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The Ultra-Wealthy Favor Private Corporate Investments · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. It may be one of the
• 0:24
  Speaker 1: biggest investment firms you have never heard of, and that
• 0:27
  Speaker 1: is a clutch of high net worth individuals who meet
• 0:30
  Speaker 1: together to discuss how they are deploying their assets, what
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  Speaker 1: strategies they're using. And we're lucky to have with us
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  Speaker 1: the founder and the chair of this organization, which is
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  Speaker 1: called Tiger twenty one. His name is Michael sudden Felt.
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  Speaker 1: He joins us here in our Bloomberg Interactive Broker's studios.
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  Speaker 1: Uh So, this club, which is Tiger twenty one, oversees
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  Speaker 1: about seventy one billion dollars. And the club doesn't oversee
• 0:55
  Speaker 1: it. It It just as a clutch of individuals right who
• 0:57
  Speaker 1: come together sign a confidentiality agreement to discuss what they
• 1:01
  Speaker 1: are doing, how they are doing it. And sort of
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  Speaker 1: consult with one another. Can you give us a sense
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  Speaker 1: of how much your organization has grown as an example
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  Speaker 1: of just the power of high net worth individuals and
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  Speaker 1: how it has come up. Sure, First of all, we're
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  Speaker 1: not an investment firm. We're an organization. What we provide
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  Speaker 1: is the plumbing that connects today seven individuals in five countries,
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  Speaker 1: thirty cities, fifty four groups, and seventy billion in assets.
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  Speaker 1: Every member meets in a group once a month, twelve
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  Speaker 1: people to fifteen around the table. They've signed confidentiality agreements,
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  Speaker 1: and they're there to help one another, not sell one another.
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  Speaker 1: So MIKEA, I'm guessing this group of people they've made
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  Speaker 1: their money. If this isn't about what's the hottest new
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  Speaker 1: stock to buy, what's the hottest new I p O,
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  Speaker 1: maybe a little bit more about preserving their capital. So
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  Speaker 1: what are some of the strategies that people in this
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  Speaker 1: group are employing right now? So most of our members
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  Speaker 1: have had the liquidity event, and what they're trying to
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  Speaker 1: do is figure out an all weather strategy. How do
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  Speaker 1: they have a balanced portfolio? But it reflects also the
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  Speaker 1: skills with which they created their wealth. So today you
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  Speaker 1: have about seventy five percent of their assets, split roughly
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  Speaker 1: between real estate, private equity, and public equity, the largest
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  Speaker 1: being about in real estate income producing real estate. And
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  Speaker 1: what's interesting is public equity is the smallest of them
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  Speaker 1: because members have created their wealth in private markets and
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  Speaker 1: in real estate markets, so that's where they're comfortable deploying
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  Speaker 1: their capital to preserve it for the long term. What's
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  Speaker 1: been the most popular trade of late, Well, uh, I'd
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  Speaker 1: say the most interesting. Members do a portfolio defense once
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  Speaker 1: a year in their groups. They have ninety minutes to
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  Speaker 1: defend their portfolio. And in a recent portfolio defense, a
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  Speaker 1: young member was saying, you know, he's concerned about the markets.
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  Speaker 1: He has a lot of tech stocks and index funds.
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  Speaker 1: He decided to sell the index funds because his thesis
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  Speaker 1: is that the new durable, the new consumer durable, or
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  Speaker 1: the tech stocks, no matter how good are bad, the
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  Speaker 1: economy is people are gonna buy on Amazon, they're gonna
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  Speaker 1: talk on Facebook, they're gonna use Microsoft office products, and
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  Speaker 1: it was really turning upside down for safety. He was
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  Speaker 1: staying in the tech stocks. Just an amazing intergenerational perspective
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  Speaker 1: and what is yet it's kind of a stable for
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  Speaker 1: some of the younger folks. So how about some of
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  Speaker 1: the alternative investments out there. You know you're reading, you
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  Speaker 1: hear about some of these ultra wealthy people that will put,
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  Speaker 1: you know, a significant part of their or meaningful part
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  Speaker 1: of their net worth into wine or art or things
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  Speaker 1: like that, as maybe a little bit of hedge on
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  Speaker 1: other parts of the market. So we do have members
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  Speaker 1: who are investing in those things, but for the most part,
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  Speaker 1: it's the private equity and the private ownership of real estate.
