Latest / Bloomberg Intelligence / GE to Buy Consolidated Precision Products for $11.75 Billion

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GE to Buy Consolidated Precision Products for $11.75 Billion · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios. Podcasts.
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  Speaker 2: Radio.
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  Speaker 3: News.
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  Speaker 4: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 0:23
  Speaker 5: I had an M & A trade here today that
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  Speaker 5: I think got the attention of a lot of folks.
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  Speaker 5: General Electric, GE. to buy consolidated precision products for $ 11. 75 billion.
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  Speaker 5: I have no idea what consolidated precision products does for
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  Speaker 5: a living, but our next guest does. George Ferguson joins us.
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  Speaker 5: He covers all the airlines, all the aerospace companies. George,
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  Speaker 5: first of all, I was talking earlier this morning to
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  Speaker 5: John Tucker. I can't remember the last time GE made
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  Speaker 5: a major acquisition. I've spent the last 20 years hearing
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  Speaker 5: about all the stuff they're divesting.
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  Speaker 6: Good point.
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  Speaker 5: Here's GE buying it. George, talk to us about this deal.
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  Speaker 5: What's GE doing here?
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  Speaker 6: Yeah, they have, like you said, largely been divesting and
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  Speaker 6: turning themselves into a pure play arrow. This looks to
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  Speaker 6: me like GE is going out and buying into their
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  Speaker 6: supply chain. My guess is they're looking for obstacles to
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  Speaker 6: building more engines and more engine parts because everybody's having
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  Speaker 6: a problem right now getting the throughput they want. And look,
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  Speaker 6: I think it probably sets GE up for the potential,
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  Speaker 6: maybe even to take more share on this generation of
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  Speaker 6: jet engines. So one of the big challenges right now
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  Speaker 6: for the air framers, Boeing and Airbus, especially Airbus, is
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  Speaker 6: getting enough engines to build aircraft and deliver to customers.
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  Speaker 6: Both of them have backlogs that are about a decade long,
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  Speaker 6: definitely drive well into the 2030s because it's not a
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  Speaker 6: sequential backlog. But Airbus keeps asking RTX to give them
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  Speaker 6: more engines so they can make more new aircraft. RTX
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  Speaker 6: keeps begging that off right now because they're in the
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  Speaker 6: midst of trying to fix their problems with their geared
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  Speaker 6: turbofan engine. This could give GE the opportunity to build
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  Speaker 6: more LEAPs, which is their next generation engine, deliver into
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  Speaker 6: Airbus potentially, which wants to go to 75 a month
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  Speaker 6: for the A320 and take even more share in the
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  Speaker 6: current cycle of the aircraft business.
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  Speaker 5: Okay.
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  Speaker 2: I also have to get used to the fact that
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  Speaker 2: GE is actually GE Aerospace, which, you know, kind of
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  Speaker 2: requires me to, you know, rewire my brain a little bit,
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  Speaker 2: but GE Aerospace to fund this deal with $ 7 billion
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  Speaker 2: in cash, the remainder in new debt. You mentioned that
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  Speaker 2: it's solidifying its supply chain. Does that mean that regulators
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  Speaker 2: might jump in and look at this, um, with some skepticism?
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  Speaker 7: Look, I, I, yeah, I, I don't, I think regulators
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  Speaker 7: will absolutely look at it, um, I can't tell you
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  Speaker 7: what the supply chain for precision casters look like. But
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  Speaker 7: what we hear from GE, because it is a private company,
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  Speaker 7: what we hear from GE is they are a supplier
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  Speaker 7: to the industry. So I'm almost certain you're going to
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  Speaker 7: see some, you know, some judicial oversight whether or not
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  Speaker 7: there's too much concentration there.
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  Speaker 5: I had the DES function on the Bloomberg terminal for
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  Speaker 5: consolidated precision products. They manufacture precision metal castings for the
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  Speaker 5: aerospace defense and power generation industries. That seems like right
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  Speaker 5: up George's alley, like manufacturing aerospace. And they're located in
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  Speaker 5: the city of Industry, California.
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  Speaker 1: I don't know where that is, but Southern California, I believe.
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  Speaker 1: Southern California.
