks
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  Speaker 1: very much. Max Neeson are Bloomberg gadfly when it comes
• 5:38
  Speaker 1: to all things related to healthcare. I encourage you to
• 5:42
  Speaker 1: read his columns on Bloomberg dot com. Max Neison, thanks
• 5:46
  Speaker 1: very much for being here. It's really fascinating combination, and
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  Speaker 1: Humana is known as the number two seller of private
• 5:52
  Speaker 1: health coverage plans for the elder lace. This is a
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  Speaker 1: Medicare advantage program, so it sort of explains their focus
• 5:58
  Speaker 1: here him, I have been struck by the degree of
• 6:17
  Speaker 1: consensus when it comes to US stocks next year and
• 6:20
  Speaker 1: frankly stocks globally in eighteen. Everyone seems to think it
• 6:25
  Speaker 1: will be a great year, another banner year for equities.
• 6:29
  Speaker 1: Here to tell us what he thinks is Alberto Gallo,
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  Speaker 1: portfolio manager and head of macro strategies at Algebra Algebra Investments,
• 6:36
  Speaker 1: and he joins us now. Alberto, thank you so much
• 6:39
  Speaker 1: for being with us. Good morning. So are you as
• 6:42
  Speaker 1: bullish as everybody else in the world is. I think
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  Speaker 1: there is a lot of consensus both for equities to
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  Speaker 1: go higher in the US and also non US equities,
• 6:51
  Speaker 1: as well as for interest rates to gradually move up
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  Speaker 1: in an orderly path. There's a lot of things that
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  Speaker 1: can go wrong. We are coming from nine years of
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  Speaker 1: QUEI with central banks holding the hands of markets, and
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  Speaker 1: I'm not sure the transition to a world with less
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  Speaker 1: QUEI is going to be so orderly. So we could
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  Speaker 1: have basically we have three risks. One is a sharper
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  Speaker 1: return of inflation rock in the market. A second one
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  Speaker 1: is central bankers are getting a bit more hawkish and
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  Speaker 1: worried about financial stability across the world. And then the
• 7:20
  Speaker 1: third one is geopolitics with North Korea, with Iran and
• 7:25
  Speaker 1: Saudi Arabia and a lot of other hotspots in the world.
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  Speaker 1: And we feel the market is underprising all the risks
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  Speaker 1: and still living in a goldilocks world. And that's a
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  Speaker 1: little bit. It's a red it's a red flag for us.
• 7:39
  Speaker 1: One of the title of one of your most recent reports,
• 7:42
  Speaker 1: The Silver Bullet, is irrational complacency. Then how do you
• 7:46
  Speaker 1: invest for irrational complacency? It is It is a conundrum
• 7:52
  Speaker 1: for a portfolio manager to construct a portfolio in an
• 7:55
  Speaker 1: environment where there is a lot of assets which are overvalued.
• 7:58
  Speaker 1: You have to try to distinguish assets that are overvalued
• 8:02
  Speaker 1: versus bubbles. And I think the behavior of investors is
• 8:06
  Speaker 1: very important. Where you see assets where you have flipping,
• 8:10
  Speaker 1: where you have financial engineering, where you have investors have
• 8:13
  Speaker 1: never invested in their lives going in, then you're looking
• 8:17
  Speaker 1: at the bubble. Other assets are simply a little bit overvalued,
• 8:22
  Speaker 1: but may have more room to run. So we are UM.
• 8:25
  Speaker 1: We don't know when the crisis, when the next correction
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  Speaker 1: will will strike, but we're trying to construct our portfolios
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  Speaker 1: with less exposure to UM downside and buying upside exposure
• 8:40
  Speaker 1: through options by limiting potential downside by investing a limited
• 8:44
  Speaker 1: premium in UH upside optionality, but having a limited loss
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  Speaker 1: if things go south. Because we have we've come from
• 8:53
  Speaker 1: an environment of very, very low volatility. Let's let's remember
• 8:56
  Speaker 1: q not only moved us the prices higher, but also
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  Speaker 1: pushed investors to sell volatility. Alberto, you said that you
• 9:03
  Speaker 1: are concerned about financial stability and at the risk of
• 9:08
  Speaker 1: some kind of threat to it next year could be
• 9:11
  Speaker 1: more significant than the markets are currently pricing in. What
• 9:14
  Speaker 1: asset class is particularly vulnerable in some sort of disruption
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  Speaker 1: to financial stability right now? I would say there is
• 9:23
  Speaker 1: a pyramid of asset classes that have been distorted by QUEI.