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  Speaker 1: And interestingly enough, if you're interested in private equity, that
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  Speaker 1: leads you to look at a firm like black Stone,
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  Speaker 1: because so much of their public value comes from the
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  Speaker 1: asset management fee, but the promotes that occur when a
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  Speaker 1: company is sold are not baked into the price. So
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  Speaker 1: even if you're into private equity, you can look at
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  Speaker 1: a public company like black Stone and say you can
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  Speaker 1: get the benefits of private equity. How concerned are the
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  Speaker 1: members of the Tiger twenty one group about the high
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  Speaker 1: valuations right now and the amount of money that has
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  Speaker 1: flowed into private equity companies? So um, most private equity
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  Speaker 1: analysis talks about private equity funds, and you could talk
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  Speaker 1: about the private equity market having too much money. Our
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  Speaker 1: members tend towards the smaller companies where they're making direct investments,
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  Speaker 1: where they're rolling up their shirt sleeves. These are people
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  Speaker 1: who have built great businesses. Our marketplace for our members
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  Speaker 1: is people who have created essentially multi hundred million dollar
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  Speaker 1: businesses and sold them. The qualifications for Tiger you have
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  Speaker 1: to have investable assets between ten million and a billion.
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  Speaker 1: We exclude the all stars of a billionaires and above
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  Speaker 1: in that area. These people know how to operate, and
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  Speaker 1: one of the reasons they don't have a lot of
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  Speaker 1: public equity is there the last to hear about a
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  Speaker 1: problem when you own a public stock. But when you're
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  Speaker 1: a director a part owner of a small business and
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  Speaker 1: the management comes to you and says I have a problem,
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  Speaker 1: you can actually help them and make a difference, not
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  Speaker 1: only to help them, but to help your own investment.
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  Speaker 1: So this is actually relatively new in this particular cycle
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  Speaker 1: since the financial crisis, the sort of acceleration in smaller
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  Speaker 1: investors directly lending to businesses, right investing and investing in
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  Speaker 1: businesses with a private equity, private debt, but direct lending
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  Speaker 1: direct to equity and infusion and I'm just wondering, you know,
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  Speaker 1: how much are they bumping up against the blackstones of
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  Speaker 1: the world as they try to do this. Well, clearly
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  Speaker 1: there's a continuum and at the larger numbers you you
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  Speaker 1: get that. But you know, one of the things that's
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  Speaker 1: always interesting is when you get the best of the best,
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  Speaker 1: they can do large deals. In the real estate business,
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  Speaker 1: people always thought you had to go to the outer
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  Speaker 1: boroughs to make a lot of money. Turns out, if
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  Speaker 1: you bought at the right time in the cycle, you
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  Speaker 1: could make a lot of money on Fifth Avenue. So
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  Speaker 1: when you're buying in private equity some of the great firms,
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  Speaker 1: you can get great returns if you're the best of
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  Speaker 1: the best, and some of the private equity managers are
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  Speaker 1: so the small businesses see public equity as the exit.
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  Speaker 1: They want to build a small business and sell it
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  Speaker 1: to a public company. So as an example, with all
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  Speaker 1: the I p o S that are coming down these days,
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  Speaker 1: our members have been buying into the private version of
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  Speaker 1: that company. So when it went public, they were on
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  Speaker 1: the they were on the liquidating side, not on the
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  Speaker 1: buying side. And so we've had a lot of appy campers.
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  Speaker 1: Michael just real quickly next twenty seconds or so. How
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  Speaker 1: about cash? If I just sold my company and you know,
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  Speaker 1: I got a bunch of cash in stock, I may
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  Speaker 1: be tempt to just stick it in a mattress. So
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  Speaker 1: our members have between around twelve percent in cash. That's
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  Speaker 1: our members are conservative by nature, and we know that
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  Speaker 1: they spend two to three percent a year, so that's
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  Speaker 1: about four years of living expense. That gives them the
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  Speaker 1: luxury not have to liquidate public stocks in a downturn
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  Speaker 1: and allow them to ride through it. So uh, this
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  Speaker 1: notion of an all weather portfolio is what our groups
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  Speaker 1: really helped members grapple with when they get together once
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  Speaker 1: a month and they say, how are you doing it?
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  Speaker 1: And how are you doing it? If you can pull
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  Speaker 1: away one idea, it can make all the difference from
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  Speaker 1: having to give up a bad investment at the wrong time.
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  Speaker 1: Michael san Fel, thank you so much for joining us.
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  Speaker 1: Michael's chairman founder Tiger twenty one was seventy one billion
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  Speaker 1: dollars under management. He joined us in our Bloomberg eleven
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  Speaker 1: three oh studios in New York. Very interesting to see
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  Speaker 1: how the ultrue ultra wealthy invest their money. So you know, well,
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  Speaker 1: there's you know, they have needs, they have challenges like
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  Speaker 1: everybody else, and it's a huge class of people and
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  Speaker 1: it's growing on so it's important to keep track of that. Well.
