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How to Invest in Future Unicorn IPOs · Trillions

0:05
Speaker 1: Okner trillions.
0:06
Speaker 2: I'm Joe Webber and I'm Eric Belchernas.
0:11
Speaker 3: Eric, I'm really excited about today's episode, but you're probably
0:14
Speaker 3: even more excited about it.
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Speaker 2: Yeah, because I have been writing about this topic for
0:19
Speaker 2: like the past month heavily.
0:20
Speaker 3: And would you want to tell us what that your
0:22
Speaker 3: topic is?
0:23
Speaker 2: Ever since SpaceX became like, you know, potential IPO biggest
0:27
Speaker 2: ever probably, there's been this really intense interest in okay
0:32
Speaker 2: which ETFs hold private companies. And there's one XOVR which
0:36
Speaker 2: we've gone over several times, the public privates crossover that
0:39
Speaker 2: has a little bit of SpaceX, almost like a little
0:41
Speaker 2: copper wire inside an air conditioning unit, gives the whole
0:44
Speaker 2: unit value. And all these people have flooded this ETF
0:48
Speaker 2: just to get a tiny little piece of SpaceX. And
0:51
Speaker 2: that really has shown me that there is intense interest
0:53
Speaker 2: to get private companies in the ETF rapper.
0:57
Speaker 3: How much SpaceX does it help?
0:58
Speaker 2: It started like ten percent, but as more people came
1:01
Speaker 2: into the fund and the assets grew, the percentage shrunk
1:04
Speaker 2: to late it's like three and so it's I don't
1:07
Speaker 2: think it's worth it at this point to buy that.
1:10
Speaker 2: So as I was researching other ETFs that had private companies.
1:13
Speaker 2: We only found three, but there's tons of mutual funds
1:17
Speaker 2: with private companies, and probably the one that's the most
1:21
Speaker 2: full of like the coolest hot private companies is the
1:25
Speaker 2: ARC Venture Fund, which is from ARC. It was launched
1:29
Speaker 2: in twenty twenty two, kind of you know, rate sort
1:32
Speaker 2: of on the back end of ARC mania, and this
1:35
Speaker 2: has got some of the it's got SpaceX, it's got
1:38
Speaker 2: open AI, Neurlink XAI, on and on, and the weightings
1:44
Speaker 2: are high, you know, between eight percent, seven percent, six percent.
1:49
Speaker 2: The problem is it's a mutual fund. So it's interesting
1:52
Speaker 2: to me this fund is outperforming the S and P
1:54
Speaker 2: five hundred by forty five percentage points, so it's done
1:57
Speaker 2: its job. But it's got five hundred million in assets,
2:00
Speaker 2: which isn't nothing. But you know, XOVR has like one
2:04
Speaker 2: point five billion and it's got three percent SpaceX ron
2:07
Speaker 2: BAARN has some mutual funds which similarly also owns some
2:10
Speaker 2: of these private companies, and it has not seen inflows,
2:14
Speaker 2: and Fidelity has a couple and it's seen outflows. So
2:17
Speaker 2: it's kind of like an interesting moment here where you've
2:21
Speaker 2: got ETFs starting to dabble in this. Mutual funds have
2:23
Speaker 2: done it traditionally, and to me, ARC is perfectly placed
2:26
Speaker 2: because they have the one with the most private companies.
2:28
Speaker 2: But they also were experts in ETFs and so I
2:31
Speaker 2: just wanted to get their take on this because I
2:33
Speaker 2: think there's going to be increasing interest to get ahead
2:35
Speaker 2: of some of these IPOs through the ETF format or
2:39
Speaker 2: if the mutual funds can make the case through that format.
2:42
Speaker 3: So of course ARC is led by CEO and chief
2:46
Speaker 3: investment offer to Kathy Woods. She's going to be joining us.
2:48
Speaker 3: She's done on the podcast before, but we've never had
2:51
Speaker 3: a couple other members of her team, So joining us
2:54
Speaker 3: also going to be Brett Winton, who's the chief Future
2:57
Speaker 3: Officer at ARC, and Charlie Roberts, who's the chief Investment
3:01
Speaker 3: Structures of Private Equity. These three are the brain trusts
3:04
Speaker 3: behind the ARC Venture Fund ticker A R and k X,
3:10
Speaker 3: this time on Trillions ARC Venture Fund. Kathy, Brett, Charlie,
3:16
Speaker 3: Welcome to Trillions.
3:17
Speaker 1: Thank you, it's great to be here.
3:18
Speaker 4: Yeah, thanks so much for having us. Looking forward to
3:20
Speaker 4: the conversation.
3:21
Speaker 5: Yeah, very excited to be on your show again. And congratulations.
3:26
Speaker 5: I think you're almost ten years old.
3:27
Speaker 3: Yeah, there's we're having a debate.
3:29
Speaker 2: Look like an.
3:31
Speaker 3: Angry married couple that can't keep track of their anniversary. Kathy,
3:35
Speaker 3: I want to start with you. ARC is really synonymous
3:38
Speaker 3: in my mind with ETFs. So what problem were you
3:42
Speaker 3: trying to solve that you know, the ETF structure couldn't
3:45
Speaker 3: provide when you dreamed up the venture fund.
3:49
Speaker 5: Well, a few things. Early on, we were looking at
3:53
Speaker 5: the best way to democratize venture capital for our client base,
4:00
Speaker 5: and of course we would have naturally gone to ETFs,
4:06
Speaker 5: given that's pretty much all we do. And then we
4:11
Speaker 5: examined the structure and a big drawback for us, given
4:15
Speaker 5: that we wanted to start a venture capital fund, A
4:19
Speaker 5: big drawback was the fifteen percent ill liquidity clause. You
4:24
Speaker 5: can't have more than fifteen percent in ill liquid assets,
4:28
Speaker 5: and so we just kill an ETF wrapper, and so
4:32
Speaker 5: we started casting around. I'm going to give Tom Stout,
4:35
Speaker 5: our president and COO, a lot of credit for this.
4:39
Speaker 5: We didn't We wanted to provide venture for our client base,
4:44
Speaker 5: much of which is not accredited, and we happened upon
4:48
Speaker 5: the interval fund structure. So it's not I don't know
4:52
Speaker 5: technically it's a mutual fund. I don't think it is.
4:54
Speaker 5: I think it's an interval fund. But you know, when
4:58
Speaker 5: you're talking about regulation and sometimes you know you've got
5:02
Speaker 5: the mutual funds and the ETFs, both forty Act funds.
5:07
Speaker 5: The interval fund is a forty Act fund, but I
5:10
Speaker 5: don't think it's a mutual fund. In that fund structure,
5:14
Speaker 5: we've been able to populate it with on average eighty
5:20
Speaker 5: percent private exposure and twenty percent public. We have daily
5:26
Speaker 5: inflows minimum five hundred dollars, quarterly outflows up to five
5:32
Speaker 5: percent of nav and so we need the public positions
5:37
Speaker 5: so that we can provide liquidity if our client's demanded
5:42
Speaker 5: at the end of a quarter.
5:43
Speaker 2: That is a good point. This is a non diversified
5:45
Speaker 2: closed end management investment company that is an interval fund.
5:50
Speaker 2: And that's why like the Fidelity and Baron funds that
5:53
Speaker 2: own privates, it's in the fifteen percent that said, if
5:57
Speaker 2: it grows beyond, you're allowed to keep it. That's why
5:59
Speaker 2: SpaceX is a little more in Ron Baron's fund. But
6:02
Speaker 2: the long and short of it is an actual mutual
6:03
Speaker 2: fund can't hold more than fifteen percent of liquid or
6:05
Speaker 2: an ETF. This fund can hold more as an interval
6:08
Speaker 2: closed then fund, and that is why this one kind
6:11
Speaker 2: of is the most interesting to me because it's full
6:13
Speaker 2: of the companies. So that's a good point, thank you.
