Latest / Bloomberg Intelligence / Netflix's Business Model Is a Ticket to Bankruptcy, Bibb Says

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Netflix's Business Model Is a Ticket to Bankruptcy, Bibb Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now,
• 0:32
  Speaker 1: there is a lot of focus on media companies, particularly
• 0:35
  Speaker 1: as the shift from cable networks to online advertising takes hold,
• 0:41
  Speaker 1: and we are very lucky to have with us today.
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  Speaker 1: Porter bib managing partner Media Tech Capital Partners in New York.
• 0:47
  Speaker 1: He is better known as being the first publisher of
• 0:50
  Speaker 1: Rolling Stone. He has been on both sides of the industry,
• 0:53
  Speaker 1: from the content side at Rolling Stone as well as
• 0:56
  Speaker 1: being an investment banker specializing in media, entertainment and to
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  Speaker 1: chnology ventures. H Porter, thank you so much for joining us. Uh.
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  Speaker 1: You know, after Time Warner reported earnings yesterday, shares across
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  Speaker 1: the board of Walt Disney, twenty Century Fox, CBS, Viacom
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  Speaker 1: all fell because Time warners showed that they expect AD
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  Speaker 1: sales that were far below where analysts were expecting. A
• 1:22
  Speaker 1: bit yes, a bit. Well they were a bit, but
• 1:24
  Speaker 1: but the trend that was already down, that's right, already
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  Speaker 1: ratcheted down. I'm wondering, in five years, do you think
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  Speaker 1: that these behemous Walt Disney, twenty for Century, Fox, etcetera.
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  Speaker 1: Will all exist as independent companies. I think that's unlikely.
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  Speaker 1: UM NBC already is not an independent company. ABC is
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  Speaker 1: already not an independent company. You have CBS UH standing alone,
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  Speaker 1: and Fox and Fox foxes desperately trying to become a
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  Speaker 1: global media company with the rest of Sky Broadcasting, which
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  Speaker 1: they're trying to acquire in the UK. So they answer
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  Speaker 1: is no, they're not going to be any more independent
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  Speaker 1: linear networks standing alone anymore. Porter Who are the big advertisers?
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  Speaker 1: Are they automobile companies? I mean, are they the ones
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  Speaker 1: that really power most of this ad revenue. Historically that
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  Speaker 1: has been the case. It's it's packaged goods products like
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  Speaker 1: Procter and Gamble or Gillette, UH and autos. But today
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  Speaker 1: they are not the big advertisers. Big advertisers are UH,
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  Speaker 1: Internet companies like Travago, insurance companies, UM and pharmaceutical products.
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  Speaker 1: And basically because they they little known secret is that
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  Speaker 1: The people who are watching linear television are baby boomers
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  Speaker 1: and and beyond, and they're the prime prospects for all
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  Speaker 1: this pharma and the meds. It's true whenever I watch
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  Speaker 1: certain shows that my husband and they have, you know,
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  Speaker 1: add after ad if every disease you can think about,
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  Speaker 1: I think maybe we're not the demographic they're trying to reach.
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  Speaker 1: You know. I don't know why they have that golden
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  Speaker 1: retriever in every yet either, but that's enough. I'm waiting
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  Speaker 1: for Congress to say, we can make a health program
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  Speaker 1: work if we just eliminate the hundreds of millions of
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  Speaker 1: dollars that each farmer company is spending on on television advertising. Well,
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  Speaker 1: so let's talk about whether there is anything that could
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  Speaker 1: revive the ad sales for these companies or is this
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  Speaker 1: just the beginning of it even more rapid decline. Well,
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  Speaker 1: it's it's a transition, it's not a decline. Advertising actually
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  Speaker 1: is up. The upfronts that that the major networks have
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  Speaker 1: just experienced. UH posted a low single digit UH increase
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  Speaker 1: in terms of total advertising sold and also the cost
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  Speaker 1: for a thousand the rates that they're charging. The real
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  Speaker 1: message though, is that those rates are twenty five or
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  Speaker 1: thirty below what they were even five years ago. So
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  Speaker 1: that's that's because the audience, the network audience of linear
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  Speaker 1: television networks is shrinking faster than the cable cutters are
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  Speaker 1: are cutting out of cable television pay TV and going
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  Speaker 1: to the internet. Porter, I wanted to throw a couple
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  Speaker 1: of names at you and just get your thoughts. Start
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  Speaker 1: off with Amazon. Well, Amazon is probably the smartest player
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  Speaker 1: right now, and they they are one of the new
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  Speaker 1: media companies. You have Google, Facebook, Netflix, um, uh and Amazon.