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  Speaker 5: OK. So, George, while we've got you on the horn here, Boeing,
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  Speaker 5: I got to ask, I mean, where are we on
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  Speaker 5: deliveries of 737s? That's all I know about the Boeing story.
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  Speaker 5: I'm sticking with that strategy. Tell me what the delivery
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  Speaker 5: situation looks like for the 737.
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  Speaker 6: Well, so I have to tell you, it's been a
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  Speaker 6: busy morning here in aerospace, right? Airbus reported their deliveries.
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  Speaker 7: Yesterday.
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  Speaker 6: So they tried to sneak them in on Labor Day.
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  Speaker 6: And they were a bit weak. And Boeing just announced
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  Speaker 6: something as we were going on the air. So honestly,
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  Speaker 6: I have not seen it. I will tell you that
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  Speaker 6: Boeing has been doing better than Airbus. We looked at
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  Speaker 6: Airbus August numbers. Airbus is going to have to build
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  Speaker 6: 75 A320s per month till the end of the year
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  Speaker 6: to get to their guidance for A320s. They've never done
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  Speaker 6: that every four months sequentially. Again, Boeing's been having a
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  Speaker 6: better time at it, but Boeing's coming from, you know,
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  Speaker 6: from the easier end of the curve, I'd say, because
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  Speaker 6: they're not sort of approaching those, approaching the levels they
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  Speaker 6: were delivering prior to the pandemics. But we'll be on
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  Speaker 6: Boeing here in a minute. It's been kind of a,
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  Speaker 6: it's been a busy airspace.
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  Speaker 3: Exactly.
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  Speaker 5: Well, I'll give you the Bloomberg News reporting. Boeing delivered
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  Speaker 5: 51 commercial aircraft in August, its lowest number in four months,
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  Speaker 5: as output of the wide-body 787 Dreamliner dropped Importantly for me,
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  Speaker 5: because I listen to you and I read your research,
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  Speaker 5: the 737 type aircraft, they delivered 42.
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  Speaker 8: So there you go.
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  Speaker 5: So everybody's reporting their deliveries.
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  Speaker 6: Which isn't bad. 47 is what their target is, and
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  Speaker 6: it's August, right?
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  Speaker 5: Yeah.
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  Speaker 6: So we know August is light, but the question is,
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  Speaker 6: what's the setup for the end of the year?
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  Speaker 7: We'll be looking at that shortly.
• 5:15
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 4: You're listening to the Bloomberg Intelligence Podcast.
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• 5:37
  Speaker 2: Let's turn back to the tech sector because we can't
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  Speaker 2: stray too far away from it. There have been a
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  Speaker 2: couple of deals, an actual deal and then a non-deal
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  Speaker 2: this morning in the tech sector. You have Qualcomm making
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  Speaker 2: a deal with Amazon, but then you also have Anthropic
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  Speaker 2: walking away from a purchase. So we had to bring
• 5:55
  Speaker 2: in Mandeep Singh. He is our global head of tech
• 5:57
  Speaker 2: research here at Bloomberg Intelligence. Mandeep, let's start with Anthropic.
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  Speaker 2: Our reporting shows that it has decided to walk away
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  Speaker 2: from a $ 6 billion purchase of Descartes AI, which is
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  Speaker 2: an AI startup. What does that say about what Anthropic
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  Speaker 2: wants to do or can do before it goes public?
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  Speaker 3: Well, right now, you know, we've seen these companies are
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  Speaker 3: super active when it comes to just partnerships and any deals.
• 6:23
  Speaker 3: NVIDIA hugging face was a big deal last week. And
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  Speaker 3: to my mind, I mean, Anthropic really has a lot
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  Speaker 3: going right for them. And it is about plugging whatever
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  Speaker 3: gaps they have. So in this case, this company does
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  Speaker 3: chip optimization. And we know Anthropic has the most premium
• 6:42
  Speaker 3: tokens in the market. So when it comes to the
• 6:44
  Speaker 3: token pricing, they are able to charge a premium. And
• 6:47
  Speaker 3: if they are able to optimize the infrastructure that they
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  Speaker 3: run on, that makes sense. But obviously, they didn't agree
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  Speaker 3: on something. We don't know what it was. I don't
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  Speaker 3: think it would be the price, given Anthropic really has
• 7:01
  Speaker 3: the deep pockets now to make any acquisition. So it
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  Speaker 3: was something, I think, more strategic in terms of aligning.