6:18
Speaker 4: And just critically it's it's closed in, but it prices
6:21
Speaker 4: at NAV as in there's some closed in funds that
6:24
Speaker 4: are out there. They're like, here's a basket of goods,
6:27
Speaker 4: buy it for what you want, and then it gets
6:29
Speaker 4: bid up and you're you're paying a dollar to get
6:32
Speaker 4: fifteen cents, you know, And that's clearly not a structure
6:36
Speaker 4: we were attracted to either, and so you should think
6:38
Speaker 4: of even remember back when you were interviewing Kathy and
6:41
Speaker 4: we were doing actively managed ETFs, and you know who
6:45
Speaker 4: does that. Nobody wants actively managed gts. People want me
6:49
Speaker 4: massive ETFs. That's why would you do this? Well, here
6:51
Speaker 4: we it would be really nice if we thought we
6:54
Speaker 4: could like do real venture exposure in an ETF. But
7:00
Speaker 4: we looked around the entire landscape and as Kathy said,
7:03
Speaker 4: Tom identified the interval fund structure which was originally intended
7:06
Speaker 4: for venture capital but was never used for that, and said,
7:10
Speaker 4: this is the right vehicle to provide everybody with access
7:15
Speaker 4: to first class venture exposure, including Neuralink, SpaceX Xai, Open Ai,
7:22
Speaker 4: Tropic Replet, you know, all of these companies that actually
7:26
Speaker 4: for SpaceX's AI compute adventure to work, you need these
7:32
Speaker 4: other companies to do very well as well, and so
7:34
Speaker 4: it provides you a full suite of exposure to the
7:37
Speaker 4: first class venture companies.
7:39
Speaker 2: I think the reason it has mutual fund kind of
7:43
Speaker 2: it looks like one is the five litter ticker. You know,
7:45
Speaker 2: all mutual funds have five litter tickers, Ends and X.
7:48
Speaker 2: But I think more than that, it just seems to
7:50
Speaker 2: be like in this era, like people generally just want
7:53
Speaker 2: everything in an ETF, and there's a lot of people
7:58
Speaker 2: who felt maybe burned in mutual funds in the past.
8:01
Speaker 2: And clothing funds aren't exactly like stellar reputation either because
8:05
Speaker 2: they traded these big discounts. So I think part of
8:08
Speaker 2: the challenge for fun like this is being in that
8:11
Speaker 2: camp and not being able to use the ETFs halo.
8:16
Speaker 5: Can I just correct one thing, Eric, We do not
8:20
Speaker 5: trade at a discount or a premium. Ever. We actually
8:26
Speaker 5: we sell at nav and end. Our pricing committee really
8:33
Speaker 5: is working to price the portfolio every day. If there's
8:36
Speaker 5: anything going on in any of the private funds, We're
8:40
Speaker 5: all over it in terms of valuation, whether it's on
8:43
Speaker 5: the secondary markets or the mutual funds themselves. If we
8:49
Speaker 5: look at their marks at the end of a quarter
8:51
Speaker 5: and we see we're not aligned, we'll go back and
8:56
Speaker 5: do due diligence to either defend our price or or
9:00
Speaker 5: change it so we don't sell at a premium or
9:04
Speaker 5: a discount. It's a huge selling point for us.
9:08
Speaker 3: Charlie, I want to bring you in because we haven't
9:10
Speaker 3: heard from you yet. How does a strategist who now
9:12
Speaker 3: has an interval fund that you're going to fill with
9:14
Speaker 3: VC or P exposure, how do you go figuring out
9:18
Speaker 3: how do you go about figuring out what exactly you
9:20
Speaker 3: want to put in the fund?
9:21
Speaker 1: Sure?
9:22
Speaker 6: Well, if I may also just quickly build off a
9:24
Speaker 6: couple of the points, one that Kathy made and one
9:27
Speaker 6: one that Brett made to Brett's.
9:29
Speaker 1: While they're related to Brett's.
9:31
Speaker 6: Point, the you know, we don't have these wild swings
9:34
Speaker 6: in prices, either to the upside or the downside because
9:38
Speaker 6: of the way we do value and price. And a
9:42
Speaker 6: critical point there is, of course that what really matters
9:45
Speaker 6: on the private side as much as anything, as well
9:47
Speaker 6: as doing great research selecting companies. Well, it's all about
9:50
Speaker 6: getting into companies. It's not just like you can go
9:53
Speaker 6: on in exchange and buy the asset you want right.
9:55
Speaker 6: In fact, if anything, that is perhaps the defining skill
9:59
Speaker 6: set that actually is required to turn ideas into a portfolio,
10:03
Speaker 6: and the companies do not. The portfolio companies, certainly many
10:06
Speaker 6: of that we've spoken to do not want to be
10:09
Speaker 6: in some sort of a structure which allows their price
10:12
Speaker 6: to be dictated by a bid us spread essentially in
10:15
Speaker 6: a you know, supplying demand and to be bid up
10:17
Speaker 6: or bid down because they don't want to be part
10:19
Speaker 6: of the portfolio that's way under and and sort of
10:22
Speaker 6: get all the negative halo from that. They also just
10:25
Speaker 6: don't want the.
10:26
Speaker 1: To be seen.
10:28
Speaker 6: They don't want people to try and back into their
10:30
Speaker 6: pricing in different ways, and they just don't want that
10:32
Speaker 6: volatility and variability.
10:33
Speaker 1: So that's what I mean.
10:34
Speaker 3: They're private, right, It's like, why why would I want
10:36
Speaker 3: the house of the public market exactly.
10:39
Speaker 6: It's right all downside for them from their view, sometimes
10:42
Speaker 6: depends on the stage of the company. The other thing,
10:44
Speaker 6: as well, to Kathy's point, is because we care so
10:48
Speaker 6: much about a very good pricing process and evaluation being
10:52
Speaker 6: appropriate and correct, and that the true market price at
10:56
Speaker 6: the time, factoring in you know, immedia and longer term signals.
11:00
Speaker 6: So something I sometimes say to people we're discussing the
11:03
Speaker 6: fund that's quite important to bear in mind as well,
11:05
Speaker 6: is as well as wanting to do the right thing
11:08
Speaker 6: and having the right price, we're obviously absolutely incentivized by
11:12
Speaker 6: the market mechanisms around the fund to be right up
11:15
Speaker 6: the fair way when it comes to price. What I
11:17
Speaker 6: mean by that is, obviously, on one level, it would
11:20
Speaker 6: be good for the fund if you were to presume
11:21
Speaker 6: that we were just acting out of self interest, it
11:23
Speaker 6: would be good for the fund obviously for the price
11:25
Speaker 6: to continue or scope go up because the performance looks great. However,
11:29
Speaker 6: because we're redeeming and have providing liquidity up to five
11:31
Speaker 6: percent of the fund every quarter, the last thing we
11:34
Speaker 6: want is to be redeeming against the companies whose price
11:37
Speaker 6: we do not believe in and has gone to the upside.
11:39
Speaker 6: So it's a really important things to think about that
11:41
Speaker 6: mechanism as well, and the fact that we're absolutely incentivized
11:44
Speaker 6: for the price to be right, which is why to
11:46
Speaker 6: Kathy's point, we spend so much, you know, calories and
11:50
Speaker 6: really put in place very good structures which are all
11:52
Speaker 6: third party observed and audited to make sure that the
11:56
Speaker 6: valuation is correct.