• 9:27
  Speaker 1: At the bottom you have rates markets bonds, so you've
• 9:31
  Speaker 1: got eleven trillion of bonds globally that have negative interest
• 9:35
  Speaker 1: rates as central bankers normalized interest rates. These are are vulnerable.
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  Speaker 1: Then there is a middle section of the pyramid, which
• 9:41
  Speaker 1: is the assets that people bought because they couldn't find
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  Speaker 1: yield in government bonds. So these are high yield bonds
• 9:47
  Speaker 1: or investment greate debt. There's eight trillion of them, and
• 9:50
  Speaker 1: they are not a negative interest rates, but they are
• 9:53
  Speaker 1: very very low credit spreads. Then the tip of the
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  Speaker 1: pyramid is strategies that are designed to sell volatility. Basically,
• 10:02
  Speaker 1: they bet that tomorrow the market that will be as
• 10:05
  Speaker 1: quiet as good as today, and this is something that
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  Speaker 1: we estimate to be around two point one trillion dollars. Now,
• 10:12
  Speaker 1: to put this into context, subprime was two point four
• 10:16
  Speaker 1: trillion dollars when the credit crisis struck in two dozen
• 10:20
  Speaker 1: and eight. So two point one trillion dollars in short
• 10:23
  Speaker 1: volatility strategies is a substantial amount um and it could
• 10:27
  Speaker 1: cause a risk to financial stability. So if investors tomorrow
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  Speaker 1: um realized that the future is not going to be
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  Speaker 1: as calm as it has been for the last nine years,
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  Speaker 1: then these strategies may be unwound more quickly than the
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  Speaker 1: market is expecting today. So we are we are worried
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  Speaker 1: about this, this pyramid of trades, at the bottom of
• 10:47
  Speaker 1: which there is kewy. Okay, So this these two point
• 10:50
  Speaker 1: one trillion dollars of short volatility funds? Are these hedge funds,
• 10:55
  Speaker 1: are these mutual funds? What are the forms that you
• 10:58
  Speaker 1: see them in and who are the biggest asset managers involved?
• 11:02
  Speaker 1: But there's a variety of strategies. Some directly sell volatility,
• 11:06
  Speaker 1: so shorting futures, and we are talking about a small
• 11:10
  Speaker 1: amount in the range of a billion. But there's also
• 11:13
  Speaker 1: strategies that are more institutional and larger and UM routinely
• 11:18
  Speaker 1: sell volatility for yield or strategies that reliab alatility to
• 11:23
  Speaker 1: stay low UH to perform. So there's a variety of
• 11:28
  Speaker 1: UM of strategies we we we UH don't have an
• 11:32
  Speaker 1: exact estimate, but it is an amount large enough to
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  Speaker 1: create a problem for financial stability. Generally, I wouldn't go
• 11:40
  Speaker 1: into specifics on on the asset managers, but I would
• 11:43
  Speaker 1: say that regulators in two thousands and eight and following
• 11:45
  Speaker 1: the crisis have been focusing on banks, have been regulating banks,
• 11:48
  Speaker 1: increasing capital requirements. But in the meantime, asset managers have
• 11:52
  Speaker 1: been taken more and more risk to justify their fees
• 11:56
  Speaker 1: as yields have gone lower. And we think that today
• 11:59
  Speaker 1: the asset management industry has and also, both passive and
• 12:03
  Speaker 1: active has more risks than UM UH than the banks.