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  Speaker 1: Last week, Finn proposed running a pilot program that would
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  Speaker 1: give traders forty eight hours before having to reveal their
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  Speaker 1: so called block trades to other investors, and some of
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  Speaker 1: the biggest investors argue that such a move would improve liquidity.
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  Speaker 1: Help us breakdown this story, we welcome Mike Turwiliger portfolio
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  Speaker 1: Magic Resource America covering resource credit Income Fund. He joins
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  Speaker 1: us in our Bloomberg Interactive Broker studio. Mike, thanks so
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  Speaker 1: much for joining us. Give us the background on what
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  Speaker 1: is happening here in the bond market. Yeah, so absolutely so.
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  Speaker 1: First of all, thanks for having me so to just
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  Speaker 1: sort of level steps, so level sets. So in two
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  Speaker 1: thousand and two we pass what is known as trace
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  Speaker 1: and what trades mandated is that all trades within the
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  Speaker 1: bond market must be posted within fifteen minutes. So there's
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  Speaker 1: currently a movement of foot largely driven by the Monster
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  Speaker 1: bond shops and the Monster managers to try to remove
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  Speaker 1: their disclosure to a forty eight hour window for block trade.
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  Speaker 1: So that's our trades over ten million investment grade and
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  Speaker 1: five million in high yield. And look, ultimately, I would
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  Speaker 1: applaud the regulars for trying to address liquidity risk, but
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  Speaker 1: I think this is ultimately a misguided effort. Okay, So
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  Speaker 1: this comes. This change to basically delay reporting from fifteen
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  Speaker 1: minutes to forty eight hours comes after vociferous opposition to
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  Speaker 1: trace reporting requirements for years. People have been saying this
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  Speaker 1: reduces liquidity liquidity because basically people don't want to do
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  Speaker 1: a block trade a big chunk of corporate bonds that
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  Speaker 1: they transact because they are worried they're going to move
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  Speaker 1: the market against them as they try to slough it
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  Speaker 1: off into the markets. The question is will a forty
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  Speaker 1: eight hour delay help the market in terms of getting
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  Speaker 1: these trades through, or will end up hurting the people
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  Speaker 1: on the other side who end up buying at a
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  Speaker 1: price that is too high relative to the supply dynamic
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  Speaker 1: demand dynamic. I mean, I guess I would argue pretty
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  Speaker 1: strangously that we do not know if this will in
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  Speaker 1: fact improve market liquidity, And in this regard, I would
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  Speaker 1: applaud the idea that it's at least a one year trial.
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  Speaker 1: But ultimately I think this is a failed effort and
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  Speaker 1: will ultimately not work. But I think again the idea
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  Speaker 1: of will it improve liquidity, I think that's to be determined.
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  Speaker 1: But one thing we know it unquestionably will do is
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  Speaker 1: will convey a monstrous, you know, frankly, informational advantage on
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  Speaker 1: the big funds. Big funds are going to be able
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  Speaker 1: to trade big blocks, and there's gonna be a forty
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  Speaker 1: hour window where the rest of the marketplace is just
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  Speaker 1: not going to be aware of that trade. So over
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  Speaker 1: that forty hour windows, investment banks and bonds and loan
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  Speaker 1: funds can be able to trade that with an informational advantage. Okay,
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  Speaker 1: So in the past it was big Wall Street banks
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  Speaker 1: that to this excuse me, brokers, and they would have
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  Speaker 1: the information so they could uh more correctly guide their
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  Speaker 1: clients as to the correct price and then take the
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  Speaker 1: differential brid ask spread and and and weap a profit
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  Speaker 1: from it. So the fact that you say big funds
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  Speaker 1: are they going to be acting in that capacity to
• 11:19
  Speaker 1: how I mean unquestionably? So by definition again, who is
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  Speaker 1: going to be trading big blocks is going to be
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  Speaker 1: the biggest funds like ten million dollar i G again
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  Speaker 1: high yield five. Those are going to be big trades
