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Opportunity For Value In Private Equity · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. You know, one of
• 0:22
  Speaker 1: the areas of investments in these markets that continues to
• 0:27
  Speaker 1: attract tremendous amounts of capital is private equity. And in
• 0:31
  Speaker 1: a world where you've got a ten year yielding one
• 0:33
  Speaker 1: point five percent um, people are looking for returns, looking
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  Speaker 1: for yield, and the asset class of private equities one
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  Speaker 1: of those areas that continues to generate superior returns. Glenn Mincy.
• 0:44
  Speaker 1: He's a national sector leader for private equity at KPMG.
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  Speaker 1: He joins us here. Glenn, thanks so much for joining
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  Speaker 1: us here. I'd love to get your maybe thirty thousand
• 0:53
  Speaker 1: foot view of the private equity space, and I'd love
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  Speaker 1: to get it into context of pre pandemic and maybe
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  Speaker 1: kind of where we are now. Give us your thoughts. Thanks, Paul. Yeah,
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  Speaker 1: and you know, in the area of impact investing specifically
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  Speaker 1: in E s G. I'd say that before the pandemic,
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  Speaker 1: private equity had been active and responsible investing. But looking back,
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  Speaker 1: I think there was maybe the naive sentiment that COVID
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  Speaker 1: was going to stall or halt progress in the space.
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  Speaker 1: But the social impact of the pandemic really accelerated the
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  Speaker 1: industry's awareness of environmental and social issues, and it really
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  Speaker 1: pushed that intersection of E s G related issues with
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  Speaker 1: financial return. And if you look at the driver's oh sorry, Paul, Um,
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  Speaker 1: go ahead, Glenn, this is Kayleie. Nice to speak with you.
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  Speaker 1: So if we're they're pushing more towards E s G,
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  Speaker 1: where specifically, where are investments being made, Well, it's you know,
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  Speaker 1: if we're talking about the new economy, you know, we're
• 1:56
  Speaker 1: all looking at angels on the head of a pen
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  Speaker 1: to determine what that new account m is going to
• 2:00
  Speaker 1: look like. And we often we often say that, you know,
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  Speaker 1: COVID um that after COVID tech was a horizontal across
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  Speaker 1: all asset classes. And there's no question that impact investing
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  Speaker 1: in the s G are going to be integrated across
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  Speaker 1: the other asset classes as a horizontal future and the
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  Speaker 1: you know, the area is that, UM, if you think
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  Speaker 1: about it, they're changing, you know, there the p funds
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  Speaker 1: are they're actively looking at E s G and and
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  Speaker 1: it's it's you know, a question for your energy funds,
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  Speaker 1: for example, do you shift your focus from traditional oil
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  Speaker 1: and gas oil its services to you know, the so
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  Speaker 1: called transition companies companies that support transition to cleaner, more
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  Speaker 1: affordable energy like storage and renewables. UM. You know, you
• 2:46
  Speaker 1: guys have looked at totally for example, UM and other
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  Speaker 1: plant based products. You know that that continue to attract
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  Speaker 1: mainstream investor attention. UM and Totally is actually, you know,
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  Speaker 1: it's doing well, and it's it's a good ample of
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  Speaker 1: uh work, consumers willing to pay more for your product
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  Speaker 1: for the beneficial impact that it has on society. Glenn,
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  Speaker 1: give us a sense of kind of private equity, what
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  Speaker 1: percentage of their invested funds are are targeting E s
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  Speaker 1: G types of investments. It just doesn't seem like I'm
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  Speaker 1: not even sure a how you define it be how
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  Speaker 1: you measure it. UM, give us a sense of how
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  Speaker 1: private equity is approaching that. Well, yeah, yeah, your point
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  Speaker 1: about measurement is actually a good one. The you know,
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  Speaker 1: the perception, mostly in the US. I guess is that
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  Speaker 1: private markets have been slow to pick up on the
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  Speaker 1: s G monitoring and reporting because I figured, you know,
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  Speaker 1: getting that meaningful data from portfolio companies was a little
• 3:43
  Speaker 1: too difficult, and there were skeptical their skepticism about whether
• 3:47
  Speaker 1: the market was ready to accept the costs associated with
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  Speaker 1: measurement reporting. But that information is really so vital to
• 3:53
  Speaker 1: being able to determine not only where you stand, but
• 3:56
  Speaker 1: what you need to do in the future. And let's
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  Speaker 1: let's face it, right, doing the right things, it's it's imprecise.