11:58
Speaker 5: I'd love to have Brett and Charlie address the real
12:03
Speaker 5: secret sauce of how we put this portfolio together. And
12:09
Speaker 5: it's a familiar refrain you'll hear from ARC. You hear
12:12
Speaker 5: it all the time. Research research, research, research, and our
12:17
Speaker 5: analysts on the public equities are the same analysts on
12:22
Speaker 5: the private companies. We think these two worlds are coalescing.
12:27
Speaker 5: So maybe Brett or Charlie, you'd like to go through
12:31
Speaker 5: the research angle.
12:33
Speaker 4: Sure, you know, we in we co wrote a white
12:38
Speaker 4: paper with Coinbase when they were raising their Series B
12:42
Speaker 4: and at the time I remember in conversation with them,
12:44
Speaker 4: They're like, oh, you should invest, and I was like, well,
12:47
Speaker 4: we would love to invest, we just don't have a
12:49
Speaker 4: client vehicle that allows us to invest. And so from
12:54
Speaker 4: the beginning, because our analysts are focused technology by technology
12:58
Speaker 4: rather than bisector and doing the hard work of figuring
13:02
Speaker 4: out the cost of clients and the unit economic cases
13:04
Speaker 4: for these technologies, they're in conversation with private companies already
13:09
Speaker 4: they have to be in order to do their work.
13:11
Speaker 4: And so you know, over a decade, we've built up
13:14
Speaker 4: a lot of relationships with these companies that are now
13:16
Speaker 4: in later stage, including you know, the SpaceX's and of
13:21
Speaker 4: course the neuralinks and the Elon companies, but also other
13:24
Speaker 4: kind of AI and and all technology platform focused companies.
13:29
Speaker 4: And so the a difference between what we do and
13:33
Speaker 4: you know, some of the mutual fund structures and certainly
13:35
Speaker 4: some of the closed in fund structures is we're direct
13:39
Speaker 4: on cap table with the companies. We're in conversation with management.
13:43
Speaker 4: We we underwrite the companies in the same way we
13:46
Speaker 4: do the public portfolio. So there's been plenty of times
13:48
Speaker 4: where we've been like, well, this is interesting, provocative, and
13:52
Speaker 4: it doesn't underwrite. Well, so we're not going to participate
13:55
Speaker 4: because ultimately, you know, we're operating on behalf of our
13:58
Speaker 4: clients to deliver you know, best return possible in these
14:01
Speaker 4: venture exposures. And so both the credibility we've established in
14:07
Speaker 4: doing innovation research over a decade, the degree to which
14:11
Speaker 4: we've shown that we are a founder friendly and we
14:13
Speaker 4: back founders to the hilt when we really believe that
14:15
Speaker 4: in what they're doing, and kind of our ability to
14:19
Speaker 4: assess and give kind of strategic guidance to companies but
14:22
Speaker 4: also assess whether or not it's a good exposure for
14:25
Speaker 4: our client really shapes the portfolio that we've developed. And then,
14:30
Speaker 4: like Charlie said, and he's really the tip of the
14:32
Speaker 4: sphere here. Also, you know, making sure that we can
14:35
Speaker 4: get into and participate in the rounds that we're interested
14:39
Speaker 4: in is a huge, hairy amount of work, and we
14:42
Speaker 4: do so almost uniformly cleanly, direct on cap table, with conversations,
14:48
Speaker 4: directly with management, access to data room, so that we
14:52
Speaker 4: avoid also paying additional fees for SPV exposures or for oh,
14:57
Speaker 4: this is an indirect exposure through some kind of forward
15:00
Speaker 4: agreement with some employee who says he's going to sell
15:03
Speaker 4: us our shares where you don't actually know if it's
15:05
Speaker 4: going to come true. And so some of these structures
15:08
Speaker 4: it's like, yes, I have exposure to you know, name
15:10
Speaker 4: company X, but do you really have exposure You don't
15:13
Speaker 4: actually know. So we are very certain of our underlying
15:17
Speaker 4: exposures as well.
15:18
Speaker 5: That's a really important point, Eric, just that if you
15:22
Speaker 5: look at the funds you've mentioned, who hold private not
15:26
Speaker 5: ron barons, of course, and I'm not quite sure about
15:30
Speaker 5: all of them, but invariably, as we have looked at
15:34
Speaker 5: these funds, they are populated, if they own much at all,
15:40
Speaker 5: by SPVs, so special purpose vehicles. And so what's happening
15:46
Speaker 5: is the clients of those funds are paying fees upon
15:50
Speaker 5: fees upon fees. Sometimes they're triple aer SPVs. And I
15:56
Speaker 5: will tell you, we know this that the private companies
16:01
Speaker 5: in which we're invested, they do not want to be
16:04
Speaker 5: part of SPV vehicles. They do not they want to
16:09
Speaker 5: know their shareholders.
16:18
Speaker 2: So something like XOVR owns the SpaceX SPV. So somewhere
16:22
Speaker 2: along the lines, somebody took some of the shares of
16:25
Speaker 2: SpaceX that were private and put them into this other vehicle.
16:29
Speaker 2: The ETF then buys that on some kind of an exchange.
16:33
Speaker 2: You guys go out and you're like almost an actual
16:36
Speaker 2: VC investor where you're part of the rounds, so you're
16:40
Speaker 2: skipping the SPV. You're direct And just give me a
16:45
Speaker 2: little bit of a macro. Look here, if SpaceX has
16:50
Speaker 2: x amount of shares out there held by private people
16:54
Speaker 2: or help privately, what percentage of them are in SPVs, like,
16:57
Speaker 2: is the SPV market big or small? And should you
17:00
Speaker 2: avoid it at all costs or is it sometimes the
17:02
Speaker 2: only way to do it?
17:04
Speaker 5: Can I just before we answer that question, and I
17:07
Speaker 5: think you'll be interested in this, Eric, from the ETF
17:10
Speaker 5: point of view, we have tried, because we do have
17:14
Speaker 5: direct contact with these companies. We have encouraged, you know,
17:20
Speaker 5: especially our highest conviction names to become a part of
17:26
Speaker 5: our ETFs, and we have close relationships with these companies
17:32
Speaker 5: and they have they have refused us, and it is
17:36
Speaker 5: why you probably see Fidelity owning private companies in its
17:42
Speaker 5: mutual funds, but not ETFs. So I just wanted to
17:47
Speaker 5: make that clear in terms of the size of the
17:50
Speaker 5: SPV market, it's burgeoning and it's clandestine, I would say,
17:54
Speaker 5: to some extent, but maybe Brett or Charlie you have
17:58
Speaker 5: a better answer than that. It's smile in the scheme
18:01
Speaker 5: of things.
18:02
Speaker 6: We have actually seen cases of the companies themselves canceling
18:06
Speaker 6: shareholdings two SPVs. So that's one other thing is that
18:09
Speaker 6: it's a rocky boat because of things like that.
18:12
Speaker 1: They've not there's various aspects they've not liked about it.
18:15
Speaker 6: There's some other SPVs that we've come across again, as
18:18
Speaker 6: Kathy says, while avoiding them because we're not doing them,
18:20
Speaker 6: but that we've heard of where actually the SPV doesn't
18:23
Speaker 6: even own the underlying asset and there so there is
18:26
Speaker 6: a bit of a wild west. Sometimes not in all
18:28
Speaker 6: cases by any means, but that there has been there
18:30
Speaker 6: are some examples. I don't think anyone knows exactly what
18:33
Speaker 6: proportion of SpaceX is in SPVs, but it's you know,
18:36
Speaker 6: as the company grows and all of these large late
18:38
Speaker 6: stage private companies, there has been a significant amount of
18:42
Speaker 6: SPV activity by and large across the space and but
18:46
Speaker 6: companies have been shutting down on making that possible around
18:50
Speaker 6: in their cap tables. In fact, many times there are
18:53
Speaker 6: specific reps and warranties against that in late stage private deals.