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  Speaker 1: by big funds, so they are going to get a
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  Speaker 1: huge informational advantage on the rest of the marketplace that
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  Speaker 1: it's ultimately going to come at the cost of the
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  Speaker 1: mom and pop investor. They are going to have an
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  Speaker 1: informational disadvantage that's going to cost them. This is literally
• 11:43
  Speaker 1: going to be boosting the bottom lines of big monster
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  Speaker 1: funds at the cost of the little guy. So how
• 11:51
  Speaker 1: much are we talking about here in terms of the
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  Speaker 1: percentage of volume in the corporate bond market. Is this
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  Speaker 1: something that is a big, big percentage of what gets
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  Speaker 1: traded every day or are we just talking about some
• 12:00
  Speaker 1: small block trades among the big funds. I mean, ultimately,
• 12:04
  Speaker 1: block trades can be a big driver of liquidity, unquestionably,
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  Speaker 1: and I think the big firms would love to see
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  Speaker 1: more of that liquidity so that they can make the
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  Speaker 1: big trades. But right now, because of tracing, because of
• 12:14
  Speaker 1: market a liquidity, there are more one off trade So
• 12:17
  Speaker 1: I think that's where they're trying to trying to move
• 12:20
  Speaker 1: Maria Tory standpoint, to see if they can get a
• 12:21
  Speaker 1: little bit more of the block trade activity. I've struck
• 12:24
  Speaker 1: by why now, why is FINRA coming out in two
• 12:27
  Speaker 1: thousand and nineteen with this when actually the sort of
• 12:30
  Speaker 1: din of people complaining about market liquidity has dropped off
• 12:34
  Speaker 1: a cliff, at least in the corporate bond market. I
• 12:37
  Speaker 1: would argue strenuously that unquestionably the single biggest risk in
• 12:41
  Speaker 1: the bond and loan market is unquestionably liquidity. Obviously, we
• 12:44
  Speaker 1: passed the vocal rule in as a part of the
• 12:47
  Speaker 1: after the Great Financial Crisis, after as part of Dodd
• 12:49
  Speaker 1: Frank And what the vocal rule has basically done is
• 12:52
  Speaker 1: it has taken liquidity of the marketplace because investment banks
• 12:54
  Speaker 1: cannot engage in proprietary trading. So, look, you've seen these
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  Speaker 1: periods of market liquidity over in the last couple of months.
• 13:00
  Speaker 1: I mean, look, the fourth quarter of the bond and
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  Speaker 1: loan market, particularly on the loan side, get absolutely rocked
• 13:05
  Speaker 1: because individual investors were withdrawing money and there weren't the
• 13:08
  Speaker 1: investment banks on the sideline providing liquidity to have an
• 13:11
  Speaker 1: orderly unwind. Look, addressing liquidity risk that is a very
• 13:15
  Speaker 1: important issue. So to answer the question, I think it's
• 13:17
  Speaker 1: because the market is trying to think about a way
• 13:19
  Speaker 1: to improve liquidity in a pulsed vocal rule era and
• 13:23
  Speaker 1: in this capacity, just to be very clear, because people
• 13:25
  Speaker 1: say liquidity and it means everything under the sun. Here,
• 13:28
  Speaker 1: the idea is to be able to very quickly find
• 13:33
  Speaker 1: a correct market level so that people don't necessarily get
• 13:36
  Speaker 1: ripped off with a momentary plunge or spike in price.
• 13:40
  Speaker 1: Correct correct. Ultimately, it's the ability to sell an asset
• 13:43
  Speaker 1: without a massive impact on the price. So that is
• 13:46
  Speaker 1: the issue at hand and the way that finer is
• 13:48
  Speaker 1: proposing to remedy it is with this delay of reporting
• 13:53
  Speaker 1: big trades. A lot of people say that I ain't
• 13:55
  Speaker 1: gonna do it. Michael To Religio, thank you so much
• 13:58
  Speaker 1: for being with us. Michael To really is a portfolio
• 14:01
  Speaker 1: manager for the Resource Credit Income Fund, which belongs to
• 14:05
  Speaker 1: the C three Capital management firm, which overseas six billion dollars.
• 14:26
  Speaker 1: The healthcare sector has been beaten up of late, whether
• 14:30
  Speaker 1: it's the Amazon threat of potentially disrupting the way that
• 14:33
  Speaker 1: they distribute pharmaceuticals, or if it is Washington, d C.
• 14:37
  Speaker 1: That has their eye on reducing the cost of drugs.
• 14:40
  Speaker 1: Johnson and Johnson shrugged all of that off and delivered
• 14:43
  Speaker 1: better than expected earnings and more importantly, better than expected
• 14:47
  Speaker 1: forecast for the full year after ratcheting back their prediction
• 14:52
  Speaker 1: just months ago. So a pretty big about face Joining
• 14:54
  Speaker 1: us now to talk about that is Max Neeesson, biotech,
• 14:57
  Speaker 1: farm and healthcare columnist for Bloomberg Opinion, joining us here
• 15:00
  Speaker 1: in our interactive broker studios. So, Max, let's start with
• 15:03
  Speaker 1: Johnson and Johnson and the about face. Do you buy
• 15:08
  Speaker 1: their descriptions of what happened in two months or three
• 15:12
  Speaker 1: months they completely changed their forecast for the full year. Um,
• 15:17
  Speaker 1: you know, I think they're a company that's traditionally pretty
• 15:21
  Speaker 1: cautious when it comes to guidance, so they might have
• 15:25
  Speaker 1: you know, acted with an abundance of caution earlier in
• 15:27
  Speaker 1: the year, and after seeing you know, better than expected
• 15:30
  Speaker 1: drug sales which definitely did come through in this first quarter,
• 15:35
  Speaker 1: they felt comfortable enough to to come back and uh,
• 15:38
  Speaker 1: you know, raise guidance and feel a little bit more
• 15:40
  Speaker 1: confident for the year. I guess it's sort of a question,
• 15:43
  Speaker 1: as it is sort of with the whole sector, about
• 15:45
  Speaker 1: the fundamentals of the business, which appear to be you know,
• 15:48
  Speaker 1: doing just fine. And then broader, longer term concerns about
• 15:53
  Speaker 1: the pricing and regulatory environment, or in Johnson Johnson's case,
• 15:57
  Speaker 1: it's kind of bevy of of legal risks. So what
• 16:00
  Speaker 1: do they legal risk in particular kind of what's the
• 16:02
  Speaker 1: latest what's their latest outlook that you've heard on the call.