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  Speaker 1: And Amazon is essentially using Amazon Prime as a an
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  Speaker 1: inducement to buy products through uh Amazon's network, uh and
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  Speaker 1: and offering you entertainment and media content that is actually terrific.
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  Speaker 1: And Amazon Prime now has a hundred million subscribers paying
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  Speaker 1: the same price as as Netflix charges and get and
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  Speaker 1: and the bonuses you get free shipping if you buy
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  Speaker 1: anything through the Amazon network. So uh, they're they're probably
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  Speaker 1: the most uh lucrative and potentially most profitable player in
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  Speaker 1: the new media world. Netflix net. Netflix has also got
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  Speaker 1: about a hundred million subscribers uh in the US, and
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  Speaker 1: they're growing there. There's their static here, but they're growing
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  Speaker 1: globally because they're they're new, and they're they're offering uh
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  Speaker 1: a unique product, streaming product that hasn't been introduced in
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  Speaker 1: most of the rest of the world. So they will
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  Speaker 1: continue to grow, but financially or economically, Netflix is is
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  Speaker 1: not sustainable. The model that they have uh is uh
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  Speaker 1: it's it's it's a ticket to bankruptcy because they own
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  Speaker 1: right now off balance sheet more than twenty billion dollars
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  Speaker 1: of liabilities for content that they're buying, contracting, or creating
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  Speaker 1: as original content, and the subscriber base is not going
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  Speaker 1: to support that. Netflix will have to, in my opinion, uh,
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  Speaker 1: introduce advertising, which will all of a sudden send the
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  Speaker 1: subscriber numbers through the floor. Well back up, because this
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  Speaker 1: is actually quite a big deal. You're saying that netflix
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  Speaker 1: Is current business model is a ticket to bankruptcy and
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  Speaker 1: that they are going to have to start advertising, at
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  Speaker 1: which point they will attract fewer users, which is not
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  Speaker 1: which is infeasible. So in other words, they're bankruptcy. No
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  Speaker 1: matter what, advertiser are going to drive subscribers away. So
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  Speaker 1: in other words, you think that they're doomed. I think
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  Speaker 1: that they're a target for acquisition by a Google and Amazon,
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  Speaker 1: A Facebook or one of the telecoms they do not
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  Speaker 1: have economically a sustainable business model, but right now be
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  Speaker 1: incredibly expensive for any of those behemoths to acquire Netflix,
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  Speaker 1: and they could potentially build out some of their own contexts.
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  Speaker 1: Why nobody is making offers for Netflix because their stock
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  Speaker 1: price and the pe is so extraordinarily high, but that
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  Speaker 1: that will not support uh high level going forward. When
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  Speaker 1: do you think this sort of hits a tipping point?
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  Speaker 1: Because so far people seem to have endless appetite for
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  Speaker 1: Netflix's debt and for anything that Netflix does. As we're
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  Speaker 1: in a transition period right now, linear television is still
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  Speaker 1: attracting significant audience, and it's a huge amount of advertising,
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  Speaker 1: even though that advertising is in decline UH and the
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  Speaker 1: cost per thousand is plummeting as well. But everybody is
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  Speaker 1: if you're a major advertiser and you want to reach
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  Speaker 1: a significant audience, you're going to buy network television. Netflix
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  Speaker 1: is offering more and more television content and drawing away
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  Speaker 1: the audiences from the linear networks. And and that's because
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  Speaker 1: it's seven's affordable, and and it's very easy to go
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  Speaker 1: in and out. But nobody talks about the turn at Netwick. Netflix.