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  Speaker 1: You need verifiable metrics and data and the uniform standard,
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  Speaker 1: and there's been right now, there isn't a uniform standard.
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  Speaker 1: There's no one standard to rule them all. But you know,
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  Speaker 1: there's an opportunity to change that, and that you know,
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  Speaker 1: as a percentage, each of the you know, the largest UM,
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  Speaker 1: some of the some of the largest funds you know,
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  Speaker 1: whether it's UM, whether it's TPG, Bang, KKR, black Stone, Carlisle, Apollo,
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  Speaker 1: they all over whether before COVID or over that period
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  Speaker 1: of time, they all really invested significantly. They know they
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  Speaker 1: their funds are in excess of the billion dollars each
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  Speaker 1: and they're putting that money to work right there. They
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  Speaker 1: have a lot of cash to deploy, right. Are there
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  Speaker 1: enough targets out there? You know? I think and as
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  Speaker 1: I said, you know, before the pandemic, they've been active
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  Speaker 1: in responsible investing. And yeah, I'd say that, I'd say
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  Speaker 1: almost every day it you look and there is you know,
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  Speaker 1: there's a two hundred million dollar investment here, there's a
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  Speaker 1: billion dollar investment there. Um, you know totally was was
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  Speaker 1: a terrific example just in the past what two weeks
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  Speaker 1: of the IDA um and yes, so yeah, Cley, I'd
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  Speaker 1: say there are there, there's a plethora of targets. Talk
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  Speaker 1: to us about returns, Glenn E. S G. I keep
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  Speaker 1: hearing how E s G provides superior returns. I'm just
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  Speaker 1: I'm very skeptical. What are you finding in the PE space? Um,
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  Speaker 1: the you're you're touching on greenwashing, right, Paul, and here
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  Speaker 1: let's let's let's talk about the elephant round far and not.
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  Speaker 1: It's probably accurate to say that p suffered in the
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  Speaker 1: past from reputational issues, and not just in p but
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  Speaker 1: but across all industries. There's a concern that companies are
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  Speaker 1: just going to do impact in e s G by
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  Speaker 1: press release, right, the company has will announced they're going
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  Speaker 1: to the carbonized and you buy any credits to fulfill
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  Speaker 1: that commitment, and you haven't really changed anything. Um. But
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  Speaker 1: I think I'd say the P he really sees value
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  Speaker 1: here and and the desire to contribute to a better
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  Speaker 1: world is is certainly a motivator. That's truly a motivator
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  Speaker 1: on a personal level. I know many of these heads
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  Speaker 1: of funds and it's really clear to me that each
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  Speaker 1: of them fervently and passionately believes it was the moment
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  Speaker 1: in time to really make the world a better place.
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  Speaker 1: But they're in the business of making money. And what's
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  Speaker 1: made the P industry successful in the past is the
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  Speaker 1: ability to future trends. But you know, they need to
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  Speaker 1: say they need to stay ahead of the game. And
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  Speaker 1: all right, Glenn, I just have to leave it there
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  Speaker 1: just in case, just because of the time we really
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  Speaker 1: appreciated Glenn Mincy, National Sector leader for Private Equity at KPMG. Well,
• 6:49
  Speaker 1: the metrics for vaccinations are have been very, very impressive
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  Speaker 1: here uh in the United States, and now we're starting
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  Speaker 1: to see supply outstrip demand and so we'll starting to
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  Speaker 1: see Um, you know, the US sending extra vaccines globally,
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  Speaker 1: I think beginning in August, and that's a good thing.
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  Speaker 1: Let's bring in Lauren Sour she's Associate Professor of Emergency
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  Speaker 1: Medicine the Johns Hopkins School of Medicine. And I should
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  Speaker 1: know that the Bloomberg School of Public Health is supported
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  Speaker 1: by Michael Bloomberg, founder Bloomberg LP, Bloomberg Philanthropies and this
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  Speaker 1: radio and TV operation. Lauren, thanks so much again for
• 7:23
  Speaker 1: joining us year. We always appreciate getting your thoughts and
• 7:25
  Speaker 1: input as we try to navigate through this pandemic and
• 7:28
  Speaker 1: now through the vaccines and the reopening. Talk to us
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  Speaker 1: about how important it is for the US to be uh,
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  Speaker 1: you know, kind of a leader here and exporting some
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  Speaker 1: of its vaccines globally. Yeah. Absolutely. Um. The w h
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  Speaker 1: O has a campaign, Um. I believe it's called Nobody's
• 7:45
  Speaker 1: Takes Till Everybody is Safe, and I think that really
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  Speaker 1: speaks to the fundamentals of live vaccine sharing is important.