18:56
Speaker 6: So that that's another thing, is it's a there's a
18:58
Speaker 6: bit of a race to the bottom aspect to it.
19:00
Speaker 5: Many times the companies do not know how many layers
19:06
Speaker 5: of SPVs there are. Uh, and I think they're they're
19:11
Speaker 5: onto this now, so they're clamping down more and more
19:15
Speaker 5: on this activity.
19:17
Speaker 3: Okay, Charlie, I'm guessing that you get the job of
19:23
Speaker 3: approaching and flirting and saying, hey, private company, you're really
19:27
Speaker 3: cute and you know we've got a bag of money
19:30
Speaker 3: over here. Can you tell me how that pitch actually
19:33
Speaker 3: goes down? Clearly, there's a lot of legwork that you've
19:36
Speaker 3: all have established through years of doing the research, But
19:39
Speaker 3: when it actually comes down to like how do we
19:41
Speaker 3: how do we get in on the series X y Z,
19:44
Speaker 3: what's the pitch actually look like? Coming from from you?
19:48
Speaker 6: Absolutely, you're reminding me of a quote I once heard,
19:51
Speaker 6: I can't remember from whom it was, saying that the
19:54
Speaker 6: best training for being an entrepreneur was to have dated
19:56
Speaker 6: for several years before getting married. So maybe maybe there's
19:59
Speaker 6: a bit of that in this case. Yes, So I
20:03
Speaker 6: think the first thing is this picks up on an
20:05
Speaker 6: earlier question that I didn't quite get to answering. But
20:09
Speaker 6: one is, as Kathy's mentioned, we are absolutely research oriented,
20:13
Speaker 6: and so we know ahead of time we're pre studying
20:16
Speaker 6: these companies, and so we have a long research wish list,
20:19
Speaker 6: which gets narrowed down into a short list, which gets
20:22
Speaker 6: narrowed down into diligence lists. So because by and large
20:26
Speaker 6: we are not going I mean, in some cases we
20:28
Speaker 6: have actually done companies that are sort of in their
20:30
Speaker 6: process of coming out of stealth. In fact, we did
20:32
Speaker 6: the first external round for Xai because we're particularly close
20:36
Speaker 6: to that group for instance, and you know, there have
20:38
Speaker 6: been other examples, but typically we're going to companies that
20:41
Speaker 6: have got a bit further along, they have a bit
20:44
Speaker 6: of traction. We know that the company exists, so you know,
20:48
Speaker 6: usually we're investing post series A, sometimes that Series A,
20:50
Speaker 6: but typically BCD plus and pre IPO, et cetera. So
20:55
Speaker 6: that's the first thing to note. So we have enough
20:58
Speaker 6: grist for the mill of researchers where and we have
21:00
Speaker 6: something we can study. Typically we have some level of
21:03
Speaker 6: traction metrics, we can begin to look at the the
21:06
Speaker 6: growth and the traction and things like this that matter,
21:09
Speaker 6: and and and very often we're also looking at talent
21:11
Speaker 6: and talent flows in our app that's very a big,
21:14
Speaker 6: big factor for it, as as it is on the
21:16
Speaker 6: on the public side or a big market for us.
21:18
Speaker 6: So so so that's the first thing to know. The
21:21
Speaker 6: next thing maybe to say, is on top of the
21:25
Speaker 6: then the research and the firm view and quite a
21:28
Speaker 6: lot of you know, deep research based conviction or not.
21:31
Speaker 6: We then asset in what is the best if we
21:34
Speaker 6: want to have a conversation with this company, So we've
21:36
Speaker 6: prediscerned out quite a lot of companies. But if we
21:38
Speaker 6: want to then have a conversation to try and understand
21:40
Speaker 6: support what we believe or refute it, we will then
21:43
Speaker 6: reach out to the company. Now, either we'll go direct.
21:46
Speaker 6: We often have good founder and leadership relationships. Increasingly so
21:51
Speaker 6: we're also going via co investors. And this kind of
21:54
Speaker 6: comes to your question about why would co investors want
21:57
Speaker 6: us in. I think there's a really important point here.
21:59
Speaker 6: We we've thought a lot about this because we're not
22:02
Speaker 6: leading rounds and taking board seats, which is often how
22:04
Speaker 6: vcs add value or occasionally destroy value.
22:08
Speaker 1: We have Yeah, we.
22:14
Speaker 6: Definitely have decided well, as a predominantly passive investor, we
22:17
Speaker 6: want to be supportive in other ways.
22:19
Speaker 1: Now.
22:19
Speaker 6: The other ways can be follow on funding, for sure,
22:21
Speaker 6: and you know whether we're doing that ourselves or also
22:23
Speaker 6: helping companies get follow on funding. So there's lots of
22:26
Speaker 6: examples where we maintain a rich, broad and deep network
22:29
Speaker 6: of follow and investors so we can call on for
22:31
Speaker 6: our companies when they need to raise again. So that's
22:33
Speaker 6: one kind of obvious one, but a lot of people do,
22:35
Speaker 6: but we hope that's becoming a superpower or is a
22:37
Speaker 6: superpower of it, and our own check sizes are going
22:42
Speaker 6: up through time as the fund grows. So as you said,
22:44
Speaker 6: at the start, we're around five hundred million a UM,
22:46
Speaker 6: but already that's out of date because the fund's growing
22:48
Speaker 6: so fast. We're now five twenty one as of today,
22:51
Speaker 6: and actually we've been adding. Flows are around ten to
22:54
Speaker 6: twenty million a week at the moment, so the fund
22:57
Speaker 6: is growing fast and we're looking at soon unlocking lots
23:01
Speaker 6: of the folks like the wirehouses and others who have
23:04
Speaker 6: aarm and length of time track record thresholds, so a
23:09
Speaker 6: lot of those are kicking in. So we add value
23:11
Speaker 6: also ourselves through doing pro rut and super pro utter rounds,
23:14
Speaker 6: and typically if we have conviction, we build into these
23:16
Speaker 6: companies and obviously found doesn't leaders love that because it's
23:19
Speaker 6: a good signal, but it's also more capital. We also
23:22
Speaker 6: help in other ways. So other ones I can sort
23:26
Speaker 6: of quickly highlight are things like enterprise intros, where we
23:29
Speaker 6: have a fair superpower because we have obviously a lot
23:32
Speaker 6: a network obviously from over ten years of public investing,
23:36
Speaker 6: So there are many cases where we've been able to
23:38
Speaker 6: bring about an introduction between a twenty five person Series
23:41
Speaker 6: A startup and the C suite of one hundred billion
23:44
Speaker 6: plus dollar enterprise company. And obviously that's you know, pretty
23:48
Speaker 6: asymmetric and can be very useful, and in many cases
23:51
Speaker 6: that's led to revenue making collaborations and deal relationships and
23:55
Speaker 6: other things. So follower investors, enterprise introductions, other introductions, and
24:02
Speaker 6: then it also comes back to where it begins, which
24:04
Speaker 6: is with research and the open research ecosystem. So we
24:06
Speaker 6: love to tell companies to help companies tell their story
24:11
Speaker 6: and help with them think what is the best means
24:15
Speaker 6: of both make clarifying the story and then also telling it.