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  Speaker 1: They never release any numbers. They don't really tell you
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  Speaker 1: how many people, UM use somebody else's password. Um, there
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  Speaker 1: are probably another ten or fifteen percent of people who
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  Speaker 1: don't pay for Netflix and who won't if there's advertising
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  Speaker 1: that comes in. So I would say in the next
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  Speaker 1: three to five years, you're gonna see Netflix hit the wall,
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  Speaker 1: and then the stock price is going to come down
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  Speaker 1: and somebody's going to pick up the pieces. Thank you
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  Speaker 1: very much for coming in and being with us. Porter
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  Speaker 1: bib is managing partner of Media Tech Capital Partners. You
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  Speaker 1: can follow him on Twitter at Porter three. All right,
• 8:56
  Speaker 1: let's visit with someone who knows a lot about hedge
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  Speaker 1: funds and alternative investor and strategies. Ron Biscardi is the
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  Speaker 1: co founder and the chief executive of Context Capital Partners
• 9:05
  Speaker 1: and he joins us here in our studio. Ron, thanks
• 9:08
  Speaker 1: very much for coming in, Thanks for having them tell
• 9:10
  Speaker 1: people what is Context Capital Partners and just add in
• 9:14
  Speaker 1: the summits that you put together so they understand that
• 9:17
  Speaker 1: it's more than just a standalone company. Sure so, Context
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  Speaker 1: Capital Partners is a an alternative investment specialist. Uh we
• 9:27
  Speaker 1: in essence, launch and accelerate alternative fund products, So we
• 9:32
  Speaker 1: work in private equity structures, hedge fund structures. We launched
• 9:36
  Speaker 1: a liquid alternatives platform a few years ago, and of course,
• 9:39
  Speaker 1: UH one of the centerpieces now of our entire business
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  Speaker 1: model is context Summits, which is our conference UH that
• 9:46
  Speaker 1: focuses exclusively on capital introduction. So these are events where
• 9:51
  Speaker 1: investors from around the world are coming together with hedge
• 9:54
  Speaker 1: fund managers and alternative managers to go through a one
• 9:59
  Speaker 1: on one me format where they get to spend a
• 10:01
  Speaker 1: half hour with each other and learn about each other
• 10:04
  Speaker 1: and figure out if there's a match, and if there is,
• 10:06
  Speaker 1: they can spend more time following the event speed dating
• 10:09
  Speaker 1: basically speedype left spe right. As part of one of
• 10:13
  Speaker 1: the recent conferences that you held, you did a survey
• 10:16
  Speaker 1: which I thought was pretty interesting, and this conference was
• 10:18
  Speaker 1: held earlier this year in Barcelona. I believe in UH,
• 10:22
  Speaker 1: and I thought that the results of this survey we're
• 10:25
  Speaker 1: fascinating because it showed that an increasing number of small
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  Speaker 1: family offices and wealthy individuals are are gravitating toward new
• 10:34
  Speaker 1: funds rather than the big established ones. And I thought
• 10:38
  Speaker 1: that was interesting. Why can you talk a little bit
• 10:40
  Speaker 1: about how pervasive this desire for smaller startups is so
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  Speaker 1: I absolutely I can tell you that what's been interesting
• 10:49
  Speaker 1: to watch is how each one of our summits events
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  Speaker 1: has grown over the attendance in the prior year, in
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  Speaker 1: the midst of one of the worst periods for hedge
• 10:58
  Speaker 1: fund performance, and I think the reason for that is
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  Speaker 1: twofold number one. After the crash, you saw investors largely
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  Speaker 1: uh flee to safety. Uh They wanted to allocate into
• 11:10
  Speaker 1: the asset class, but they only wanted to do so
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  Speaker 1: into the biggest funds. So the largest funds in the
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  Speaker 1: industry accumulated the vast majority of assets following the crash,
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  Speaker 1: and I think that has changed. I think investors are
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  Speaker 1: now more focused on returns. They're more focused on making
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  Speaker 1: sure they're getting alpha with their investment, and that has
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  Speaker 1: led them to go downstream more towards smaller funds. So
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  Speaker 1: this is interesting because a lot of people say that
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  Speaker 1: in this current environment, the idea of the big macro
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  Speaker 1: bet is losing its allure. It's also not performing particularly
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  Speaker 1: well and on average. So is this sort of indications
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  Speaker 1: an indication that investors see more value in smaller funds
• 11:50
  Speaker 1: that can target specific smaller opportunities over bigger ones that
• 11:54
  Speaker 1: are forced to go for go bigger, go home with
• 11:56
  Speaker 1: large bets. Yeah. I think that's exactly what's happening. I
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  Speaker 1: think most investors believe that it is generally easier to
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  Speaker 1: find alpha and generate alpha in smaller, niche er strategies.