• 16:06
  Speaker 1: So things have been on the opioid side confined largely
• 16:10
  Speaker 1: to other companies so far, but that is a risk
• 16:13
  Speaker 1: that sort of lurks in the background. On TALC, they
• 16:16
  Speaker 1: had a pretty big settlement recently. The question is always
• 16:19
  Speaker 1: is you know, is that a one off, one jury,
• 16:22
  Speaker 1: one one case that went poorly or does it read
• 16:24
  Speaker 1: through to the product case. It's still a lot that's
• 16:27
  Speaker 1: going to be determined as to the liability on on
• 16:30
  Speaker 1: both fronts. I want to switch gears a little bit
• 16:33
  Speaker 1: now to United Health because that's another aspect of the
• 16:36
  Speaker 1: healthcare industry that's undergoing a lot of change, especially in
• 16:38
  Speaker 1: light of potential regulatory changes around Obamacare. United Health reported
• 16:44
  Speaker 1: earnings that were better than expected, portrayed a pretty rosy
• 16:47
  Speaker 1: backdrop for their business. Their shares, however, have been underperforming
• 16:52
  Speaker 1: and are down. Why. I think it's a combination of
• 16:56
  Speaker 1: a lot of things. The biggest being just that investor
• 17:00
  Speaker 1: is hey, regulatory uncertainty, and there's you know, no business
• 17:04
  Speaker 1: that faces kind of a bigger helping of it than
• 17:08
  Speaker 1: insurers in general and United Health in particular. You know,
• 17:11
  Speaker 1: the threat of of extinction. No, it's very remote, but
• 17:15
  Speaker 1: it's something that's in the news constantly. And then you
• 17:19
  Speaker 1: just have kind of a general political shift where even
• 17:22
  Speaker 1: if Medicare for all is envisioned by Bernie Sanders is
• 17:25
  Speaker 1: a really big long shot, the place that the kind
• 17:28
  Speaker 1: of the center of the Democratic Party and the rest
• 17:31
  Speaker 1: of the field of candidates that that's moved to to
• 17:34
  Speaker 1: where they're supporting instead of just you know, tweaks to
• 17:37
  Speaker 1: the A c A or or making more people medicare eligible,
• 17:41
  Speaker 1: they want kind of a full blown, potentially competitive public option,
• 17:44
  Speaker 1: and a lot of them so that that's scary. You know,
• 17:46
  Speaker 1: even even if it uh, they're not gonna see it
• 17:48
  Speaker 1: for years to come, and they're obviously going to fight
• 17:51
  Speaker 1: in and have been successful in the past lobbying threats
• 17:54
  Speaker 1: out of existence. It's out there and and it's pretty
• 17:56
  Speaker 1: pretty terrifying. Well, despite all that, you know, um, the
• 18:00
  Speaker 1: backstop of the uncertainty of the regulatory environment the blocking
• 18:03
  Speaker 1: and tackling this quarter seemed pretty decent. Almost a million
• 18:05
  Speaker 1: News subscribers. How is that relative to expectations? Uh, they're
• 18:09
  Speaker 1: they're doing a little bit better. But I will point
• 18:12
  Speaker 1: out that the gains seem to be focused in the
• 18:15
  Speaker 1: employer and individual market, and some of that came from, uh,
• 18:19
  Speaker 1: these kind of short term plans that the Trump administration
• 18:22
  Speaker 1: has been pushing as kind of a little bit of
• 18:25
  Speaker 1: an end around the A c A, which under some
• 18:27
  Speaker 1: legal threat. So it's unclear how long that will be
• 18:31
  Speaker 1: a growth business for United Health and the employer market
• 18:34
  Speaker 1: too when you have full employment, can't really add that
• 18:37
  Speaker 1: much enrollment that way. So um, you know, we we'll
• 18:40
  Speaker 1: see how if they can keep that particular part of
• 18:42
  Speaker 1: the business up. You know, you we have all talked