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  Speaker 1: Bank risks have moved from banks to to UH, to
• 12:11
  Speaker 1: the by side, to the asset management industry. And another
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  Speaker 1: phenomenon that comes with this is there's been a an
• 12:17
  Speaker 1: increase in passive investing and hurting, so everyone going for
• 12:21
  Speaker 1: the same trade. Alberto, I'm gonna put you on the
• 12:24
  Speaker 1: spot here because in November I read an article in
• 12:28
  Speaker 1: the Financial Times about your boss, Davide Sarah, the head
• 12:32
  Speaker 1: of Algebras, and he's quoted as saying, I have an
• 12:35
  Speaker 1: Italian heart but a British brain. What what does that mean,
• 12:40
  Speaker 1: at least to you? Well, I think the team. I
• 12:46
  Speaker 1: think what we try to do is to have a
• 12:50
  Speaker 1: very organized UM risk management UH culture here. While you know,
• 12:56
  Speaker 1: investing in very risky sectors UM are DNA comes from
• 13:01
  Speaker 1: investing in risky bonds, like how your debt, you have
• 13:05
  Speaker 1: to have very strong I think the Italian UM part
• 13:09
  Speaker 1: comes in having strong views on the market, but you
• 13:12
  Speaker 1: have to also combine them with UH, you know, with
• 13:16
  Speaker 1: numbers and risk management. And it's a bit of a stereotype,
• 13:19
  Speaker 1: but that's what we're trying to do here. We're going
• 13:22
  Speaker 1: in a very sky market, we have to have strong
• 13:24
  Speaker 1: views to outperform on Um countries and names that have
• 13:29
  Speaker 1: done well. We've you know, we've done very well this year,
• 13:31
  Speaker 1: like Greece or Portugal, or Ecuador or Argentina. But going
• 13:35
  Speaker 1: into next year, we have to couple that with some
• 13:38
  Speaker 1: risk management. Thanks very much for being with us. Alberto
• 13:41
  Speaker 1: Gallo is portfolio manager ahead of macro Strategies at Algebra's Investments.
• 13:47
  Speaker 1: Joining us from London, I am so excited for this
• 14:05
  Speaker 1: next segment. Joining us as Ethereum co founder Joseph Lubin.
• 14:08
  Speaker 1: He is uh one of the founders of the Global
• 14:13
  Speaker 1: Blockchain of Ethereum, but also he is a founder of
• 14:16
  Speaker 1: global blockchain Specialist Consensus, and he joins us here in
• 14:19
  Speaker 1: our eleven three studios. Joseph, thank you so much for
• 14:22
  Speaker 1: being here. Thanks for having me. I want to start
• 14:25
  Speaker 1: with energy consumption because there have been a number of
• 14:28
  Speaker 1: articles talking about how bitcoin consumes so much energy that
• 14:33
  Speaker 1: it's equal to the entire output of Denmark currently and
• 14:37
  Speaker 1: that it will just surge continually. I know Ethereum consumes
• 14:41
  Speaker 1: less energy, but what do you say to people who
• 14:42
  Speaker 1: say bitcoin is killing our earth? So I'm not sure
• 14:46
  Speaker 1: that statistic is true. UM. There are lots of people
• 14:48
  Speaker 1: who who are a little hyperbolic about that issue. UM,
• 14:54
  Speaker 1: but U Bitcoin and our network ethereum do indeed burn
• 15:00
  Speaker 1: a lot of electricity. They do that in order to
• 15:02
  Speaker 1: establish trust in these infrastructures. UM. The traditional financial industry
• 15:09
  Speaker 1: also burns a lot of electricity and occupies a lot
• 15:12
  Speaker 1: of real estate. And uh um it uh I would
• 15:16
  Speaker 1: argue as many orders of magnitude less efficient than UM
• 15:20
  Speaker 1: these systems. The theorem itself is actually aware of this issue,
• 15:25
  Speaker 1: has been aware right from the start. We intended to
• 15:27
  Speaker 1: move from the inefficient proof of work system, which burns
• 15:31
  Speaker 1: a lot of electricity. Hold on, let's back up proof
• 15:34
  Speaker 1: of work. You mean basically this idea that any change
• 15:37
  Speaker 1: in the blockchain is uploaded at the same time to
• 15:41
  Speaker 1: every system, uh, every network that is kind of in
• 15:45
  Speaker 1: the in the sphere. So trust is achieved by having
• 15:49
  Speaker 1: massive redundancy among a lot of nodes on this peer
• 15:53
  Speaker 1: to peer network UM. In order to keep them in sync,
• 15:56
  Speaker 1: you need some sort of consensus formation mechanism. And in
• 16:00
  Speaker 1: these consensus mechanisms, you have to elect a leader, and
• 16:02
  Speaker 1: you have to have people follow on behind the leader.