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  Speaker 3: And this company did get an offer from NVIDIA, Descartes,
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  Speaker 3: and they turned down the offer. But to my mind,
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  Speaker 3: Anthropic has done everything organically. And look, they have the
• 7:19
  Speaker 3: best coding agents, so they could code anything if they
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  Speaker 3: wanted to.
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  Speaker 5: Are we expecting them to come public and when?
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  Speaker 9: It could be as soon as this week.
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  Speaker 3: Again, I don't know the exact details on when they
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  Speaker 3: will file the S-1, but there are rumors it could
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  Speaker 3: be as soon as this week or next.
• 7:38
  Speaker 5: All right, so here's a Qualcomm deal. They're the largest
• 7:42
  Speaker 5: maker of smartphone processors, Qualcomm is. They signed up Amazon.com
• 7:46
  Speaker 5: as a data center chip customer. That's good news, I think,
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  Speaker 5: for Qualcomm. But what's even better, they gave Amazon the
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  Speaker 5: right to acquire as much as $ 4 billion in shares.
• 7:56
  Speaker 5: What's going on there? Is this another one of your
• 7:58
  Speaker 5: circular deals, Mandip, that I'm worried about?
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  Speaker 3: I mean, look, at this point of time, all the
• 8:03
  Speaker 3: chip companies, especially the ones that are not NVIDIA. So
• 8:07
  Speaker 3: AMD ended up doing a similar warrant structure with OpenAI
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  Speaker 3: and Meta. And I'm not surprised Qualcomm being the new
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  Speaker 3: player on the block when it comes to the data
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  Speaker 3: center market, which is in trillions of dollars. And everyone
• 8:21
  Speaker 3: knows that. So Qualcomm being a more consumer device centric
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  Speaker 3: chip player wants to expand in data center. And what
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  Speaker 3: better way to do it than partner with Amazon? And
• 8:32
  Speaker 3: they had to give Amazon some incentive. So in this case,
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  Speaker 3: it was the warrant. I mean, the existing shareholders may
• 8:38
  Speaker 3: complain and say, why are they diluting the existing shareholders?
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  Speaker 3: But to my mind, strategically, it makes a ton of
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  Speaker 3: sense and it gives Qualcomm, some skin in the game
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  Speaker 3: when it comes to this large data center market.
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  Speaker 2: And investors seem to agree because there's no fear of
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  Speaker 2: dilution showing up in the share price today. Qualcomm is
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  Speaker 2: up about 5% in trading. Amazon obviously not putting all
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  Speaker 2: its chips with Qualcomm, right? I mean, it's spreading out.
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  Speaker 2: It's not risk, but it's definitely... Relying on a number
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  Speaker 2: of different suppliers.
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  Speaker 3: Yeah, and they make their own chips. So right now,
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  Speaker 3: the real limiting factor is the fab capacity. So what
• 9:15
  Speaker 3: kind of TSMC allocation can you get? So Amazon has
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  Speaker 3: its own allocation. NVIDIA has prepaid for 70% plus of
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  Speaker 3: TSMC's capacity for the foreseeable future. So how do you
• 9:27
  Speaker 3: make more chips? You got to partner with whoever is remaining.
• 9:31
  Speaker 3: So it's your Qualcomm's, your AMD's, and you know, whoever
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  Speaker 3: is remaining there.
• 9:35
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 9:42
  Speaker 4: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 9:46
  Speaker 4: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 9:49
  Speaker 4: Auto with the Bloomberg Business app. Listen on demand wherever
• 9:53
  Speaker 4: you get your podcasts or watch us live on YouTube.
• 9:57
  Speaker 5: Our tech team, research team at Bloomberg Intelligence which Mandeep
• 10:00
  Speaker 5: Singh and Anurag Rana.
• 10:02
  Speaker 1: It keeps growing.