24:18
Speaker 6: So we've done that in a very tactical sense with
24:21
Speaker 6: webinars and blogs and things we focus a lot. And
24:24
Speaker 6: maybe it's a good time I can hand the MC
24:25
Speaker 6: back to Brett on market sizing, both top down and
24:28
Speaker 6: bottom up research. And one thing that we've consistently seen
24:32
Speaker 6: when we do go for these introductions, often via these
24:35
Speaker 6: top desk rvcs, we tend to co invest with. Honestly,
24:39
Speaker 6: very often we see that like a Series A or
24:41
Speaker 6: B company or whatever has used our market sizing or
24:46
Speaker 6: other slides from our research in their own decks, so
24:49
Speaker 6: we're getting to see those sort of played back to
24:51
Speaker 6: us as it were. So anyway, maybe that's a good
24:54
Speaker 6: time to hand back to Brett on the research driven
24:57
Speaker 6: side and where we get there in the first place.
24:58
Speaker 6: But to summarize, we add value in various different ways.
25:02
Speaker 1: Sorry.
25:02
Speaker 6: The final thing I'll say before handing the mic is
25:04
Speaker 6: increasingly we're also looking at magnifying and benefiting companies from
25:10
Speaker 6: our large You can think about this fun directionally, we
25:14
Speaker 6: hope and believe. I mean, it's already got many, many
25:16
Speaker 6: tens of thousands of small LPs essentially through the apps,
25:19
Speaker 6: in some cases some with tiny account sizes like five
25:21
Speaker 6: hundred dollars like ath you said, some with five million,
25:24
Speaker 6: and you know, increasingly we're seeing more institutional and RIA
25:26
Speaker 6: is coming as well. But directionally, maybe we have a
25:30
Speaker 6: million plus LPs essentially, and that's an audience of allies
25:35
Speaker 6: akin to what Elon, for instance, is seen with Tesla,
25:37
Speaker 6: where you have people who own a model hy and
25:40
Speaker 6: they also have TEESL stock, and you know, you get
25:42
Speaker 6: this feedback loop between the product and the ally and
25:46
Speaker 6: the stock. And so I think we're beginning to already
25:48
Speaker 6: see the first green shoots of that kind of thing,
25:50
Speaker 6: and we're beginning to industrialize that with things like talent
25:52
Speaker 6: marketplaces where we can repost the jobs to our pretty
25:55
Speaker 6: large audience that the firm has in Kathias.
26:00
Speaker 4: And just on the research side, one thing, you covered
26:03
Speaker 4: it very well, Charlie, in terms of the whole suite
26:06
Speaker 4: of things that we offer. And I'll circle back to
26:08
Speaker 4: the SPV point. If somebody, you know, we have the
26:11
Speaker 4: top down research and the analysts do really good underwriting
26:15
Speaker 4: of the underlying asset. When we started ARC, I expected
26:18
Speaker 4: that the work we would do would be very similar
26:20
Speaker 4: to venture capitalists. But as it turns out, many venture
26:24
Speaker 4: capitalists never open a spreadsheet, whereas our analysts, you know,
26:28
Speaker 4: spend all of their time forecasting and modeling. And if
26:31
Speaker 4: somebody invests in an SPV, that's a big blinking signal
26:35
Speaker 4: that they actually haven't had access to the underlying information
26:39
Speaker 4: of what's going on in the company to typically the
26:42
Speaker 4: SPV sponsor of saying, hey, this is what we hear
26:44
Speaker 4: is happening, and they're receiving it like a game of telephone.
26:46
Speaker 4: So there's no real effective way to do actually an
26:50
Speaker 4: underwrite of a position. And you know from I remember
26:54
Speaker 4: when Uber had its late stage private round and it
26:58
Speaker 4: basically priced at saturation, you know, it pr you know,
27:02
Speaker 4: it was given out to Morgan Stanley Advisors who didn't
27:05
Speaker 4: have information rights and iPod and I think it was
27:08
Speaker 4: dead money for three years on that round. And so
27:13
Speaker 4: you know, we pride ourselves on actually, you know, holding
27:16
Speaker 4: ourselves to an underwriting standard that delivers what we think
27:19
Speaker 4: is a great return for end clients and so and
27:23
Speaker 4: that can be helpful for companies as well, to say, listen,
27:26
Speaker 4: we're we're also the person that needs to hold your
27:28
Speaker 4: hand into the public markets, and this is how we're
27:31
Speaker 4: going to underwrite the position. So you know you should
27:34
Speaker 4: not you can do. A company can do damage to
27:37
Speaker 4: itself by raising it too high of evaluation at the
27:40
Speaker 4: wrong time, because it then doesn't set them up to
27:43
Speaker 4: kind of like bring more people onto the boat over time.
27:46
Speaker 4: And so that guidance can be important as well.
27:56
Speaker 2: So let me ask about the private nature this. So
28:01
Speaker 2: this fund is up I think one hundred and fifty
28:03
Speaker 2: percent since it came out. Obviously that's based on a
28:05
Speaker 2: nav that you give us. You calculate the NAV You
28:09
Speaker 2: obviously need the pricing of the holdings to do that.
28:12
Speaker 2: How do you price this stuff because like there was
28:14
Speaker 2: some controversy on XOVR, which is the ETF that holds it,
28:18
Speaker 2: which is he never marked to market the SPV that
28:21
Speaker 2: held SpaceX, but everybody knows it's worth like four x
28:25
Speaker 2: what he bought it for, but it's still marked at
28:27
Speaker 2: the old price, which is why I think he had
28:29
Speaker 2: some people coming in almost like buying something in a discount.
28:32
Speaker 2: How do you price the privates as time goes on
28:36
Speaker 2: and can you make a profit without them going public?
28:41
Speaker 5: I'll start and hand it off. So as I mentioned before,
28:47
Speaker 5: we have a pricing committee and it is monitoring constantly
28:54
Speaker 5: every day secondary markets to see what pricing is is
28:58
Speaker 5: like on the secondary markets, often selling at a discount
29:02
Speaker 5: if it's an employee stock and so forth. As I
29:06
Speaker 5: mentioned other companies we respect, like the Fidelities and the
29:11
Speaker 5: t Rows who have private arms, and our marketing we
29:14
Speaker 5: can see those on a quarterly basis. We also are
29:18
Speaker 5: looking at public markets and you know, if the market's
29:22
Speaker 5: going through a severe down round, we're probably going to
29:26
Speaker 5: be marking down many of our holdings because other competitors
29:34
Speaker 5: or counterparts are are being priced down in the public markets,
29:41
Speaker 5: so I think. And of course our audit committee and
29:46
Speaker 5: our trust board, they've been with us from day one
29:50
Speaker 5: with the ETFs. They they probably focus on this question
29:54
Speaker 5: more than any other when it comes to this fund.
29:57
Speaker 5: It is such an important question because we want to
30:00
Speaker 5: get nav right. When people are redeeming at the end
30:05
Speaker 5: of the quarter, we want to make sure that we're
30:08
Speaker 5: as close to the mark as we possibly can be,
30:12
Speaker 5: and we think we are because we don't want to
30:15
Speaker 5: be either giving it away or you know, or or
30:19
Speaker 5: selling it or don't want the person who's redeeming to receive,
30:24
Speaker 5: you know, the equivalent of a discount when there shouldn't
30:27
Speaker 5: be one. So we are maniacal. We have a committee
30:32
Speaker 5: away from this team. This team is not involved in
30:36
Speaker 5: pricing at all. It's completely separate and distinct and highly
30:42
Speaker 5: disciplined and highly audited. I would say as well.