• 16:04
  Speaker 1: So a proof of work system which burns a lot
• 16:07
  Speaker 1: of electricity is what enables the election of that leader
• 16:11
  Speaker 1: or the the winning of the leading position. That's true
• 16:14
  Speaker 1: in bitcoin, that's true and Ethereum currently the theorem is
• 16:17
  Speaker 1: moving away from expensive hardware, burning of electricity, a lot
• 16:22
  Speaker 1: of wasteful computation to a system called proof of steak
• 16:25
  Speaker 1: which replaces all of that waste with a system that
• 16:30
  Speaker 1: is facilitated by an economic bond basically money that you
• 16:34
  Speaker 1: place in a smart contract on the blockchain in order
• 16:37
  Speaker 1: to enable um YouTube probabilistically be selected to be a
• 16:42
  Speaker 1: leader for a next round. Joseph Luban, I'm gonna just
• 16:47
  Speaker 1: sort of take a off ramp for just a second
• 16:50
  Speaker 1: because I need and just to mention as the founder
• 16:53
  Speaker 1: of consensus, Uh, you're working in a variety of different
• 16:57
  Speaker 1: kind of areas of related to block chain. What how
• 17:01
  Speaker 1: would you describe or is there a good analogy that
• 17:04
  Speaker 1: you can offer so we can understand what is a
• 17:06
  Speaker 1: distributed application platform and why is that relevant to understanding
• 17:13
  Speaker 1: all of this conversation about bitcoin or blockchain technology. So
• 17:18
  Speaker 1: Ethereum is a platform that enables decentralized applications. UM we
• 17:24
  Speaker 1: like to think of it as one element of becoming
• 17:27
  Speaker 1: decentralized Worldwide Web or the Web three point oh. It
• 17:30
  Speaker 1: will be the infrastructure for trusted transactions, for automated agreements.
• 17:34
  Speaker 1: There are other elements of decentralizing technology like decentralized storage,
• 17:38
  Speaker 1: decentralized bandwidth, decentralized high throughput compute, UM and UH. These
• 17:44
  Speaker 1: sort of elements will enable us to move away from
• 17:47
  Speaker 1: a business versus consumer kind of infrastructure for delivering services
• 17:52
  Speaker 1: to infrastructures on protocol driven open platforms that have lots
• 17:57
  Speaker 1: of different actors in different roles in insided markets and
• 18:01
  Speaker 1: basically emerging ecosystems that offer sets of services to consumers.
• 18:06
  Speaker 1: So none of those will there be um an actor
• 18:10
  Speaker 1: that's overly controlling or overly monetizing. So, for example, let's
• 18:14
  Speaker 1: say you wanted to make a purchase of a product overseas.
• 18:19
  Speaker 1: The bank or banking institutions, whether they be with the
• 18:23
  Speaker 1: buyer and the seller, they currently are in between the
• 18:28
  Speaker 1: two intermediaries to intermediaries, right, So you what you're saying
• 18:33
  Speaker 1: is that this new platform is a step in the
• 18:37
  Speaker 1: direction of getting rid of those banks in between, so
• 18:42
  Speaker 1: that now you can in a trusted way transact business
• 18:46
  Speaker 1: financial business directly between the buyer and seller with knowing
• 18:51
  Speaker 1: to me absolutely. So we've stood up a bunch of
• 18:54
  Speaker 1: different platforms. They're in different states of maturities. Some of
• 18:57
  Speaker 1: them are launched on the Ethereum blockchain already. Um they
• 19:00
  Speaker 1: enable certain intermediaries to be squeezed out of the situation,
• 19:04
  Speaker 1: or certain amounts of value that intermediaries pull from the
• 19:08
  Speaker 1: infrastructure to be right sized because there's less friction less,
• 19:12
  Speaker 1: less rent seeking possible. So we built platforms for prediction
• 19:16
  Speaker 1: markets or wisdom markets. We built an adjacent music industry platform.