• 10:03
  Speaker 5: Yeah, thankfully, we get some new voices. I'm sick and
• 10:05
  Speaker 5: tired of talking to those guys. I mean, they're pretty
• 10:07
  Speaker 5: good and all, but I want some new voices. Fresh perspective. Yeah,
• 10:11
  Speaker 5: Derek Mogul joins us here. He's the technology analyst for
• 10:13
  Speaker 5: Bloomberg Intelligence. I recently joined the team. Appreciate it. Talk
• 10:17
  Speaker 5: to us about AI storage. Are your companies, are they
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  Speaker 5: riding this AI wave? And if so, how are they
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  Speaker 5: doing that?
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  Speaker 3: Oh, well, they are.
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  Speaker 10: So with AI, inference is actually driving storage from a
• 10:28
  Speaker 10: passive capacity to more active extension of memory. So it's
• 10:33
  Speaker 10: creating an enormous amount of active data, but this data
• 10:36
  Speaker 10: has to be accessed repeatedly and concurrently. So basically what's
• 10:40
  Speaker 10: going on is that's overwhelming DRAM and HBMs What's HBM?
• 10:44
  Speaker 5: High bandwidth memory.
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  Speaker 10: So it's overwhelming these memory sources, and it's actually flowing
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  Speaker 10: into other layers of storage. So this is creating huge demand,
• 10:54
  Speaker 10: and it's creating what we call a memory and storage hierarchy.
• 10:58
  Speaker 10: So you have HBM and DRAM at the top of
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  Speaker 10: the pyramid, and then as data flows down, it flows
• 11:03
  Speaker 10: down into Flash, and then it flows down to HDD.
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  Speaker 10: So it's reinvigorating the storage industry for sure.
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  Speaker 1: Yeah.
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  Speaker 2: It seems like any company that's modestly involved in memory
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  Speaker 2: chips has just, you know, the stock has gone haywire
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  Speaker 2: over the last couple of months.
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  Speaker 1: You do a lot of work on this.
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  Speaker 2: Your modeling points to almost five times growth in storage
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  Speaker 2: spending by 2030.
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  Speaker 1: And all of that is just part of the whole
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  Speaker 1: build out of AI infrastructure?
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  Speaker 9: Yeah, that's exactly right.
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  Speaker 10: So it really comes down to more data being created
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  Speaker 10: by AI and The data being costing more to store.
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  Speaker 10: So we do model about 25% CAGR in the underlying
• 11:38
  Speaker 10: BIT demand growth through 2030. And this is really based
• 11:41
  Speaker 10: on the supplier guidance. And I mean, we've all heard
• 11:43
  Speaker 10: about these LTAs. LTAs are now spanning out to the 2030s.
• 11:46
  Speaker 1: Long-term agreements.
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  Speaker 6: Long-term agreements, sorry.
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  Speaker 1: Yep.
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  Speaker 10: And then compounding that is ASPs. So storage has historically
• 11:53
  Speaker 10: been a deflationary industry, but we're seeing price increases for
• 11:55
  Speaker 10: the first time in decades. So if you add two
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  Speaker 10: and two together, yeah, that's 5x increase in the storage TAM.
• 12:01
  Speaker 6: All right.
• 12:02
  Speaker 5: Let's be honest. You were born on third base. You
• 12:04
  Speaker 5: thought you hit a triple. Look at some of these
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  Speaker 5: names on your list. Seagate Technologies, Western Digital, Micron. These
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  Speaker 5: things are up like 100, 200% this year.
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  Speaker 1: It's like flashback to the 90s.
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  Speaker 6: Yeah.
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  Speaker 5: I mean, so what's going on with these names? Are
• 12:17
  Speaker 5: people just trying to, are they just sensing that there's
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  Speaker 5: going to be demand for these products?
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  Speaker 2: Yeah.
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  Speaker 10: Like really for like next several years? I mean, these
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  Speaker 10: guys are guiding as such. I mean, they're guiding sustained
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  Speaker 10: bit demand into the 2030s. And they're talking about LTAs
• 12:32
  Speaker 10: going out. I mean, Western Digital, I believe, talked about
• 12:34
  Speaker 10: LTAs out to 2032.
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  Speaker 5: So as an analyst, as an investor, you have some
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  Speaker 5: visibility on revenue, right?
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  Speaker 3: Yeah.
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  Speaker 10: I mean, it's up massively, especially on the flash side.
• 12:44
  Speaker 10: I mean, ASPs in flash are up three to four
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  Speaker 10: X this year alone that compounds upon 20, 25% bid growth.