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  Speaker 1: And some of the top hedge funds in the world
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  Speaker 1: are largest hedge funds in the world. It's just like
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  Speaker 1: turning an aircraft carrier trying to run these things. So, uh,
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  Speaker 1: they have obviously underperformed as a as a group, and
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  Speaker 1: I think that's a big part of the driver behind
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  Speaker 1: investors coming downstream. Does any of your money go into
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  Speaker 1: any of these strategies? Oh? Yes, I mean in in
• 12:28
  Speaker 1: the core business, uh, where we're launching and accelerating funds,
• 12:32
  Speaker 1: we do a few things. First, we deploy capital. You know,
• 12:35
  Speaker 1: that's largely why everyone wants to talk to us. Uh.
• 12:38
  Speaker 1: And you say deploy capital. Is that the people who
• 12:40
  Speaker 1: you invite you think are great and you've invested with them. Yeah.
• 12:44
  Speaker 1: So in on the asset management side of the business,
• 12:48
  Speaker 1: we are actually accelerating and launching new fund products with
• 12:52
  Speaker 1: the portfolio managers who run those funds. So our partner
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  Speaker 1: capital at context goes into those those specific products and
• 12:59
  Speaker 1: then as necessary, will also wrap services around them so
• 13:03
  Speaker 1: that their institutional quality on day one, because that has
• 13:06
  Speaker 1: also changed post crash. Precrash, you could start in your
• 13:09
  Speaker 1: apartment in this business with five or ten million bucks
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  Speaker 1: and accumulate money over time. But nowadays they really want
• 13:15
  Speaker 1: to see a real business with compliance and technology and investment.
• 13:19
  Speaker 1: Was that the Jensen partners combination that you did, so Jensen,
• 13:23
  Speaker 1: Our partnership with Jensen was really about sort of bringing
• 13:27
  Speaker 1: another offering to this marketplace and adding to our ecosystem.
• 13:31
  Speaker 1: So Jensen specializes in search for marketing executives in particular,
• 13:36
  Speaker 1: and obviously all the funds who are attending our events
• 13:39
  Speaker 1: are in the market trying to get better at marketing.
• 13:43
  Speaker 1: So we thought that was a really nice complement to
• 13:45
  Speaker 1: the Summits business, providing that search capability as well. So
• 13:48
  Speaker 1: what are some of the smaller niche businesses that are
• 13:52
  Speaker 1: popular right now? Uh? So, you know, you can't look
• 13:57
  Speaker 1: anywhere in the hedge fund industry without people talking about
• 14:00
  Speaker 1: quant I mean it's really become uh must have in
• 14:04
  Speaker 1: certain categories. And the you know, whether they are small
• 14:08
  Speaker 1: funds are big funds. At our events, the quant strategies
• 14:11
  Speaker 1: are collecting lots of meetings. You know, the the average
• 14:13
  Speaker 1: meeting count that our Miami Flagship event in February was
• 14:17
  Speaker 1: about twenty, but the quant strategies, a lot of them
• 14:20
  Speaker 1: were thirty to thirty five. What what what? What? What
• 14:24
  Speaker 1: would count as a quant strategy? And if they use
• 14:26
  Speaker 1: an algorithm, does that mean that they could call themselves quants?
• 14:30
  Speaker 1: I mean, you know, I guess at the simplest level
• 14:33
  Speaker 1: that's true, but uh, there are certain strategies where it's
• 14:38
  Speaker 1: just a human can't compete with a computer. And I
• 14:42
  Speaker 1: think if you don't have a quant capability, uh that
• 14:46
  Speaker 1: you can demonstrate to investors that you have an expertise
• 14:49
  Speaker 1: in you're just not gonna You're not going to accumulate.
• 14:52
  Speaker 1: Do the investors understand the models generally speaking? Probably not so.
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  Speaker 1: Like basically the wheel here there based sickly saying, okay,
• 15:01
  Speaker 1: you've handed me a document. Everybody has invested, we love you,
• 15:04
  Speaker 1: we think you're very smart. You've got twenty pH d
• 15:07
  Speaker 1: s on staff, And by the way, here are your
• 15:10
  Speaker 1: back tested results. Because I haven't been in business long enough,
• 15:13
  Speaker 1: and go ahead, there's my money. So I think this
• 15:16
  Speaker 1: came out of a survey we did in Miami. Investors
• 15:20
  Speaker 1: really are focused on your investment process. To your point,
• 15:23
  Speaker 1: pen they can't really evaluate the code. I mean some
• 15:25
  Speaker 1: are trying to hire software developers to actually dig into
• 15:29
  Speaker 1: the code when the when the manager will let them.