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  Speaker 1: We have to make sure that we have global reach
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  Speaker 1: of these vaccinations, especially because you know, we're such a
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  Speaker 1: easy to travel globe right now. Right travel has never
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  Speaker 1: been easier, There's never been more people traveling, I mean
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  Speaker 1: prior to the pandemic. Of course, UM. Globalization continues to
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  Speaker 1: grow and we can continues to get easier and easier
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  Speaker 1: for more and more people to travel UM and so
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  Speaker 1: borders sort of become a thing of the past, especially
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  Speaker 1: when you when you're talking about infectious diseases like COVID
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  Speaker 1: and so sharing vaccines create schobal equity, it creates a
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  Speaker 1: healthier planet, and it also allows us to reopen globally quicker.
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  Speaker 1: I've been sitting here talking to Paul about my travel
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  Speaker 1: plants for the summer, and I'm going to Europe. But
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  Speaker 1: what a place that will let us in if we're vaccinated.
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  Speaker 1: But at the same time, I look over at the
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  Speaker 1: UK where the delta variant cases have tripled. Should that
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  Speaker 1: make me worried even if I'm fully vaccinated. I think
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  Speaker 1: you're going to want to pay attention to what happens
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  Speaker 1: with the sciences that you, you know, you get closer
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  Speaker 1: to your travel. We're hearing that the vaccines are still
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  Speaker 1: very protective UM, and I think we'll see more about
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  Speaker 1: some of these new variants, like the delta variant UM
• 9:00
  Speaker 1: and how how the vaccines work against them. Vaccine is
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  Speaker 1: going to give you protection. So perhaps you'll get if
• 9:06
  Speaker 1: you were to get infected, you might get a more
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  Speaker 1: mild illness or have a symptomatic infection. But the vaccines
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  Speaker 1: are protective, and that is a really important point that
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  Speaker 1: you know, when you're considering travel, you need to continue
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  Speaker 1: to remember. And again, the more people that get vaccinated
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  Speaker 1: in those countries, even if they see the variants in
• 9:21
  Speaker 1: that space, that the protection grows exponentially, you know. So
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  Speaker 1: we see more and more people get vaccinated, we are
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  Speaker 1: more and more protected, Lauren. One of the other big
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  Speaker 1: issues is getting folks back to work. I mean, Kaylee
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  Speaker 1: has been coming she's been here the whole time. This
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  Speaker 1: is my fifth week of coming back. And uh, you know,
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  Speaker 1: we're starting to hear more and more companies, even a
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  Speaker 1: Goldman Saxes requiring employees to report their vaccination status. How
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  Speaker 1: do you think, what do you think it is the
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  Speaker 1: most responsible way for companies or what have you heard
• 9:52
  Speaker 1: or seeing about bringing people back into the office. Yeah,
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  Speaker 1: I think it's been really mixed. I would love to
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  Speaker 1: see some more BBC guidance and stronger CDC guidance around
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  Speaker 1: office workplaces um and bringing people back I think they've
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  Speaker 1: done a lot of work in the last few months
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  Speaker 1: on various areas that we needed guidance, and I think
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  Speaker 1: the workplaces a place where we could use some more information,
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  Speaker 1: some more you know, guidance as support. I do think
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  Speaker 1: we're going to see more and more places move towards
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  Speaker 1: what Goldman is doing. We're seeing a lot of higher
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  Speaker 1: education institutions doing this, a lot of academic medical centers
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  Speaker 1: doing this. UM. We're seeing more and more places move
• 10:29
  Speaker 1: towards requiring vaccination to come back UM. And you know,
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  Speaker 1: I think there is arguments to be made on both
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  Speaker 1: sides of of the coin for this. So we're not
• 10:40
  Speaker 1: we don't have an approved vaccine. We have some really
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  Speaker 1: great emergency use authorization vaccines with tons of clinical data
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  Speaker 1: now that show that they're safe and effective. UM. And
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  Speaker 1: I think we have vaccines moving towards approval. It'll be
• 10:54
  Speaker 1: easier to require them when once approval happens. But we
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  Speaker 1: have to give sort of space for people to make choices.