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  Speaker 10: I mean, that, that, I mean, those are enormous numbers.
• 12:54
  Speaker 2: So for a company like Western Digital, trading at 36
• 12:57
  Speaker 2: times earnings, I mean, this, like you said, once upon
• 13:00
  Speaker 2: a time was a very cyclical company, and the products
• 13:03
  Speaker 2: it made were, you know, they just kind of went
• 13:04
  Speaker 2: down in price overall. Is that expensive for Western Digital,
• 13:08
  Speaker 2: 36 times earnings?
• 13:09
  Speaker 10: It is expensive, but again, the company is now guiding
• 13:12
  Speaker 10: to 25% demand bid growth through 2030. 10 points of that,
• 13:18
  Speaker 10: I estimate, is from AI alone. So they do get
• 13:21
  Speaker 10: some upside from the AI.
• 13:21
  Speaker 6: I'll just add a quick comment.
• 13:26
  Speaker 2: Seagate trading at 59 times reported earnings.
• 13:29
  Speaker 5: But you look to the forward earnings, that multiple's cut
• 13:32
  Speaker 5: in half 25 times. So again, like we saw with NVIDIA,
• 13:36
  Speaker 5: these companies are earning their way into their multiples. So
• 13:39
  Speaker 5: it's just amazing. Is your business, like one of the
• 13:42
  Speaker 5: first things I learned about your business, which is the
• 13:44
  Speaker 5: hardware side of tech, is it's cyclical and you got
• 13:47
  Speaker 5: to get the cycle right. Is it still cyclical these days?
• 13:50
  Speaker 1: I mean, that's a great question.
• 13:52
  Speaker 10: So the way I see it is the storage industry
• 13:54
  Speaker 10: has bifurcated into the legacy cyclical industry. So it's cell
• 13:57
  Speaker 10: phone storage, PC storage. That still rides the normal cycles,
• 14:01
  Speaker 10: like high highs and low lows. But I would say
• 14:04
  Speaker 10: on the AI side, it seems like it's more sustained.
• 14:07
  Speaker 1: It's less cyclical.
• 14:08
  Speaker 10: Of course, it could crash at some point. But for
• 14:11
  Speaker 10: the time being, I mean, we're seeing long-term demand and
• 14:13
  Speaker 10: sustained demand.
• 14:14
  Speaker 5: Okay.
• 14:14
  Speaker 1: What could cause it to crash?
• 14:16
  Speaker 10: Well, I mean, number one, I mean, this can cause
• 14:18
  Speaker 10: the whole market to crash if hyperscalers stop spending. I mean,
• 14:22
  Speaker 10: that's the bottom line.
• 14:23
  Speaker 5: And we haven't seen or heard any of that, have we?
• 14:25
  Speaker 10: No, there's no inkling of that at the current moment.
• 14:28
  Speaker 10: I mean, if you think about it, are we going
• 14:30
  Speaker 10: to use less and less AI? Are you going to
• 14:32
  Speaker 10: use chat GPT less? No, I mean, you're going to
• 14:34
  Speaker 10: continue to use it, and I think it'll continue to proliferate.
• 14:37
  Speaker 10: Enterprises are using it more and more, Claude. So, I mean,
• 14:40
  Speaker 10: over time, I think you can make a strong case
• 14:42
  Speaker 10: that demand will hold up.
• 14:44
  Speaker 1: So for these stores.
• 14:45
  Speaker 2: For these storage companies that are seeing so much more demand,
• 14:49
  Speaker 2: will they need to spend more as well in order
• 14:51
  Speaker 2: to meet this demand?
• 14:53
  Speaker 10: Yeah, that's a great question. So on the flash side,
• 14:56
  Speaker 10: they are increasing capacity. I mean, prices are up 3
• 15:00
  Speaker 10: to 4x just due to the insufficiency of supply. So
• 15:03
  Speaker 10: they are ramping new facilities, and they should come online
• 15:06
  Speaker 10: in the 2028 through 2030 timeframe. And of course, they're
• 15:08
  Speaker 10: spending massive amounts of CapEx on that. The HDD players
• 15:11
  Speaker 10: are taking a more measured approach. So they're not actually
• 15:14
  Speaker 10: increasing supply through increasing manufacturing capacity, but what they're doing
• 15:18
  Speaker 10: is just increasing the aerial density of the platters, like
• 15:21
  Speaker 10: the spinning disc platters in their HDDs.