30:47
Speaker 4: Yeah, And mechanically, how it works is a company raises
30:51
Speaker 4: a primary round, Well, that's raising x amount of dollars
30:54
Speaker 4: at this valuation. That's a strong signal that that's the
30:57
Speaker 4: valuation and kind of so that sets a mark and
31:01
Speaker 4: then over time as the company does not come back,
31:05
Speaker 4: then it calibrates over to secondary market activity or calibration
31:10
Speaker 4: with public companies whose price to sales ratio is or
31:15
Speaker 4: is it's Mark two that are drifting or pricing down
31:20
Speaker 4: and so, and you know that's essentially the full suite.
31:24
Speaker 4: But if a company says, hey, we're raising around, even
31:26
Speaker 4: if it appears in pitchbook, we're raising around at this
31:28
Speaker 4: valuation this amount, you know, we need to get confirmation
31:32
Speaker 4: that actually it's really going to go through in the
31:35
Speaker 4: way that it's going to. And so then from the
31:37
Speaker 4: research and investing side, we also provide information to the
31:40
Speaker 4: pricing committee. It's like, you know, they just came to
31:42
Speaker 4: us and this is what they're raising, and this is
31:45
Speaker 4: what they said.
31:45
Speaker 1: Is kind of like.
31:47
Speaker 4: How far they are through the raise, and and then
31:49
Speaker 4: that's fed into that team, but it is totally separate
31:53
Speaker 4: from the investing team. And we use you know, a
31:55
Speaker 4: Big four auditor to audit the fund, as well as
31:58
Speaker 4: third party private valuation experts that are also from one
32:04
Speaker 4: of those big firms. When there are tricky cases where
32:06
Speaker 4: we have to put together are they the pricing committee
32:09
Speaker 4: puts together a full document and this is how we're
32:11
Speaker 4: doing it, and how we're pricing it based on this information.
32:14
Speaker 5: Eric, can I give you one example of how involved
32:19
Speaker 5: this is. We invested in a private company when I
32:24
Speaker 5: believe the valuation was two point seven billion dollars sometime
32:28
Speaker 5: in twenty four. It in twenty five was basically said
32:35
Speaker 5: we're going to do another round at thirty nine forty billion,
32:38
Speaker 5: and our research did not support that valuation. That was
32:43
Speaker 5: the first thing, and so we actually went to the
32:49
Speaker 5: firm and said, look, if you can get this done
32:51
Speaker 5: at that price, we'll sell you some because of course
32:55
Speaker 5: this would have taken that particular equity to you know,
33:00
Speaker 5: close to twenty percent of the portfolio, and so we
33:04
Speaker 5: were again this is where research comes in. It turns
33:08
Speaker 5: out they were not able to do all of the deal.
33:12
Speaker 5: They did roughly half of it. I think I've got
33:14
Speaker 5: that right, bred or Charlie. And we never priced it
33:19
Speaker 5: in our portfolio at that forty billion dollar valuation. I
33:23
Speaker 5: think we went to twenty billion because they were able
33:27
Speaker 5: to get half of the offering placed.
33:33
Speaker 3: One of the things I just wanted to bring it
33:35
Speaker 3: back to in twenty twenty six is, you know you've
33:37
Speaker 3: had the exposure to these companies for a long time,
33:40
Speaker 3: but the goal for some of these companies is eventually
33:43
Speaker 3: to go public. And if I think through some of
33:45
Speaker 3: these names that you all have in the portfolio, SpaceX,
33:47
Speaker 3: open a, AI, and Thropic, these are potential like huge
33:52
Speaker 3: IPOs A what experience have you had with any company
33:57
Speaker 3: I appealing from this fund and be what impact is
34:01
Speaker 3: that going to have for your payoff? With the payoff
34:04
Speaker 3: look like for you and investors, going.
34:07
Speaker 5: Public is obviously a key liquidity event in a private
34:12
Speaker 5: company's life. What's nice about our funds is they are
34:16
Speaker 5: evergreen if we want to continue holding, unlike venture where
34:21
Speaker 5: they basically start selling out. If we think this company
34:25
Speaker 5: has miles to go, and with SpaceX and data centers
34:30
Speaker 5: in space, we've done some early estimates that would suggest
34:35
Speaker 5: that would add handsomely to its valuation, we can continue
34:39
Speaker 5: to hold it and we will. So we don't really
34:43
Speaker 5: think of okay, if it goes public, you know, what
34:48
Speaker 5: do you do? Then you're on to the next thing.
34:50
Speaker 5: We have a wish list of private companies, and of
34:54
Speaker 5: course we'd probably take profits as we normally do in
34:58
Speaker 5: the public markets when there is a big valuation upgrade,
35:04
Speaker 5: just sensible to take profits, but we don't have to
35:07
Speaker 5: sell out. And in terms of companies going public, I
35:12
Speaker 5: know that, well, Kodiak has just gone public. That's an
35:16
Speaker 5: autonomous trucking company and it is still in the fund
35:20
Speaker 5: and we've started adding it to our ETFs. So you know,
35:25
Speaker 5: our ETFs are you know, great outlets for some of
35:29
Speaker 5: these companies going public because they're all about innovation. That's
35:33
Speaker 5: all we do.
35:35
Speaker 6: Yeah, Kathy, I think Kathy said it well, So it's
35:37
Speaker 6: CoDIAK Is and that was Q three ish last year.
35:41
Speaker 6: We've had other so we've had some M and A.
35:43
Speaker 6: So we've had things like Mosaic mL which was around
35:46
Speaker 6: a five x return into data grigstock, which has since
35:48
Speaker 6: accumulated multiple significantly, and we're excited about that company. But
35:52
Speaker 6: I think that makes a good example of the illustrates
35:55
Speaker 6: what Kathy said, which is it's all about conviction, and
35:58
Speaker 6: if we have conviction at the price and continue to
36:01
Speaker 6: win the leadership in the company prospects at the point
36:03
Speaker 6: of going public, then we could hold or continue to
36:06
Speaker 6: build into whether it's from this fund or the ETFs.
36:10
Speaker 6: And of course there are many many examples, including within
36:12
Speaker 6: the mag seven where it would have been exactly the
36:15
Speaker 6: wrong thing to do to sell the moment your lockup
36:17
Speaker 6: came off. Yet many vcs were forced to do that,
36:20
Speaker 6: even knowing that the biggest part of the jacob was
36:23
Speaker 6: yet to come. In those cases, you know, whereas in
36:26
Speaker 6: other cases, for sure there's been you know, the biggest
36:28
Speaker 6: multiple has definitely occurred on the private side, it would
36:30
Speaker 6: have been exactly the right thing to do to sell
36:32
Speaker 6: their IPO. And of course no one knows exactly. There's
36:35
Speaker 6: no crystal balls, but it all comes down to research
36:38
Speaker 6: and conviction at the end of the day. But the
36:39
Speaker 6: key thing about this fund is it gives us flexibility
36:43
Speaker 6: to do what we believe at that point, given the conviction,
36:46
Speaker 6: is the right thing to do. And this is actually
36:48
Speaker 6: another point that we haven't touched on. But it also
36:49
Speaker 6: gives us flexibility to take account of public private valuation
36:52
Speaker 6: arbitrage that often occurs in different sectors at different times,
36:56
Speaker 6: like recently since the fund was launched, the historic number
37:00
Speaker 6: of negative ev biotechs which occurred on the public markets
37:03
Speaker 6: while the private valuations stayed quite robust if a company
37:06
Speaker 6: got flundered at all, So we were able to again
37:08
Speaker 6: make good use of that because of the flexibility in
37:10
Speaker 6: this fund.