• 18:45
  Speaker 1: about how things might change in the healthcare industry, and
• 18:48
  Speaker 1: we've talked about regulatory pressures to uh, you know, potentially
• 18:52
  Speaker 1: undermine or remove a bobbing care, put in something different,
• 18:56
  Speaker 1: to change up Medicare and Medicaid. But what about the
• 19:00
  Speaker 1: companies themselves. Are they pushing back or asking for better
• 19:04
  Speaker 1: deals with United Health or are they pretty much happy
• 19:07
  Speaker 1: with how things are and they're fine, right because that's
• 19:10
  Speaker 1: the biggest, probably the biggest source of their revenue. So
• 19:14
  Speaker 1: United Health is is pretty diversified. That they do have
• 19:17
  Speaker 1: a large employer based you know, that's a lot of
• 19:20
  Speaker 1: their coverage. It's not I'm not sure if it's their
• 19:23
  Speaker 1: biggest market though, especially because it helped us a PBM
• 19:26
  Speaker 1: and their whole data business too. I don't think there's
• 19:28
  Speaker 1: a ton of pressure on the employer's side. There are
• 19:31
  Speaker 1: some changes in the sense that scrutiny on the pharmacy
• 19:34
  Speaker 1: benefit manager has United Helps been reacting a little bit
• 19:38
  Speaker 1: more aggressively than most of that. It's basically passing more
• 19:41
  Speaker 1: discounts directly to patients instead of the employer. That's a
• 19:44
  Speaker 1: big change, so they were we have to see how
• 19:47
  Speaker 1: employers are going to react to that. But but we'll
• 19:50
  Speaker 1: see that a little bit more of that going forward.
• 19:51
  Speaker 1: I think Max Needson thanks thank you so much. Max's biotech,
• 19:55
  Speaker 1: farm and healthcare communist for Bloomberg Opinions. He joined us
• 19:58
  Speaker 1: in our Bloomberg eleven three studio in New York the
• 20:01
  Speaker 1: beginning of earnings for the healthcare So I'm sure we'll
• 20:04
  Speaker 1: be speaking to Max going forward as more of these
• 20:06
  Speaker 1: healthcare companies, the big farmer companies and biotech companies report earnings,
• 20:10
  Speaker 1: but as Max noted, you know, certainly for the healthcare
• 20:13
  Speaker 1: ensurer companies like United, the political backdrop continues to be
• 20:17
  Speaker 1: kind of the driver for that story, and that is
• 20:20
  Speaker 1: for investors very unpredictable. Well, if you flashback a week
• 20:39
  Speaker 1: or so ago, all we were talking about, certainly in
• 20:41
  Speaker 1: the fixing income world was the Saladi a ram Code deal.
• 20:44
  Speaker 1: If we recall there was a twelve billion dollar bond
• 20:47
  Speaker 1: priced that was after about a hundred billion dollars of demand.
• 20:51
  Speaker 1: So it's got an update on where that deal is trading.
• 20:53
  Speaker 1: We welcome Damien Sassaur. Damians the chief Emerging markets credit
• 20:57
  Speaker 1: strategist for Bloomberg Intelligence. He joins, us are in our
• 21:00
  Speaker 1: Bloomberg eleven three oh studio in New York. So very
• 21:03
  Speaker 1: highly anticipated deal, big money, big issuer. Have the bonds traded.
• 21:08
  Speaker 1: So the bonds have come off a bit, I mean,
• 21:09
  Speaker 1: and you know, I mean I don't know if that's
• 21:11
  Speaker 1: entirely was entirely expected, right because given the order book,
• 21:14
  Speaker 1: I mean, we had like a hundred billions, some crazy
• 21:17
  Speaker 1: number of orders coming through. People thought it was going
• 21:19
  Speaker 1: to be um you know, overbought, and so to see
• 21:22
  Speaker 1: them trade off in the early days here is a
• 21:25
  Speaker 1: little bit unexpected, I would say, But it's still early days, Paul.