• 11:01
  Speaker 1: I mean, that's that is what you know this country
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  Speaker 1: is built on, is that choice piece and that autonomy,
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  Speaker 1: and so weighing those risks and benefits very carefully along
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  Speaker 1: with the autonomy of individuals and their ability to decide.
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  Speaker 1: It's going to be a really challenging space in the
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  Speaker 1: next few years, and we are gonna look, we're going
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  Speaker 1: to need to look to the CDC and the federal
• 11:18
  Speaker 1: government to provide guidance in this space, Lauren. A lot
• 11:21
  Speaker 1: of companies are targeting September for their return to office,
• 11:25
  Speaker 1: and there isn't so much worry about how the summer
• 11:27
  Speaker 1: is going to go. People seem pretty optimistic, but then
• 11:29
  Speaker 1: people talk about what could come in the fall and
• 11:32
  Speaker 1: the winter. Are we going to have to send people
• 11:34
  Speaker 1: home again? Yeah, I think it's really the hope that
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  Speaker 1: we don't. Um, It is definitely a possibility. I would say,
• 11:42
  Speaker 1: we don't know what's going to happen as um. You know,
• 11:44
  Speaker 1: as we move back into fall, we're still trying to
• 11:47
  Speaker 1: understand the potential seasonality of this disease, um of this pathogen,
• 11:51
  Speaker 1: and so looking towards the fall, this will be sort
• 11:53
  Speaker 1: of our first real experience of what a season might
• 11:56
  Speaker 1: look like with with a highly vaccinated population. So it's
• 12:00
  Speaker 1: kind of a wait and see, which I know is
• 12:01
  Speaker 1: not a particularly satisfying answer. Um, But I think the
• 12:05
  Speaker 1: hope is that we get enough people vaccinated. Perhaps we've
• 12:08
  Speaker 1: developed boosters if necessary, um, but we build the foundation
• 12:11
  Speaker 1: so that we can keep things safely open and and
• 12:15
  Speaker 1: that is one of the goals of getting more and
• 12:16
  Speaker 1: more people vaccinated. Lauren, thank you so much for joining
• 12:20
  Speaker 1: us once again. We always appreciate your weekly uh discussions
• 12:24
  Speaker 1: with us as we try to get more educated on
• 12:26
  Speaker 1: this pandemic and on the vaccines and on the reopening.
• 12:29
  Speaker 1: Lauren sour Associate Professor of Emergency Medicine that JOHNS Hopkins
• 12:32
  Speaker 1: School of Medicine, and of course the Bloomer School of
• 12:35
  Speaker 1: Public Health is supported by Michael Bloomberg, founder of Bloomberg
• 12:37
  Speaker 1: LP and Bloomberg Philanthropies. Alright, folks, on the trading desk
• 12:43
  Speaker 1: of Wall Street, this is how it works. You get
• 12:45
  Speaker 1: a trader out there who's making money. He's got a
• 12:47
  Speaker 1: hot hand, maybe a unique positioning and unique strategy. You
• 12:52
  Speaker 1: give that trader more capital to make more money for
• 12:55
  Speaker 1: you less you risk losing that said trader to a
• 12:58
  Speaker 1: hedge fund where they can gen even more returns. And
• 13:01
  Speaker 1: that's what Credit Swiss was doing until decided to pull back.
• 13:04
  Speaker 1: And so again Credit Swiss back in the news, maybe
• 13:07
  Speaker 1: not for the reasons it likes. Laura Benitez, Leverage finance
• 13:10
  Speaker 1: markets reporter for Bloomberg, joins us lard give us the
• 13:14
  Speaker 1: story at what happened at Credit Swiss with one of
• 13:16
  Speaker 1: its star traders. Well, we tracked the story of HANSA.