37:11
Speaker 2: So you know, again, this is fascinating to me because
37:14
Speaker 2: unlike the fidelity funds that own a little, they are
37:18
Speaker 2: a mutual fund, and that's not the greatest rapper right now.
37:21
Speaker 2: People just shun that they want stuff and you can
37:24
Speaker 2: see XOVR, which again that's a ton of money that's
37:28
Speaker 2: three times with this fund has just because it has
37:30
Speaker 2: a tiny dose of SpaceX SPV, even it's not even
37:33
Speaker 2: like real SpaceX. So here's my question. I'm looking at
37:37
Speaker 2: this fund. I open it up on a screen. Let's
37:39
Speaker 2: say it's Yahoo or Bloomberg Terminal. Okay, first thing is
37:42
Speaker 2: that the fee is two point seventy five. That could
37:44
Speaker 2: scare some people, it's the five letter ticker. But then
37:48
Speaker 2: you look at the holdings and you're like, oh my god,
37:50
Speaker 2: this has like the all the hot companies that you
37:52
Speaker 2: read about, Like the sexy factor is high here, and
37:56
Speaker 2: I just feel like I just can't believe it doesn't
38:00
Speaker 2: raise more assets given that, Like what do you think
38:03
Speaker 2: it is?
38:03
Speaker 1: Is it just?
38:05
Speaker 2: Is it just that ETFs are just so everybody just
38:08
Speaker 2: trusts them at this point. They trust the fees, they
38:11
Speaker 2: trust the performance, and like you just can't get a
38:14
Speaker 2: five letter ticker over into somebody's portfolio anymore? Or is
38:19
Speaker 2: it the fee? I mean, these fees are probably so eric.
38:22
Speaker 5: You'll remember in the early days of our active equity ETFs,
38:26
Speaker 5: people were trying to understand us right that that now
38:30
Speaker 5: it was an ETF structure. What is happening here is
38:33
Speaker 5: the interval fund structure requires infrastructure build out right, and
38:40
Speaker 5: so so far was willing to build out infrastructure. Titan
38:45
Speaker 5: our first distributor. Now other platforms are beginning to see
38:52
Speaker 5: the merit of this interval fund structure and our starting
38:57
Speaker 5: are starting to vet us. We do have gatekeepers all
39:03
Speaker 5: of the wirehouses. You know they need five hundred million
39:07
Speaker 5: plus three years. Okay, now we have that, so we're
39:10
Speaker 5: beginning to speak with them. So we're not on any
39:13
Speaker 5: wirehouse platform, although advisors can can buy us if they're
39:21
Speaker 5: working through Charles Schwab or Pershing for example, But the
39:27
Speaker 5: wirehouses have now in terms of the fund, the fund
39:30
Speaker 5: fee that two point seventy five percent. We've been very
39:34
Speaker 5: deliberate about this. We charge no carry. That is why
39:38
Speaker 5: we can have unaccredited investors. That's just the SEC's way
39:43
Speaker 5: of looking at it. So no carry and we've done
39:47
Speaker 5: an analysis and Charlie probably can speak in more depth
39:52
Speaker 5: to this, but of the two point seventy five versus
39:57
Speaker 5: what you would pay if you were in you know,
40:00
Speaker 5: some of the best venture funds over a ten year period,
40:05
Speaker 5: and we would be at a discount to that if
40:07
Speaker 5: you include the fact that they charge Kerry and we
40:12
Speaker 5: do not.
40:14
Speaker 2: Okay, just real quick, now, I get that, and I
40:18
Speaker 2: think in my opinion, this probably will grow over time.
40:20
Speaker 2: It just it's almost like there's an you have to
40:23
Speaker 2: push harder. It just seems like because the ETF kind
40:25
Speaker 2: of sells itself to a degree. Here's my question for you.
40:28
Speaker 2: It's interesting to me that you've gone to these companies
40:30
Speaker 2: you have relationships with good relationships with and talked about,
40:34
Speaker 2: hey can you put a little bit this of this
40:36
Speaker 2: in RG or RW and they are not into it.
40:40
Speaker 2: But I feel as though now that we've got there's
40:42
Speaker 2: three ETFs now that have a little private and I
40:45
Speaker 2: think Ron's is a Series E, it's not a SPV.
40:48
Speaker 2: But as we go forward, JP Morgan, there's a lot
40:52
Speaker 2: of firms that have relationships with private companies who realize
40:55
Speaker 2: the potential in the ETF. Do you think that you
40:59
Speaker 2: guys ap Morgan Blackrock are going to start to lean
41:02
Speaker 2: on the private companies, even along with Apollo, who's interested
41:06
Speaker 2: to get some of this democratized, and we will eventually
41:09
Speaker 2: see some of this come up in that fifteen percent
41:12
Speaker 2: illiquidity window for ETFs in the future.
41:16
Speaker 5: You know, we're always advocating for our ETFs, but we
41:20
Speaker 5: also are listening to these management teams and are a
41:25
Speaker 5: little fearful of what the impact of you know, ETFs
41:29
Speaker 5: that can be traded every day, all day long, what
41:32
Speaker 5: the impact of that in various market situations will be
41:37
Speaker 5: on them and those who hold their equities. So you know, again,
41:44
Speaker 5: as I said, we're listening, and we've just gone once
41:50
Speaker 5: again and said, look, we really have such high conviction
41:54
Speaker 5: in you company X that we want to put this
41:59
Speaker 5: into our our ETFs, which are all about innovation, and
42:02
Speaker 5: the people investing in them are investing in nothing but innovation.
42:07
Speaker 5: And still there's that reticence. So if they open up,
42:11
Speaker 5: we will open up, you know, but we will not
42:15
Speaker 5: do SPVs.
42:16
Speaker 2: Yeah.
42:17
Speaker 4: I think that's the part of the reason people do
42:19
Speaker 4: SPVs is because then they don't have to ask the
42:21
Speaker 4: company's permission to do it, which then exposes them to
42:25
Speaker 4: some liability. They're not actually buying shares in the company.
42:28
Speaker 4: They're buying shares in an LLC that's making a claim
42:32
Speaker 4: that it has maybe shares in another LLC that's also
42:35
Speaker 4: making a claim that it also maybe has shares in
42:38
Speaker 4: another LLC which is making a claim that it has
42:41
Speaker 4: shares in the underlying company.
42:42
Speaker 5: And they're all charging fees on thee Yeah.
42:46
Speaker 4: Right, and so but I think over time it is likely,
42:50
Speaker 4: just as in mutual funds, you can buy the Fidelity
42:52
Speaker 4: mutual fund as like a little like four percent wedge
42:55
Speaker 4: in like zero point five percent chunks of little privates
42:59
Speaker 4: that tfs will kind of take on some of that
43:02
Speaker 4: private exposure. There's on the order of seven trillion dollars
43:06
Speaker 4: in market cap in unicorns at least, maybe not mark
43:10
Speaker 4: to market, but ostensibly out there. And I think this
43:15
Speaker 4: cycle there is going to be you know, there was
43:18
Speaker 4: this private companies aren't going public. Private companies are going
43:21
Speaker 4: to go public over the next couple of years. I mean,
43:23
Speaker 4: we think we have a few of them. There's the
43:25
Speaker 4: SpaceX rumor there, there's plenty of noise in the market
43:28
Speaker 4: that kind of the AI companies are going to go
43:30
Speaker 4: public because they're so cash consumptive to invest in the
43:35
Speaker 4: AI compute, to build the next generation of models, and
43:39
Speaker 4: because getting onto that public stage is important for kind
43:44
Speaker 4: of the support and engenders across you know, the entire population.