• 19:20
  Speaker 1: We've built a supply chain platform. We've built a fixed
• 19:24
  Speaker 1: income reference data platform. So we're kind of all over
• 19:26
  Speaker 1: the map. We've got about twenty five different projects along
• 19:29
  Speaker 1: those lines. You're gonna have to spend more time with us,
• 19:32
  Speaker 1: because I'm just slightly beginning to understand and that's dangerous,
• 19:37
  Speaker 1: as I'm sure you know. Thank you very much for
• 19:39
  Speaker 1: being here. Joseph Luban is the founder of a Consensus
• 19:43
  Speaker 1: and he can be followed on Twitter at Ethereum Joseph,
• 19:46
  Speaker 1: or at Ethereum project or at Consensus. Thank you welcome
• 20:04
  Speaker 1: a burger that doesn't have any meat in it that
• 20:07
  Speaker 1: doesn't require killing an animal that tastes as good as
• 20:10
  Speaker 1: one that does. Impossible or perhaps the impossible Burger? Would
• 20:14
  Speaker 1: you would you think of that him? He's really his eyes. No,
• 20:17
  Speaker 1: I'm smiling. I like the Impossible Food enjoining us to
• 20:22
  Speaker 1: talk about the impossible foods. The Impossible Burger is David Lee,
• 20:27
  Speaker 1: chief operating officer and chief financial officer of Impossible Food. So, David,
• 20:32
  Speaker 1: what is the impossible Burger? Well, the impossible Burger is
• 20:37
  Speaker 1: the only plant based burger that half the time hardcore
• 20:40
  Speaker 1: meat eaters prefer blind versus a burger from a cow.
• 20:44
  Speaker 1: It's it's this miracle burger that uses less land and
• 20:49
  Speaker 1: only a quarter of the water and releases a fraction
• 20:52
  Speaker 1: of the greenhouse gases. What's it made out of? So
• 20:54
  Speaker 1: this burger is entirely made out of plants. And what's
• 20:57
  Speaker 1: interesting about it is it's four major ingredients are designed
• 21:00
  Speaker 1: to be affordable and accessible at scale, and they're natural.
• 21:04
  Speaker 1: So there's nothing synthetic or strange about this burger. It's
• 21:06
  Speaker 1: it just makes for a craveable burger for a meat
• 21:09
  Speaker 1: eater entirely made out of plants. Okay, let's let's just
• 21:11
  Speaker 1: talk a little bit about the science if we can. Uh.
• 21:14
  Speaker 1: This was founded in by Patrick Brown right at the
• 21:20
  Speaker 1: Stanford Okay. And what is the process by which you
• 21:26
  Speaker 1: create the impossible uh burger? I want to get to
• 21:31
  Speaker 1: this idea of using hem as a term. And it
• 21:35
  Speaker 1: is an iron compound and iron based compound that hemoglobin
• 21:39
  Speaker 1: is the way I understand right. So so Pat Brown
• 21:42
  Speaker 1: to your point. Six years ago, working very hard over
• 21:45
  Speaker 1: a period of four years, with a number of great scientists, discovered,
• 21:49
  Speaker 1: among other things, what makes me taste and feel and
• 21:52
  Speaker 1: smell like meat. And it turns out this magic molecule
• 21:56
  Speaker 1: hem h E m E is the only thing that
• 21:59
  Speaker 1: can make eat seem meaty to a meat eater. Um.