• 21:27
  Speaker 1: And what I mean is this issue hit in April
• 21:30
  Speaker 1: and we're still only halfway through the month. And what
• 21:32
  Speaker 1: a lot of fun managers who like to take advantage
• 21:34
  Speaker 1: of this new issue discount which is embedded within, you know,
• 21:38
  Speaker 1: the Saudi Ramco deal, They would hope to crystallize that
• 21:41
  Speaker 1: by the end of this month. So we're still two
• 21:43
  Speaker 1: weeks away, mind you, and we're only a couple pennies
• 21:46
  Speaker 1: off off par here. But um I wouldn't at all
• 21:48
  Speaker 1: be surprised if we see things start to rally in
• 21:51
  Speaker 1: two months, And because as you rightly point out, some
• 21:54
  Speaker 1: of the big fun managers who participated are disappointed and
• 21:58
  Speaker 1: they get very upset with the underwriters who you know,
• 22:02
  Speaker 1: for the deal. So yeah, we'll see how how things
• 22:03
  Speaker 1: shake out. I have to engage with a little bit
• 22:06
  Speaker 1: of a conspiracy theory just for a moment here, the
• 22:09
  Speaker 1: idea that perhaps banks that were looking to make this
• 22:13
  Speaker 1: a very good deal for Saudia Ramco so they could
• 22:16
  Speaker 1: get a good position for the potential initial public offering
• 22:20
  Speaker 1: really drummed up this deal, talked it up, said that
• 22:24
  Speaker 1: there was this massive order book which is really fuzzy
• 22:27
  Speaker 1: and isn't sure what it means, but there's no way
• 22:30
  Speaker 1: to prove it. But a lot of people want this deal.
• 22:32
  Speaker 1: I get it while it's hot, and there really wasn't
• 22:35
  Speaker 1: that much demand. It's not the story here, I mean,
• 22:38
  Speaker 1: I think, I mean, look, we could look at a
• 22:40
  Speaker 1: lot of different things. We can also look at the
• 22:41
  Speaker 1: fact that you might have relative value players trying to
• 22:43
  Speaker 1: play that. Are you remember that spread that it is
• 22:45
  Speaker 1: trading inside the sovereign and remember Saudi Arabia the sovereign.
• 22:48
  Speaker 1: The dollar bonds are very liquid, so you can get
• 22:51
  Speaker 1: the borrow to short those and maybe try to play
• 22:53
  Speaker 1: for that, and that might be putting pressure on the bonds.
• 22:55
  Speaker 1: There's a lot of reasons we can point to as
• 22:57
  Speaker 1: to why the bonds may potentially be trading off here.
• 23:00
  Speaker 1: But I do, I do, Lisa, your your your spot on.
• 23:02
  Speaker 1: I mean, there is a lot of people kind of
• 23:04
  Speaker 1: pointing at the conspiracy theory that we talked this thing
• 23:07
  Speaker 1: up to kind of you know, kind of inflate ourselves
• 23:09
  Speaker 1: position for the I P O and UH and look,
• 23:11
  Speaker 1: there's still a lot of of wrangling going on. I mean,
• 23:14
  Speaker 1: Larry Fink was on the tape just this morning talking about,
• 23:16
  Speaker 1: you know, glowingly about Saudi Arabia and about Black Rock's
• 23:20
  Speaker 1: business there and how he's going to be traveling there
• 23:22
  Speaker 1: soon and so yeah, we'll see how it all shakes loose.
• 23:24
  Speaker 1: But as soon as I Saudi Arabbie is out of
• 23:26
  Speaker 1: the doghouse, let's switch gears to Venezuela. Any green shoots
• 23:31
  Speaker 1: there for that economy. He's giving me a look, I
• 23:35
  Speaker 1: I really, I gotta say, I don't love that expression.
• 23:39
  Speaker 1: It's just such cliche. I mean, it's it's but yeah,
• 23:42
  Speaker 1: and it's in Venezuela. Well. Well, there's something interesting actually
• 23:45
  Speaker 1: that came out last week and a lot a lot
• 23:47
  Speaker 1: of people are paying the attention to in Venezuela. It's
• 23:49
  Speaker 1: the fact that JP Morgan is formally announced that they
• 23:51
  Speaker 1: may be finally removing Venezuela from their bond indu Sey.
• 23:53
  Speaker 1: This is a big deal, and I'll tell you why
• 23:55
  Speaker 1: it's a big deal because nine of the Emerging Market
• 23:57
  Speaker 1: Universe is benchmark to the JP Morgan sweem indu Sey.
• 24:00
  Speaker 1: Now they have until July two or June July to
• 24:02
  Speaker 1: kind of announce whether or not they're going to do that,
• 24:04
  Speaker 1: and then fast forward to when they're going to do
• 24:06
  Speaker 1: that and what that process may look like. But right now,
• 24:08
  Speaker 1: with all the sanctions on Venezuela, Paul Lisa, I can
• 24:11
  Speaker 1: tell you no bank, no custodio bank. I'm talking to
• 24:14
  Speaker 1: city groups, the JP Morgan's of the world. I want
• 24:16
  Speaker 1: to settle any trade that has anything to do with
• 24:19
  Speaker 1: Venezuela whatsoever, because they don't know if they'd be subject
• 24:21
  Speaker 1: to sanctions for facilitating some trade to a US person.