• 15:31
  Speaker 1: But in general they're focused on an investment process because
• 15:35
  Speaker 1: if you have a good process, you can weather lots
• 15:38
  Speaker 1: of different markets. I think to look at just the
• 15:41
  Speaker 1: performance of a back test or anything like that in
• 15:43
  Speaker 1: isolation is probably a mistake, because every strategy will encounter
• 15:48
  Speaker 1: a market where it doesn't work, and you need to
• 15:50
  Speaker 1: know that the team is prepared to deal with that
• 15:52
  Speaker 1: when it occurs. Just really quick. Any emerging market strategy
• 15:57
  Speaker 1: is getting hot right now. UH so at in our
• 16:01
  Speaker 1: European survey, UH there was more interest from investors just
• 16:05
  Speaker 1: slightly in UH developed market equities, and so nothing that
• 16:10
  Speaker 1: immediately comes to mind for me. Thank you so much
• 16:13
  Speaker 1: for joining us. Ron Biscardi, co founder and chief executive
• 16:16
  Speaker 1: officer of Context Capital Partners in chief basically UH couple
• 16:22
  Speaker 1: maker between hedge funds and big wealthy institutions. UH. The
• 16:26
  Speaker 1: Allocator Trends report on Europe from this year's meeting is
• 16:30
  Speaker 1: really quite interesting and demonstrates a lot of counter intuitive
• 16:34
  Speaker 1: trends and Lisa A. Bram Woid's, along with pim Fox,
• 16:37
  Speaker 1: this is Blueberg. Right now, I'm looking at a British
• 16:53
  Speaker 1: pound versus the Euro that is down as its weakest
• 16:57
  Speaker 1: level since October. Comes after Bank of England's Mark Carney
• 17:01
  Speaker 1: said basically the economy is at the mercy of Brexit
• 17:04
  Speaker 1: and downgraded his expectations for growth. To get a little
• 17:07
  Speaker 1: bit better perspective, I want to bring in Mark Chandler,
• 17:10
  Speaker 1: Global Head of Currency Strategy at Brown Brothers Harriman in
• 17:13
  Speaker 1: New York City. Mark, thank you so much for joining us.
• 17:16
  Speaker 1: You know, we have seen this pervasive weakness in the pound,
• 17:19
  Speaker 1: which is pretty close at this point to the lowest
• 17:22
  Speaker 1: level since two thousand nine versus the euro. How much
• 17:25
  Speaker 1: further can it weaken? And a good question. I think
• 17:28
  Speaker 1: that what was saying, really it's not just sterling weakness
• 17:31
  Speaker 1: here or the dollars weakness, but we're really seeing euro
• 17:33
  Speaker 1: strength as well. To me that really the move did
• 17:36
  Speaker 1: not begin because it woul happened in the UK, but
• 17:38
  Speaker 1: it really began in April when it became clear that
• 17:42
  Speaker 1: this populoust nationalist wave was not really sweeten across the world.
• 17:45
  Speaker 1: That was primarily a U. S UK event, and that
• 17:48
  Speaker 1: Europe was going to turn its back on it. And
• 17:50
  Speaker 1: that's what happened. As soon as Kim claid that mccon
• 17:52
  Speaker 1: was going to win, the euros took off and really
• 17:55
  Speaker 1: hasn't looked back. And so this is still for me,
• 17:58
  Speaker 1: I think partly the Euro over But you know, back
• 18:01
  Speaker 1: in two thousand and eight, two thousand and nine euro
• 18:05
  Speaker 1: sterling got above. You just said that the euro, that
• 18:09
  Speaker 1: the euro has overshot, so you're expecting it to reverse
• 18:12
  Speaker 1: at some point. Yes, I think that what we saw,
• 18:14
  Speaker 1: you know, you know, one of the big drivers now
• 18:17
  Speaker 1: UH that has put the bottom on sterling was the
• 18:20
  Speaker 1: softer than expected us I s M for the service sector.
• 18:25
  Speaker 1: Well today the Eurozone reported it's weakest p M I
• 18:30
  Speaker 1: composite UH form basically over a year. And so I
• 18:35
  Speaker 1: think that the mcclem story is so that the bloom
• 18:38
  Speaker 1: is off the rose there, he's the honeymoon is over.
• 18:41
  Speaker 1: I think we people have exaggerated how how close the
• 18:45
  Speaker 1: the e c B is to really exiting their policies.
• 18:49
  Speaker 1: I know the leading you had you quote someone someone
• 18:51
  Speaker 1: is talking from Bloomberg talking about how other central banks
• 18:54
  Speaker 1: are getting are like signingly that they also are getting done.