• 22:02
  Speaker 1: And then not only did he discover this, he discovered that,
• 22:05
  Speaker 1: you know, he is a building block of life. It's
• 22:07
  Speaker 1: in my globe, boom and animals, it's in hem global
• 22:10
  Speaker 1: in us, but it's also in plants. Um. Lastly, he
• 22:14
  Speaker 1: figured out a way, using a great industrial process, fermentation,
• 22:18
  Speaker 1: to make this magic molecule originally found in a plant,
• 22:23
  Speaker 1: scalable and affordable and at high quality. And that's how
• 22:27
  Speaker 1: that's how this burger is delicious for meat eaters. So
• 22:30
  Speaker 1: Impossible Foods is still currently just selling it's uh me
• 22:35
  Speaker 1: to put in quotes h two restaurants, Is that correct,
• 22:38
  Speaker 1: It's not sort of in the grocery storage. Yeah. For
• 22:40
  Speaker 1: now we are serving that half of the US ground
• 22:43
  Speaker 1: beef market, which is sold through food service and restaurants.
• 22:46
  Speaker 1: So I just want to talk about the vision here
• 22:48
  Speaker 1: because I know that Bill Gates is an investor in
• 22:51
  Speaker 1: the company. Of course, Bill Gates known from founding Microsoft. Um,
• 22:55
  Speaker 1: what's the sort of ambition, what's the sort of longer
• 22:58
  Speaker 1: term plan here for hospital fits? Well, our investors are
• 23:02
  Speaker 1: aligned to the very large ambition we have. We want
• 23:05
  Speaker 1: our impact to be seen from outer space. We want
• 23:08
  Speaker 1: every meat eater on the planet to happily choose an
• 23:12
  Speaker 1: impossible version of meat made entirely out of plants. Because
• 23:15
  Speaker 1: if we can do that, then we can use a
• 23:17
  Speaker 1: fraction of the world's resources while providing that delicious, cravable
• 23:21
  Speaker 1: taste that we all know meat eaters are not going
• 23:23
  Speaker 1: to forego. That's the ambition of the company, and I
• 23:26
  Speaker 1: would imagine the ambition is also to make some money,
• 23:29
  Speaker 1: because you've raised more than a quarter billions so far
• 23:31
  Speaker 1: in venture capital. I believe, like two hundred and fifty
• 23:34
  Speaker 1: seven millions that well, our investor base goes beyond venture capital.
• 23:38
  Speaker 1: It certainly does include great vcs like CoA, STLA, but
• 23:41
  Speaker 1: it now includes sovereign wealth funds Singapore. Right, that's right,
• 23:46
  Speaker 1: and on our investor base to your point, they're terribly
• 23:49
  Speaker 1: interested in the size of business we're building, and we
• 23:52
  Speaker 1: believe this financial engine that we're creating, to your point,
• 23:55
  Speaker 1: is what's required to fund the mission. So absolutely we're
• 23:58
  Speaker 1: interested in business in return. What's the cost of impossible
• 24:03
  Speaker 1: meat in quotes relative to uh similar grade of beef.
• 24:08
  Speaker 1: So we like to point out that since our burger
• 24:11
  Speaker 1: uses you know, less land and only a quarter of
• 24:15
  Speaker 1: the water, that small amount of resources translates into a
• 24:19
  Speaker 1: burger that can be extremely cost competitive. Um. So, while
• 24:23
  Speaker 1: we aren't releasing actual figures, the reality is we wouldn't
• 24:26
  Speaker 1: be successful as a business or for our mission if
• 24:29
  Speaker 1: we can't serve the globe extremely cost efficiently as or
• 24:33
  Speaker 1: below the cost of commodity ground beef at scale. David,
• 24:37
  Speaker 1: you're you've got a production facility that's being constructed, I
• 24:40
  Speaker 1: believe in Oakland right now. It's actually for the last
• 24:43
  Speaker 1: two months pump and running. Okay, if we went there,
• 24:46
  Speaker 1: what would we see? What would we smell? First, you
• 24:49
  Speaker 1: are welcome to come. Here's what you wouldn't see or smell.
• 24:52
  Speaker 1: You wouldn't see a slaughterhouse. You wouldn't see the expense
• 24:55
  Speaker 1: associated with shipping animals. What you would see is an
• 24:58
  Speaker 1: extremely clean, of efficient, simple finished goods manufacturing facility. One
• 25:04
  Speaker 1: by the way, that reused in existing bakery of all things.