• 24:24
  Speaker 1: I mean, with the O fact rules, it's very opaque
• 24:26
  Speaker 1: as to who's liable if a trade takes place, and
• 24:29
  Speaker 1: it would so I think right now it's it's all talk.
• 24:33
  Speaker 1: But we're going to see how things progress there. I
• 24:34
  Speaker 1: mean we're watching that very closely. I mean you saw
• 24:36
  Speaker 1: some new sanctions come through from Canada today. Um I
• 24:39
  Speaker 1: think they announced that forty three high ranking officials are
• 24:41
  Speaker 1: now subject to new sanctions. UM in Venezuela reserves her
• 24:44
  Speaker 1: down to under nine billion. I mean, look, it's it's
• 24:47
  Speaker 1: it's it's painful there, I mean obviously on the ground,
• 24:49
  Speaker 1: but we'll see how how how this JP Morgan index
• 24:53
  Speaker 1: inclusion discussion kind of kind of uh comes home to
• 24:56
  Speaker 1: roost and and and that's just something we're looking at
• 24:59
  Speaker 1: their Well, yeah, looking right now at the total amount
• 25:02
  Speaker 1: of debt that Venezuela has, and if you look at
• 25:04
  Speaker 1: their external debt, it's more than forty six billion dollars,
• 25:09
  Speaker 1: but that's actually not anywhere close to the amount of
• 25:11
  Speaker 1: debt that it actually has because it also has a
• 25:13
  Speaker 1: lot of debt outstanding to China and Russia. I just
• 25:17
  Speaker 1: have to wonder who gets hit hardest if they are
• 25:21
  Speaker 1: forced to sell Venezuela debt because it is no longer
• 25:25
  Speaker 1: included in the index, to people who will not take it.
• 25:28
  Speaker 1: There's no one who will take it. On the other side,
• 25:30
  Speaker 1: with brokers who are not allowed to trade it because
• 25:33
  Speaker 1: it is sanctioned. So now let's be clear, I actually
• 25:36
  Speaker 1: disagree with that. I think there are a lot of
• 25:38
  Speaker 1: buyers for this debt. I mean, I can right now,
• 25:40
  Speaker 1: on the back of a napkin create a that sustainability
• 25:43
  Speaker 1: analysis for Venezuela when they have a regime change that
• 25:45
  Speaker 1: will show you that those bonds should pay par at
• 25:48
  Speaker 1: some point in time because they're sanctioned. But they're sanctioned today,
• 25:51
  Speaker 1: which means you've got this sort of structural glitch in
• 25:54
  Speaker 1: the system. Right. So, the way o FAC works is
• 25:57
  Speaker 1: you can sell as a US person to a non
• 26:00
  Speaker 1: US person is or at least that's my understanding of it,
• 26:02
  Speaker 1: which means if you have some kind of offshore entity
• 26:05
  Speaker 1: setup that allows you to purchase those bonds. I wouldn't
• 26:08
  Speaker 1: say that USP prisons should trying to circumvent the sanctions,
• 26:11
  Speaker 1: but if you're a European investor, or an Asian investor,
• 26:13
  Speaker 1: or a Russia or Chinese investor, you can buy those
• 26:16
  Speaker 1: bonds right now. You're not subject to o facs, so
• 26:18
  Speaker 1: you know, they may be getting in at a favorable cost,
• 26:22
  Speaker 1: and when things go right, they're gonna be sitting having
• 26:24
  Speaker 1: acquired these bonds at pennies on the dollar and holding
• 26:27
  Speaker 1: them out to part So so I do think there
• 26:29
  Speaker 1: is demand there. The question again is you know, how
• 26:33
  Speaker 1: do you sell them? How do you how do you
• 26:34
  Speaker 1: do that in a way that's legal and binding and
• 26:36
  Speaker 1: the keeping with o FAC rules and regulations. I just
• 26:38
  Speaker 1: don't think anyone can answer that right now. And so
• 26:41
  Speaker 1: that's the struggle. A glitch in the system, really well
• 26:44
  Speaker 1: said Damian Sassaur, chief Emerging markets credit strategist for Bloomberg Intelligence,
• 26:49
  Speaker 1: joining us here in our interactive brokers studios. Thanks for
• 26:52
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 26:54
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 26:57
  Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
• 27:00
  Speaker 1: pt Sweeney. I'm Lisa Abram Wohits. I'm on Twitter at
• 27:03
  Speaker 1: Lisa Abram woos one. Before the podcast, you can always
• 27:06
  Speaker 1: catch us worldwide on Bloomberg Radio