• 18:57
  Speaker 1: But I think what we're gonna get in September is
• 19:00
  Speaker 1: the ECB to say that they're not done. They're not
• 19:02
  Speaker 1: done expanding their balance sheet this year, but they will
• 19:04
  Speaker 1: continue to buy bonds, perhaps at a slower pace, through
• 19:08
  Speaker 1: the first half of next year. The US balance sheet
• 19:11
  Speaker 1: is going to be shrinking, probably beginning in October, but
• 19:14
  Speaker 1: I think could raise rates again in December, could raise
• 19:17
  Speaker 1: rates again early next year before the ECB even gets
• 19:21
  Speaker 1: done with expanding their balance sheet or raising rates. Hey Mark,
• 19:24
  Speaker 1: I'm wondering if you could explain who or what group
• 19:27
  Speaker 1: of traders actually moves the needle when it comes to
• 19:31
  Speaker 1: exchange rates. And I'm thinking about dollar euro right now,
• 19:34
  Speaker 1: because we're at one eighteen and if you've got this
• 19:38
  Speaker 1: bid underneath bonds coming from the European Central Bank, you
• 19:42
  Speaker 1: can make the argument that that's not a really natural situation.
• 19:47
  Speaker 1: Well yeah, I mean so, I think it depends on
• 19:50
  Speaker 1: the time from that you're looking at. I often find
• 19:52
  Speaker 1: and that's why I tracked the commitmentive traders that you
• 19:54
  Speaker 1: can use on Bloomberg I p SP or the c
• 19:58
  Speaker 1: O T function because I think in the short term, uh,
• 20:01
  Speaker 1: the speculators and have a big role to play in
• 20:04
  Speaker 1: a sort of momentum traders, trend followers. But what's also
• 20:08
  Speaker 1: happening this year, PAIM is that global investors, the clients
• 20:12
  Speaker 1: here at Broun, these are real money, These are mutual funds,
• 20:15
  Speaker 1: asset managers, unit trust and what these people have been
• 20:18
  Speaker 1: doing have been the big play has been buying European
• 20:21
  Speaker 1: stocks on an unheedged basis and buying emerging market stocks.
• 20:25
  Speaker 1: And so I think that those those portfolio flows are
• 20:28
  Speaker 1: more of a medium term uh more, more of a
• 20:30
  Speaker 1: medium term driver, you know, markets. It's interesting when you're
• 20:33
  Speaker 1: talking about different flows. I have to think about recent
• 20:37
  Speaker 1: data showing that foreign investors have increased their purchases of
• 20:40
  Speaker 1: US bonds in part because of the weaker dollar gives
• 20:44
  Speaker 1: them a more attractive price point. It makes me wonder,
• 20:46
  Speaker 1: at what point will that end up causing more dollar strength,
• 20:50
  Speaker 1: just because if there is more demand flooding in you
• 20:52
  Speaker 1: would expect that to be a sort of corollary consequence. Yeah,
• 20:56
  Speaker 1: I know, you're right, that's that's always the funny thing
• 20:59
  Speaker 1: I have to find with the closes. It's almost like
• 21:00
  Speaker 1: for me, like an onion and the closer I. The
• 21:03
  Speaker 1: closer I look at it, take off a layer and
• 21:05
  Speaker 1: peel back. I just have more layers. Like very I
• 21:09
  Speaker 1: think money is very much mysterious like that, especially these flows,
• 21:13
  Speaker 1: but in general, I think that the the problem is
• 21:16
  Speaker 1: that when the dollar is weak like it is like
• 21:19
  Speaker 1: it has been in the last several months, foreign central
• 21:22
  Speaker 1: banks typically buy the dollar from the basically buying it
• 21:26
  Speaker 1: from the private sector, and so the central bank ownership
• 21:29
  Speaker 1: of treasuries which is going up. There's another important function
• 21:32
  Speaker 1: that you have on Bloomberg where you can track the
• 21:34
  Speaker 1: Federal Reserve acts of custodian for foreign central banks and
• 21:37
  Speaker 1: their holdings of treasuries and mortgage backed securities. It has
• 21:41
  Speaker 1: been going up quite sharply this year, particularly for China
• 21:44
  Speaker 1: and Japan. China and Japan, but also you know, I'm
• 21:47
  Speaker 1: not sure in these we think that in the pick data,
• 21:50
  Speaker 1: but in the Federal Reserve custody we don't. Really it's
• 21:53
  Speaker 1: not public who which central banks used the Federal Reserve
• 21:57
  Speaker 1: as a custodian. I personally be surprised if China was
• 21:59
  Speaker 1: a user of the federal reserves, custodial services, but any
• 22:03