• 25:08
  Speaker 1: Because our mission is to make sure that we do
• 25:10
  Speaker 1: things as sustainably and cost efficiently as possible. Right, But
• 25:13
  Speaker 1: what what would we see? I mean? What is it
• 25:14
  Speaker 1: a production line? Is it a huge extruding machines? What
• 25:20
  Speaker 1: kind of it's nearly seventy square feet it you'll see
• 25:23
  Speaker 1: produced off the line up to one point four million
• 25:27
  Speaker 1: pounds a month when we're at capacity today, you know
• 25:29
  Speaker 1: we're ramping up. It's only been open for two months,
• 25:32
  Speaker 1: but you would see real product being shipped off the
• 25:34
  Speaker 1: line to two more and more customers. So is the
• 25:37
  Speaker 1: idea or is the possibility here simply ground beef or
• 25:42
  Speaker 1: could there be some kind of replica of different cuts
• 25:46
  Speaker 1: and sort of The more intact slices of beef are
• 25:51
  Speaker 1: are you know, our mission and ambition goes way beyond
• 25:54
  Speaker 1: impossible burger. You know, we have the technology to do
• 25:56
  Speaker 1: plant based chicken, plant based fish, pork, even a dairy platform. Um.
• 26:02
  Speaker 1: I've seen prototypes of whole cuts of steak, of prototypes
• 26:07
  Speaker 1: of eggs um. We've already seen the products served quite
• 26:10
  Speaker 1: well in Asia in the form of dumplings or abow um.
• 26:14
  Speaker 1: This is a technology that spans multiple geographies and products.
• 26:17
  Speaker 1: What's the biggest headwind for you right now? You know,
• 26:20
  Speaker 1: I like to say that technology has now been eliminated
• 26:22
  Speaker 1: as a headwind, and it's all about good old fashioned execution.
• 26:25
  Speaker 1: You know, with the amount of growth and the amount
• 26:27
  Speaker 1: of demand that's ahead of us, we have to continuously
• 26:30
  Speaker 1: grow at high quality, and that's what we're focused on.
• 26:33
  Speaker 1: What has been the reaction by the Food and Drug Administration,
• 26:36
  Speaker 1: because I understand that you want them to confirm that
• 26:39
  Speaker 1: it's safe to eat, but they've expressed concerns mainly because
• 26:43
  Speaker 1: this stuff has not really been consumed by human beings
• 26:46
  Speaker 1: in any quantity and might even be an allergy or
• 26:50
  Speaker 1: an allergen for some people. Well, actually, we've been generally
• 26:52
  Speaker 1: recognized as safe since and we have been working with
• 26:56
  Speaker 1: the FDA for the last several years and and really
• 26:58
  Speaker 1: a gold standard of safety that very very few food
• 27:01
  Speaker 1: companies seek. Um in what's breaking news in in the
• 27:05
  Speaker 1: last couple of weeks, it's actually public. We believe in
• 27:07
  Speaker 1: radical transparency, so any consumer it can go read the
• 27:10
  Speaker 1: over thousand page filing we recently provided the FDA, having
• 27:14
  Speaker 1: complied with every possible test we could think of to
• 27:17
  Speaker 1: convince the world just how safe this product is. I
• 27:20
  Speaker 1: like to think this product maybe the most well tested
• 27:23
  Speaker 1: food product you'll ever come across. Soy leg hemoglobin that's
• 27:28
  Speaker 1: technical term, that's right. I mean what it really means
• 27:31
  Speaker 1: is heam the same heame that you see in a
• 27:32
  Speaker 1: burger from a cow, but sourced from a leg, you
• 27:36
  Speaker 1: a plant. Well, we look forward to giving it a try.
• 27:39
  Speaker 1: Thanks very much. David Lee is the chief operating officer
• 27:42
  Speaker 1: and the chief financial officer of Impossible Foods, all about
• 27:47
  Speaker 1: their plant based burgers. Thanks for listening to the Bloomberg
• 27:57
  Speaker 1: P and L podcast. You can subscribe and listen interviews
• 28:00
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 28:05
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 28:08
  Speaker 1: on Twitter at Lisa Abramo wits one before the podcast.
• 28:11
  Speaker 1: You can always catch us worldwide on Bloomberg Radio