• 13:20
  Speaker 1: Lusinger who wrote to prominence very very quickly from a
• 13:23
  Speaker 1: very young age. Um. So he started off at the
• 13:26
  Speaker 1: on the trading desk and the high trading desk out
• 13:28
  Speaker 1: Credit Swie in London and very quickly was promoted to
• 13:31
  Speaker 1: head up that desk. Um and actually said I had
• 13:34
  Speaker 1: a very unique strategy, made a lot of money for
• 13:37
  Speaker 1: the bank and it was just a very very big
• 13:39
  Speaker 1: name in the market. Um. It was a very attractive
• 13:42
  Speaker 1: proposition for others as well, hence why he was sick
• 13:44
  Speaker 1: to Citadel. But obviously you know, Credits we supported him back. Um.
• 13:48
  Speaker 1: So there's a bit of a tug of war there
• 13:50
  Speaker 1: which was quite interesting at the end of last year
• 13:52
  Speaker 1: and the beginning of this year. However, the tables turned
• 13:55
  Speaker 1: slightly in the last few months because of the situation
• 13:57
  Speaker 1: that Credits weee at the moment and all the crisis
• 14:00
  Speaker 1: they're facing. Um, the patter dial backs and risk and Therefore,
• 14:03
  Speaker 1: you know, hands a petty basically go alone. Now, would
• 14:07
  Speaker 1: this have happened had the r K goes blow up
• 14:10
  Speaker 1: not happened. Um, It's difficult to say, because overall the
• 14:14
  Speaker 1: strategy at the bank seems to be that they're just
• 14:16
  Speaker 1: diving back risk across the businesses, especially on the asset
• 14:19
  Speaker 1: management side. So obviously, you know, the hands of fund
• 14:23
  Speaker 1: and what he was trading in was in that time
• 14:25
  Speaker 1: very liquid, very very high risk, and therefore that would
• 14:28
  Speaker 1: be a fund that would just be deemed too high
• 14:30
  Speaker 1: risk for the bank to even consider at the momentum.
• 14:33
  Speaker 1: Would that the other crises developing. It's very hard to
• 14:36
  Speaker 1: say how that fund would have played out. I mean,
• 14:38
  Speaker 1: as we nursed my reporting, he was fundraising throughout January
• 14:41
  Speaker 1: and February UM, and he was poised to launched that
• 14:44
  Speaker 1: funding March. So UM, it's yeah, it remains to be
• 14:47
  Speaker 1: seen how that would have gone otherwise. You know, it's
• 14:50
  Speaker 1: really interesting, Um, Laura. You know again, I used to
• 14:53
  Speaker 1: work at Credit Swiss and then still know some folks there,
• 14:56
  Speaker 1: and it just seems like they stumble from from one
• 14:59
  Speaker 1: issue to the next. Here and now you know we're
• 15:03
  Speaker 1: seeing some reporting earlier this week about offering retention bonuses
• 15:07
  Speaker 1: to managing directors as well as some rank and file people.
• 15:10
  Speaker 1: How difficult, you know, when you look at a story
• 15:13
  Speaker 1: like you're reporting on here with your team, it must
• 15:15
  Speaker 1: be very difficult for them to attract talent if they can't,
• 15:19
  Speaker 1: you know, really reward them and allow their their traitors
• 15:22
  Speaker 1: to take a certain amount of risk to generate a
• 15:23
  Speaker 1: certain amount of return. What's going on at credits with
• 15:27
  Speaker 1: absolutely they're dealing with huge reputational risk right now. And
• 15:30
  Speaker 1: on one hand, they have to preserve preserved that and
• 15:33
  Speaker 1: they have to dial back at their risk and make
• 15:34
  Speaker 1: sure that everything is you know, white and they're white
• 15:37
  Speaker 1: in terms of their compliance strateges. On the other hand,
• 15:39
  Speaker 1: like you said, they do have to retain talent. They've
• 15:41
  Speaker 1: been leaking talent for the last three or four months
• 15:44
  Speaker 1: and they've been bringing in these retention bonuses to keep
• 15:47
  Speaker 1: the very top and see new talent in place. UM.
• 15:50
  Speaker 1: But like you said, it's very very tricky for them
• 15:51
  Speaker 1: to balance that. I think it is the balancing that
• 15:53
  Speaker 1: going forward. UM. As we know from the story, Hanson
• 15:56
  Speaker 1: was able to take on a huge amount of risk.
• 15:58
  Speaker 1: He was given it up to a hundred million to
• 16:02
  Speaker 1: trade on and that would that was just way wed.