  Speaker 1: of it. It's true that central banks have been buying
• 22:05
  Speaker 1: more treasuries, and they've been buying them because the market
• 22:08
  Speaker 1: wants to sell them. The market wants to sell the dollars,
• 22:11
  Speaker 1: and the central banks ACIEM like those dollars and put
• 22:13
  Speaker 1: them into treasuries. We gotta leave it there, But I
• 22:15
  Speaker 1: want to thank you very much. Mark Chandler, Global head
• 22:18
  Speaker 1: of Currency Strategy, Brown Brothers Harriman. He can be followed
• 22:22
  Speaker 1: on Twitter at Mark making Sense. I want to turn
• 22:37
  Speaker 1: out to trade between the United States and China. And
• 22:40
  Speaker 1: Caitlyn Webber are a government analyst for global trade policy
• 22:43
  Speaker 1: for Bloomberg Intelligence. Caitlin, thank you very much for being
• 22:46
  Speaker 1: with us. Tell us the current state of US China
• 22:49
  Speaker 1: trade relations and what is at stake for both sides. Well,
• 22:54
  Speaker 1: at this point we're really seeing UM that relationship has
• 22:58
  Speaker 1: it cheerated a lot, really over the last month or so.
• 23:01
  Speaker 1: It's interesting because in the first six months of the
• 23:03
  Speaker 1: year UM it looked like the relationship was improving. Trump
• 23:07
  Speaker 1: the Trump administration declined to name China currency manipulator after
• 23:11
  Speaker 1: threatening to do so on the campaign trail. Trump Trump
• 23:14
  Speaker 1: administration really linked UM that trade relationship with China, UM
• 23:22
  Speaker 1: oftensibly trying to help ease tensions on the Korean peninsula,
• 23:26
  Speaker 1: try to rein in Piyongyang. Over the past months, UM,
• 23:31
  Speaker 1: after we saw North Korea test to intercontinental ballistic missiles,
• 23:36
  Speaker 1: you saw that, you saw President Trump come out and
• 23:38
  Speaker 1: say you were disappointed in China that they haven't been
• 23:41
  Speaker 1: successful in sort of controlling North Korea. More. UM, we
• 23:45
  Speaker 1: think that we could potentially see some actions on trade
• 23:48
  Speaker 1: and so UM. There are a couple of investigations that
• 23:52
  Speaker 1: have already been launched on steal an aluminum against that
• 23:55
  Speaker 1: really target China, And over the past couple of days
• 23:58
  Speaker 1: have been there's been a lot of porting that there
• 24:01
  Speaker 1: will be potentially another investigation launched, this time going after
• 24:05
  Speaker 1: alleged Chinese violation of US intellectual property. Well, Caitlin, I'd
• 24:11
  Speaker 1: love to get some details on the progress that US
• 24:14
  Speaker 1: officials have made on this whole Bioamerica steel plan that
• 24:19
  Speaker 1: President Trump has touted. I mean, how far along are
• 24:22
  Speaker 1: we on that type of initiative or has it fallen
• 24:24
  Speaker 1: by the wayside. It seems to have fallen by the wayside,
• 24:29
  Speaker 1: at least in the attention that it's getting when that
• 24:32
  Speaker 1: when that proposal was announced back up, I think it
• 24:35
  Speaker 1: was in April, it was you know, there was a
• 24:36
  Speaker 1: lot of news around it, a lot of excitement from
• 24:39
  Speaker 1: the U S steal industry. Um, this is a plan
• 24:41
  Speaker 1: to include steal in all US pipelines. Now, the Commerce
• 24:44
  Speaker 1: Department was supposed to provide a report to the President
• 24:48
  Speaker 1: UM on the status at that plan, just UM in
• 24:52
  Speaker 1: the last week or so, and we didn't hear really
• 24:55
  Speaker 1: a peep out of the Commerce Department or the President
• 24:57
  Speaker 1: on the results of that review. UM. So I say,
• 25:00
  Speaker 1: get this at this point, it seems like that, you know,
• 25:04
  Speaker 1: that plan may have stalled, and I think you're seeing
• 25:08
  Speaker 1: a lot of frustration from the U. S. Steel industry
• 25:11
  Speaker 1: into not seeing more results around that plan and around
• 25:14
  Speaker 1: a larger investigation UM targeting imported U S steal that's
• 25:18
  Speaker 1: often referred to as Section two three. They're really hoping
• 25:21
  Speaker 1: for more action to take on these surging steel imports,
• 25:27
  Speaker 1: and they're just at this point not getting it from
• 25:30
  Speaker 1: the Trump administration. You know, I'm wondering also what pressure
• 25:33
  Speaker 1: President Trump faces from, say representatives from Louisiana and Tennessee.