• 15:24
  Speaker 1: Stay with us.
• 15:25
  Speaker 4: More from Bloomberg Intelligence coming up after this. You're listening
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• 16:20
  Speaker 1: Discover.
• 16:21
  Speaker 3: It's big.
• 16:22
  Speaker 1: It's huge.
• 16:22
  Speaker 8: It's swelled in size, as the industry has as well.
• 16:28
  Speaker 8: And now they're at $ 97 billion, making it the world's
• 16:31
  Speaker 8: second biggest hedge fund.
• 16:32
  Speaker 9: They're close to.
• 16:33
  Speaker 8: Topping $ 100 billion soon enough. There's no plans to slow down.
• 16:37
  Speaker 8: He's raising $ 22 billion. On top of that, he's planning
• 16:43
  Speaker 8: to potentially in talks to raise another $ 3 billion for
• 16:46
  Speaker 8: an illiquid credit fund.
• 16:48
  Speaker 9: There's a lot happening.
• 16:49
  Speaker 8: Soon enough, within a few years, it wouldn't be a
• 16:51
  Speaker 8: surprise for Millennium to run more than $ 130 billion.
• 16:54
  Speaker 5: It's extraordinary. I mean, a lot of managers will tell you,
• 16:58
  Speaker 5: I'm capping the size of my book because I can't
• 17:01
  Speaker 5: generate the returns with more capital. There's only so many
• 17:05
  Speaker 5: names out there.
• 17:05
  Speaker 4: How does.
• 17:07
  Speaker 5: Mr. Englander, known on the street as Izzy. How does
• 17:10
  Speaker 5: he kind of deal with that? How does he set
• 17:11
  Speaker 5: up his firm?
• 17:13
  Speaker 3: Yes.
• 17:13
  Speaker 8: So this idea of being capacity constrained, where you get
• 17:16
  Speaker 8: so big that it now impedes returns. This has been
• 17:20
  Speaker 8: felled a number of hedge funds. It's something that we
• 17:23
  Speaker 8: see across the space. A lot of other multistrats have
• 17:26
  Speaker 8: either capped their size or some firms have given money back. Bridgewater,
• 17:31
  Speaker 8: which was the world's biggest hedgerow for a long time,
• 17:34
  Speaker 8: they had their performance curbed because they grew too big
• 17:37
  Speaker 8: and had to shrink their pure alpha fund so that
• 17:41
  Speaker 8: they can get back on track. What Izzy's done with
• 17:44
  Speaker 8: his firm is is managed to avoid this capacity-constrained problem.
• 17:49
  Speaker 9: And the way he's done that is by having his.
• 17:52
  Speaker 8: Fund do so many different types of strategies, by spawning
• 17:56
  Speaker 8: this movement to invest in outside hedge funds. So now
• 18:00
  Speaker 8: they invest a hedge fund investing in another hedge fund.
• 18:03
  Speaker 8: And now they're even plugging in full businesses like Bobby
• 18:06
  Speaker 8: Jane's Jane Capital, which has seven business lines and 400
• 18:11
  Speaker 8: staff of its own to really spread out all the
• 18:14
  Speaker 8: investments across different things. And so they've built this kind
• 18:19
  Speaker 8: of new, more complicated model to be market neutral, but
• 18:23
  Speaker 8: to have a ton of money and a ton of
• 18:26
  Speaker 8: things invested across all these little, little siloed pods that
• 18:30
  Speaker 8: trade independently.
• 18:31
  Speaker 3: Wow.
• 18:32
  Speaker 5: Now, Izzy Englander, the founder of this firm, he's 77
• 18:36
  Speaker 5: years old. Has he discussed succession planning at all?
• 18:39
  Speaker 7: Yes.
• 18:39
  Speaker 8: So the firm recently, I think last year or so,
• 18:43
  Speaker 8: sold an equity stake. It was the first time that
• 18:46
  Speaker 8: Izzy had given up some of his equity stake. He
• 18:47
  Speaker 8: was basically a full owner of the firm. and sold
• 18:51
  Speaker 8: about 15% of it. This was one of many things
• 18:54
  Speaker 8: the firm has done to be more institutional, so that
• 18:57
  Speaker 8: when Izzy steps back, or as he ages, the firm
• 19:02
  Speaker 8: can still continue.