• 16:05
  Speaker 1: But what other traders and his peers were doing, um
• 16:08
  Speaker 1: And therefore, you know, that's one of the reasons why
• 16:11
  Speaker 1: he was so successful. He had an edge on everyone
• 16:13
  Speaker 1: else because he was able to take you know, twice
• 16:15
  Speaker 1: the risk um. So to be able to continue that
• 16:19
  Speaker 1: performance while also riding back in the riskier parts of
• 16:23
  Speaker 1: why that happened I think will be very interesting go forward.
• 16:26
  Speaker 1: So even if he's no longer there to take on
• 16:29
  Speaker 1: that kind of risk as credits, he's going to allow
• 16:31
  Speaker 1: allow other traders to do that going forward? Are we
• 16:33
  Speaker 1: looking at a huge dial back here of the risks
• 16:37
  Speaker 1: that they're willing to take. It's difficult to say because
• 16:40
  Speaker 1: they haven't actually communicated anything specifically about this, but it
• 16:44
  Speaker 1: would be hard to understand I think, you know, if
• 16:48
  Speaker 1: if that kind of risk appetite was to continue from here,
• 16:51
  Speaker 1: because like I said, he was the only trader on
• 16:54
  Speaker 1: you know, especially in Europe and London who was able
• 16:56
  Speaker 1: to take on that amount of risk. And the last
• 16:59
  Speaker 1: few months is really I think demonstrated, um, you know,
• 17:02
  Speaker 1: some of the pitfalls of I mean, even any middlet
• 17:05
  Speaker 1: of money for the bank, there was also a huge
• 17:06
  Speaker 1: risk attached and obviously you know there was a lot
• 17:09
  Speaker 1: of controversy behind some of his techniques too, So um, yes,
• 17:14
  Speaker 1: I think it's um it's definitely an interesting one going forward. Laura,
• 17:18
  Speaker 1: thank you so much for joining us. Really appreciate this story.
• 17:21
  Speaker 1: It's fascinating, a story about kind of the rise and
• 17:24
  Speaker 1: somewhat of a fall of a star trader at Credit Swiss,
• 17:27
  Speaker 1: and it's also a tale of, you know, pulling back
• 17:30
  Speaker 1: on risk that we're seeing at certain firms, particularly Credit
• 17:34
  Speaker 1: Swiss again trying to navigate some reputational issues there. La Benita,
• 17:38
  Speaker 1: she's a leverage finance markets reporter for Bloomberg Editorial based
• 17:42
  Speaker 1: in London, and you know, it just kind of goes
• 17:44
  Speaker 1: to that issue. We see it on Wall Street a lot.
• 17:45
  Speaker 1: You know, a firm takes a hit, whether it's financial reputational,
• 17:49
  Speaker 1: and they pulled back in on the risk profile on
• 17:52
  Speaker 1: their trading desks, on some of their investment banking operations
• 17:56
  Speaker 1: as they try to reassess their risk and their credit.
• 18:02
  Speaker 1: Looking at the markets again, a little bit of green
• 18:05
  Speaker 1: on the skate and not much going on, but certainly
• 18:07
  Speaker 1: we have markets at or near all time highs. And
• 18:11
  Speaker 1: that's despite some concerns about inflation coming into this market
• 18:16
  Speaker 1: that may prove a challenge for this economy in this market.
• 18:19
  Speaker 1: Christopher Wolf, he's a chief investment officer First Republic Private
• 18:22
  Speaker 1: Wealth Management. They have about two nineteen billion dollars in
• 18:26
  Speaker 1: assets under management. Christopher joins us. Chris, thanks so much
• 18:29
  Speaker 1: for joining us here. Love to get your thoughts on
• 18:31
  Speaker 1: this inflation question, which is certainly an area area of
• 18:35
  Speaker 1: debate for investors. Is its transitory as FED chairman Power
• 18:40
  Speaker 1: would suggest, or is it something more that we need
• 18:42
  Speaker 1: to be concerned about. What do you think? Well, I
• 18:45
  Speaker 1: think there's a couple of things. Uh. You know, first,
• 18:47
  Speaker 1: it's really hard to disagree with the FED and all
• 18:49
  Speaker 1: their pH d economists and how they think about transitory.