• 25:37
  Speaker 1: There two extremes on either side of the spectrum here,
• 25:42
  Speaker 1: because louis and Louisiana exports a lot of soybeans to
• 25:46
  Speaker 1: China and has a positive trade balance with China, whereas
• 25:50
  Speaker 1: Tennessee has an extreme negative one and is importing a
• 25:53
  Speaker 1: lot of things and would suffer from many tax that
• 25:56
  Speaker 1: the US would put on Chinese goods. I mean, are
• 26:00
  Speaker 1: Congressman or other representatives maybe governors getting up in arms
• 26:05
  Speaker 1: at all about this. There's a lot of consensus in
• 26:08
  Speaker 1: Congress and among the business community UM in support for
• 26:13
  Speaker 1: the Trump administration going after China's alleged violation of US
• 26:18
  Speaker 1: UM intellectual property property. UM that's going to complaint for
• 26:22
  Speaker 1: a really long time. There's a lot of consensus around
• 26:24
  Speaker 1: something needs to be done. So we need to do
• 26:26
  Speaker 1: something to rain in China UM basically stealing our i P.
• 26:30
  Speaker 1: What there is not a lot of agreement on is
• 26:32
  Speaker 1: what the U s should do. You know, what sort
• 26:35
  Speaker 1: of actions we should take in order to compel China
• 26:38
  Speaker 1: to do that? UM. And you know, as you mentioned,
• 26:42
  Speaker 1: if if these talks do fail and the US decides
• 26:45
  Speaker 1: to impose tariffs on Chinese imports and China responds and kind,
• 26:51
  Speaker 1: there will be um, you know, collateral damage potentially. Um.
• 26:56
  Speaker 1: The US is so dependent on China for consumer goods,
• 26:59
  Speaker 1: for for phones and computers, UM that you know, sort
• 27:03
  Speaker 1: of a broad action against Chinese imports would probably not
• 27:08
  Speaker 1: be very politically popular. UM. So you know, a lot
• 27:12
  Speaker 1: of consensus around something needs to be done, not a
• 27:15
  Speaker 1: lot of agreement on what exactly we should target and
• 27:18
  Speaker 1: how we should make sure that China isn't going after
• 27:20
  Speaker 1: our exports. Just quickly, give you about twenty seconds. What's next?
• 27:24
  Speaker 1: What do we need to pay attention to? So let's
• 27:26
  Speaker 1: look for the Trump administration's messaging on this so called
• 27:30
  Speaker 1: Section three oh one investigation into I p UM. Let's
• 27:34
  Speaker 1: look to see where they not they're going to promise
• 27:37
  Speaker 1: them some deliverables on that in the next three months.
• 27:40
  Speaker 1: So far this year, it's been a lot of investigations,
• 27:42
  Speaker 1: a lot of talks, but not a lot of action.
• 27:43
  Speaker 1: We need to see if they're actually going to promise
• 27:46
  Speaker 1: deadlines in terms of delivering some some new limits or
• 27:49
  Speaker 1: some new restrictions. Caitlin Webber, thank you so much for
• 27:52
  Speaker 1: joining us. A truly important topic that we will continue
• 27:55
  Speaker 1: to discuss in the weeks and months to come. Caitlin
• 27:58
  Speaker 1: Webber is governed, an analyst covering global trade policy for
• 28:02
  Speaker 1: Bloomberg Intelligence, and uh, definitely, the rhetoric at least is
• 28:06
  Speaker 1: definitely rattioning up between China and the US with respect
• 28:10
  Speaker 1: to its trade relationship. Thanks for listening to the Bloomberg
• 28:16
  Speaker 1: P and L podcast. You can subscribe and listen to
• 28:19
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 28:24
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 28:27
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 28:31
  Speaker 1: You can always catch us worldwide on Bloomberg Radio