43:51
Speaker 4: We're trying to provide them with that support through the
43:53
Speaker 4: interval fund. But like you say, it's still small. You
43:56
Speaker 4: have to go on so far to get it if
43:58
Speaker 4: you're the average person, and or go through Fidelity or
44:01
Speaker 4: talk to it an advisor. I think over time, this
44:04
Speaker 4: vehicle because it's really good for venture. You know, this
44:08
Speaker 4: is a Tier one venture portfolio that's actually extraordinarily fee efficient,
44:13
Speaker 4: that this vehicle will open up the interval fund market
44:17
Speaker 4: because people are going to recognize, hey, this is actually
44:20
Speaker 4: the right way to do this kind of exposure for
44:22
Speaker 4: for not only the everyday investor, but for high net
44:26
Speaker 4: worth as well. And I think that you know, the
44:30
Speaker 4: public ETF vehicles are super important. We love our ETFs
44:34
Speaker 4: and and of course we you know, as this is
44:38
Speaker 4: going to be a mix of innovation, we stick in
44:41
Speaker 4: as it's available.
44:42
Speaker 2: Is there a point where you could feed the ETF
44:44
Speaker 2: investors a little like let's say SpaceX does announce the IPO,
44:47
Speaker 2: it's getting closer, Can you like move a little bit
44:50
Speaker 2: over to one of the ETFs so that they get
44:53
Speaker 2: a taste of it before the I pod? Could that
44:56
Speaker 2: happen after the private company is kind of like over
44:59
Speaker 2: the fact that Okay, like they're at that point, they're
45:02
Speaker 2: probably not that worried about the pricing because everybody knows
45:04
Speaker 2: they're going public. Like, is there a point the ETF
45:07
Speaker 2: could get hooked up by ourc venture?
45:10
Speaker 5: I think we have to be very careful in answering
45:13
Speaker 5: that question. Uh you know if oh, yes, yes, I
45:18
Speaker 5: mean I I I've know a lot about what happened
45:22
Speaker 5: when hedge funds were choosing or managers who were choosing
45:28
Speaker 5: between their hedge fund and their mutual fund chose the
45:32
Speaker 5: higher fee. Uh, this would be the opposite of that,
45:35
Speaker 5: I understand. But nonetheless, this is a hot topic in
45:39
Speaker 5: the SEC. We'd have to be buy the book, and uh,
45:43
Speaker 5: you know, even even today in our ETFs, if you know,
45:47
Speaker 5: we have a more specialized ETF that wants to sell
45:51
Speaker 5: a little bit of something we're buying in the let's
45:53
Speaker 5: say broader based ETFs, we don't do that. We do
45:58
Speaker 5: not do that because we do not want to be
46:00
Speaker 5: anywhere near you know, this cross dealing controversy. So we
46:06
Speaker 5: would be working very carefully with our compliance team to
46:11
Speaker 5: do that. You know, the ETF is set up for
46:14
Speaker 5: for public for the public. If the price, if it
46:17
Speaker 5: was already priced at the IPO price, we'd probably wait
46:21
Speaker 5: for it.
46:22
Speaker 4: Yeah, And and there's you know, as Kathy describes, there
46:25
Speaker 4: would be allocation kind of allocation procedures we need to follow.
46:30
Speaker 4: The venture fund. Being a participant in these primary rounds
46:35
Speaker 4: clearly opens up some optionality to discuss with the private companies.
46:40
Speaker 1: Hey.
46:41
Speaker 4: Actually, and there could be you know, we could split
46:43
Speaker 4: this allocation in an appropriate way between vehicles, just like
46:47
Speaker 4: we have we have you know, a European vehicle this
46:49
Speaker 4: venture fund as well that we have to do allocation
46:51
Speaker 4: decisions too. And so I do think that that's possible
46:55
Speaker 4: over time. But as Kathy said, it's like you know,
46:58
Speaker 4: allocated pro rata appropriate to the investment, you know, prospectus
47:03
Speaker 4: of the underlying fund and kind of like what's appropriate
47:06
Speaker 4: for that fund and.
47:07
Speaker 1: Its objectives if I may as well.
47:10
Speaker 6: Notwithstanding that the points made just now about our ETFs
47:13
Speaker 6: and the and SpaceX, I think as you look and
47:17
Speaker 6: compare the interval fund against various other types of products. Right,
47:20
Speaker 6: it's kind of sitting here in the middle between venture
47:23
Speaker 6: and ETFs.
47:24
Speaker 1: Let's just say or I mute funds.
47:26
Speaker 6: The the ETFs that exist and that may be built
47:31
Speaker 6: that have some small private allocation quite aside from the
47:34
Speaker 6: problem of.
47:34
Speaker 1: Stvs, which you talked about.
47:35
Speaker 6: But if you have ten or fifteen percent private allocation,
47:38
Speaker 6: it's almost you have to sort of ask yourself what's
47:41
Speaker 6: the real benefit of that. You've got some maybe you
47:44
Speaker 6: get some additional alpha from that private sleeve, but it's
47:46
Speaker 6: so diluted across the whole ETF, right, So that's an issue,
47:50
Speaker 6: whereas in ours it's the other way around. It's to
47:52
Speaker 6: eighty five percent private, So that's the you know, that's
47:56
Speaker 6: the private alpha you're getting.
47:57
Speaker 1: Yeah, and that sort.
47:58
Speaker 5: Of Yeah, I get it.
48:00
Speaker 2: I'm just telling you, as somebody who's been covering ETFs,
48:04
Speaker 2: that's people want it that way, and that you know,
48:10
Speaker 2: there's a couple like you could argue Vick's future shouldn't
48:13
Speaker 2: be in an ETF, like they've put everything in the
48:15
Speaker 2: ETF they possibly can, because that's just how people like it.
48:19
Speaker 2: And it's almost like Spotify and here's sitting here trying
48:22
Speaker 2: to sell a compact disc. But you're like, the music's
48:25
Speaker 2: really good, and that's sort of I think the challenge.
48:27
Speaker 2: And but it is what it is. You've you've definitely
48:30
Speaker 2: made the case and explain why it has to be
48:32
Speaker 2: this way. But I think that's all. That's what I
48:35
Speaker 2: see is the ETF demand is so great that the
48:39
Speaker 2: marketplace is now trying to deal with Well, they want
48:42
Speaker 2: it this way, but you can't really do it. So
48:44
Speaker 2: do we do it half assed? Or do we use
48:46
Speaker 2: these vehicles? And this is gonna be an interesting thing
48:50
Speaker 2: to play out for a while. And I think this
48:52
Speaker 2: is way more interesting than private credit. I think private
48:54
Speaker 2: credit doesn't really move the needle much. People don't care
48:56
Speaker 2: that much. But these companies, Neurallink, these are world changing
49:00
Speaker 2: companies and people know that you're getting in ahead of
49:02
Speaker 2: the IPOs major they just happen to want it in
49:05
Speaker 2: the ETF. And I think that's this is the crossroads
49:09
Speaker 2: we're at, kind of the tension. I guess that that's
49:11
Speaker 2: out there.
49:11
Speaker 3: Found a way, So anyway, we're gonna leave it there.
49:13
Speaker 3: Kathy Brett, Charlie, thanks your time, Thank you.
49:17
Speaker 1: Thank you, thank you, all.
49:24
Speaker 3: Thanks for listening to Trillions until next time. You can
49:27
Speaker 3: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify,
49:32
Speaker 3: or wherever else you'd like to listen. We'd love to
49:34
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49:36
Speaker 3: Joel Weber Show, He's at Eric Balchina's. Trillions is produced
49:39
Speaker 3: by Magnus Hendrickson.