• 18:52
  Speaker 1: I think the market's interpretation of transitory is what's gonna matter.
• 18:56
  Speaker 1: And I think the narrative is shifting a little bit,
• 18:59
  Speaker 1: even though the a data to digest in the last
• 19:01
  Speaker 1: couple of days, and in particular what we saw for
• 19:03
  Speaker 1: the you know, the five prints on CPI yesterday. UM,
• 19:06
  Speaker 1: I think the market is going to shift towards defining
• 19:08
  Speaker 1: how long is transitory? The market started with the narrative
• 19:12
  Speaker 1: that was transitory means it'll be over in one and
• 19:15
  Speaker 1: I sent that's going to shift into two. And that's
• 19:18
  Speaker 1: the problem. If the market thinks that inflation around longer,
• 19:22
  Speaker 1: you get pressure, um at least from the markets on
• 19:25
  Speaker 1: should the Fed be acting? And why would I believe that?
• 19:28
  Speaker 1: Mostly because break evens and inflation expectations for market participants
• 19:32
  Speaker 1: are a lot higher than where the Fed says. So
• 19:34
  Speaker 1: that's setting up this dynamic. Yeah, we're looking at something
• 19:37
  Speaker 1: like two percent on the two year break even. Of
• 19:39
  Speaker 1: course the shortest term expectation. They're all that said, Should
• 19:42
  Speaker 1: I be looking at a ten year yield higher than
• 19:44
  Speaker 1: one point four six percent right now? Uh? You know
• 19:48
  Speaker 1: in a normal world, yes, you know. You haven't seen
• 19:51
  Speaker 1: this kind of extreme penalty phase for savers until you
• 19:55
  Speaker 1: go back to like the seventies and early part of
• 19:57
  Speaker 1: the eighties, and even then way beyond that in the hundreds.
• 20:00
  Speaker 1: So why is this important? It's because there's some things
• 20:03
  Speaker 1: going on that are likely to stay in place. The
• 20:05
  Speaker 1: first we've talked about with inflation, they should sticky tends
• 20:08
  Speaker 1: to be around a little bit longer than you want,
• 20:10
  Speaker 1: and in order to get rid of it, you've got
• 20:11
  Speaker 1: to do harder things than you thought in the first
• 20:13
  Speaker 1: place to get rid of it. The second piece, though,
• 20:16
  Speaker 1: is that there's just a lot of cash around. The
• 20:18
  Speaker 1: reboil markets are full of it, bank balance sheets are
• 20:20
  Speaker 1: full of it, and you know what, they buy lots
• 20:22
  Speaker 1: of treasury. So the idea here is that the excess
• 20:25
  Speaker 1: cashets and system is going to get put back into
• 20:27
  Speaker 1: treasury markets. And that's a little disconnected from fundamentals. Normally,
• 20:31
  Speaker 1: I would say that if you have inflation and economic
• 20:34
  Speaker 1: growth in the four or five or six range, the
• 20:37
  Speaker 1: tenor bond should be about that as well. But we're
• 20:39
  Speaker 1: not going there anytime soon, as long as all this
• 20:41
  Speaker 1: cash sitting on the sidelines needs to be put back
• 20:44
  Speaker 1: into the treasury market. So, Chris, you know, a bunch
• 20:47
  Speaker 1: of my business school buddies and I we were chatting
• 20:49
  Speaker 1: just recently about our kids. How are they going to
• 20:52
  Speaker 1: generate the returns on their savings and on their investments
• 20:56
  Speaker 1: that we've enjoyed since we graduated business school on And
• 21:00
  Speaker 1: it's really really tough to think of an environment where
• 21:03
  Speaker 1: they can achieve what we were able to achieve as
• 21:05
  Speaker 1: we look at our four oh one case. Now, what
• 21:07
  Speaker 1: are you suggesting to your clients here as a longer
• 21:12
  Speaker 1: term portfolio construction to generate returns that can support them,
• 21:17
  Speaker 1: you know, for years. Hence, Yeah, and I'll use that
• 21:21
  Speaker 1: phrase again. It's the extreme penalty phase for savers globally
• 21:24
  Speaker 1: um and there's a lot of kind of economic work
• 21:26
  Speaker 1: that goes into the how do we define, say, an
• 21:28
  Speaker 1: excess of savings? The economists call it a savings glut
• 21:31
  Speaker 1: and what happens with that? But I think the simple
• 21:33
  Speaker 1: answer to your question, Paul is we're gonna need to
• 21:36
  Speaker 1: be much more thoughtful about how we invest. Savings is
• 21:39
  Speaker 1: not the path forward, unfortunately, at least for the next
• 21:42
  Speaker 1: ten years, maybe more. It's going to be more about
• 21:44
  Speaker 1: investing and choosing how you invest. And from our perspective,
• 21:48
  Speaker 1: I think the big shift that's underway is, you know,
• 21:51
  Speaker 1: a stay at home, stay in the US only strategy
• 21:53
  Speaker 1: has worked well in the last several years, but a
• 21:55
  Speaker 1: more global strategy is going to be I think more
• 21:58
  Speaker 1: appropriate for investors over a period of time. That's item
• 22:01
  Speaker 1: number one. Number two is what's happening, which I think
• 22:04
  Speaker 1: is a benefit for investors is that private markets are
• 22:06
  Speaker 1: now mirroring public markets very well. Public equity, private equity,
• 22:10
  Speaker 1: public credit, private credit, public real estate, private real estate.