• 19:03
  Speaker 9: And we see that through the.
• 19:05
  Speaker 8: Creation of an office of the CIO, which, as this group,
• 19:09
  Speaker 8: they make decisions for the firm. And you see that
• 19:12
  Speaker 8: the firm in general is no longer... a smaller pawn shop, right?
• 19:16
  Speaker 8: They are this now big institution in the industry. You
• 19:19
  Speaker 8: see that with the size. You see that with the
• 19:21
  Speaker 8: way the firm is run. You see that with the
• 19:23
  Speaker 8: new things they're doing. And so the firm should live
• 19:28
  Speaker 8: on beyond Izzy's participation in the firm.
• 19:32
  Speaker 9: And that's the whole goal, that it sustains.
• 19:34
  Speaker 5: You know, back in my day, so let's call it
• 19:36
  Speaker 5: late 90s, early 2000s, wasn't that uncommon for somebody to
• 19:40
  Speaker 5: have a good three, four year run on the city
• 19:42
  Speaker 5: currency desk or the Morgan Stanley Bond desk and go
• 19:45
  Speaker 5: out and raise a billion or two and start their
• 19:46
  Speaker 5: own hedge fund? Does that still happen in a world where...
• 19:49
  Speaker 5: Millennium has a hundred billion in assets under management?
• 19:52
  Speaker 1: It's a lot harder.
• 19:52
  Speaker 8: I mean, it's been hard to launch a hedge fund
• 19:55
  Speaker 8: for years. And you see some people like Bobby Jane
• 19:58
  Speaker 8: raise five billion for his hedge fund. Even he had
• 20:01
  Speaker 8: his own struggles. What you're seeing now is a PM
• 20:05
  Speaker 8: have to think about Do I start my own firm,
• 20:08
  Speaker 8: have my name on the shop, raise money independently, and
• 20:12
  Speaker 8: try to make it?
• 20:13
  Speaker 9: Or do I now take this other door, which.
• 20:16
  Speaker 8: Is potentially allow myself to take money from Millennium, be
• 20:21
  Speaker 8: an external pod? In some cases, you do get your
• 20:23
  Speaker 8: own name on the door, right? And you are.
• 20:26
  Speaker 9: Allowed to take on outside capital as well.
• 20:29
  Speaker 8: Sometimes Millennium will demand exclusivity. And then you are faced
• 20:33
  Speaker 8: with those same risk constraints that Izzy's famous for.
• 20:36
  Speaker 5: One of the greatest business models on global Wall Street
• 20:39
  Speaker 5: is 2 in 20. You get 2% fee on assets
• 20:43
  Speaker 5: under management. You get 20% of the upside. If I
• 20:46
  Speaker 5: do the math for Mr. Engler, $ 100 billion, that's $ 2
• 20:51
  Speaker 5: billion a year of just management fees. That is extraordinary.
• 20:55
  Speaker 1: It's extraordinary.
• 20:56
  Speaker 8: And then when you think about multistrats, they have pass-through fees.
• 20:59
  Speaker 8: So they make the investor, the LP... pay for basically
• 21:03
  Speaker 8: the cost of running the firm. It could be the
• 21:06
  Speaker 8: terminal cost, the PM salaries, which are so expensive, the
• 21:11
  Speaker 8: costs of desks and chairs and tables, printer paper. You
• 21:15
  Speaker 8: can really pass through so many of those expenses onto
• 21:19
  Speaker 8: the investor. And look, investors really care about the net return.
• 21:22
  Speaker 8: So Izzy has a track record of producing annual returns
• 21:26
  Speaker 8: of at least 10%. And that's what the goal is.
• 21:30
  Speaker 8: But the expenses on top of that are pretty incredible.
• 21:35
  Speaker 8: The 10% return typically is net of fees. So they
• 21:38
  Speaker 8: would have had to have done.
• 21:38
  Speaker 7: 20% or more.
• 21:40
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• 21:45
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• 21:49
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• 21:55
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• 21:58
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