• 22:13
  Speaker 1: You get the picture. There are so many opportunities in
• 22:16
  Speaker 1: private markets, and they're democratizing reasonably quickly that I think
• 22:20
  Speaker 1: that opportunity set is going to become much more of
• 22:23
  Speaker 1: the area that investors are going to explore, and not
• 22:26
  Speaker 1: just public markets. I think the last piece of this
• 22:28
  Speaker 1: puzzle is, um, we're gonna look for diversification now to
• 22:32
  Speaker 1: go beyond just traditional stocks, jns and alternatives. It's going
• 22:35
  Speaker 1: to be global, it's going to be uh structural, and
• 22:37
  Speaker 1: that really means that we have to be focused just
• 22:40
  Speaker 1: to bring this all back on what is it you
• 22:42
  Speaker 1: want to do over what time period? That's really the key.
• 22:45
  Speaker 1: What are their goals? So is a sixty forty dead?
• 22:50
  Speaker 1: You know, I don't think it's dead. I do think
• 22:52
  Speaker 1: that it has to be augmented. I think the sixty
• 22:55
  Speaker 1: forty has worked out very well. This is an era
• 22:57
  Speaker 1: of I think, as Rhinehart and rogue Off called it,
• 23:00
  Speaker 1: financial repression, that the healthy bas for savers equities tend
• 23:04
  Speaker 1: to do well in that environment. So we are in
• 23:06
  Speaker 1: no way abandoning equities, but you're in a position of
• 23:09
  Speaker 1: strength for many people, and that position of strength is
• 23:11
  Speaker 1: usually the best time to act. And this action, from
• 23:14
  Speaker 1: my perspective, looks like being more globally diversified and looking
• 23:17
  Speaker 1: more at those alternates, more private investments, more things that
• 23:20
  Speaker 1: are interesting and new, even even things in the cryptocurrency
• 23:23
  Speaker 1: and blockchains. Baby, yeah, interesting. My kids will be fired
• 23:27
  Speaker 1: up about that, I know, all right, Christopher, thanks so
• 23:29
  Speaker 1: much for joining us. Christopher Wolf, He's a chief investment
• 23:31
  Speaker 1: officer First Republic Private Wealth Management. Again, that discussion, uh
• 23:36
  Speaker 1: kayleie that I'm having with my kids that are entering
• 23:38
  Speaker 1: the or have entered the workforce, and I'm telling them
• 23:41
  Speaker 1: to invest in their for one case max out if
• 23:44
  Speaker 1: they can think about being, you know, all into stocks
• 23:47
  Speaker 1: here at their age. Because you look at the fixed
• 23:49
  Speaker 1: ticle markets, what are you gonna do. You're not gonna
• 23:52
  Speaker 1: do much. You're not going to You're not gonna do
• 23:54
  Speaker 1: You're not gonna get much of anything. So again, we
• 23:57
  Speaker 1: really appreciate Christoper's comments there about you know, how to
• 24:00
  Speaker 1: to invest for the long term. Thanks for listening to
• 24:03
  Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
• 24:06
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• 24:11
  Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three,
• 24:15
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• 24:18
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• 24:20
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