Latest / Bloomberg Intelligence / Blackstone Hauls in $8.7 Billion for Energy Transition Fund

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Blackstone Hauls in $8.7 Billion for Energy Transition Fund · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 6: One of the stories I highlighted this morning was we
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  Speaker 6: saw Blackstone raising an $ 8.
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  Speaker 2: 7 billion deal. No big deal.
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  Speaker 6: They're raising money left and right out there. But this
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  Speaker 6: one was dedicated to cleaner energy. I kind of thought
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  Speaker 6: that was kind of passe with this administration, this country,
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  Speaker 6: but apparently not. Let's check in with Paul Goldberg. He's
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  Speaker 6: the senior equity analyst for Bloomberg Intelligence. He covers all
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  Speaker 6: these big private equity companies. So what's going on here
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  Speaker 6: with Blackstone? Again, they're still raising money pretty well. Why
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  Speaker 6: are they looking at cleaner energy here?
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  Speaker 1: Thanks, Paul.
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  Speaker 7: I don't think it's necessarily just the cleaner energy. It's
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  Speaker 7: just energy in general. Energy and power is really the
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  Speaker 7: two key driving forces behind the private markets these days.
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  Speaker 7: So a lot of money going in. So it's clean energy.
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  Speaker 7: But if you look at the investments that some of
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  Speaker 7: these funds are making, It's a lot of the infrastructure
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  Speaker 7: into transmission lines, into all sorts of supplies that go
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  Speaker 7: into things like data centers and so on. So it's
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  Speaker 7: much broader, even though the mandate talks about the cleaner energy.
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  Speaker 2: But this is power. I guess we've all learned power, water.
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  Speaker 6: For these data centers, to the extent they're going to
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  Speaker 6: build them out like they say they are, You need
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  Speaker 6: all that.
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  Speaker 7: Stuff, right? You absolutely do. We actually published our private
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  Speaker 7: credit survey this morning. So this is an equity fund,
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  Speaker 7: but the survey is on the credit. And we asked
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  Speaker 7: a lot of questions about the data center investors. One
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  Speaker 7: of the number one areas where investors want to put
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  Speaker 7: money is power. More than 50% of responders said power
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  Speaker 7: is the area where they want to put money first
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  Speaker 7: over the GPUs and all the other things that are
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  Speaker 7: possible in real estate and so on.
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  Speaker 1: So how does that look now?
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  Speaker 8: All of this fund seems to be mostly domestic, but
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  Speaker 8: as we're finding out, it's an international market for power,
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  Speaker 8: and these guys now are being influenced by that. The
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  Speaker 8: data centers, these guys is what I meant. Is this
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  Speaker 8: sort of something where they're diverging outside the U.S., maybe
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  Speaker 8: Canada and Mexico, other areas, to make more of a
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  Speaker 8: longer power kind of channel?
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  Speaker 7: They certainly do. I mean, a lot of these funds
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  Speaker 7: are very often turned global. We've seen areas buying similar
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  Speaker 7: assets in Australia, and a lot of the alternative managers
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  Speaker 7: all over. We've seen deals done in Europe. Apollo funded
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  Speaker 7: a lot of those, some of those transactions and so on.
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  Speaker 7: So I think a lot of it turns global very quickly.
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  Speaker 8: How crowded is this space now?
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  Speaker 7: I think it is pretty crowded because there are a
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  Speaker 7: lot of players. But so if we look at the
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  Speaker 7: tech guys' estimates in terms of the infrastructure that's needed
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  Speaker 7: for the data centers and so on, it is still
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  Speaker 7: very vast. We're talking about trillions. Apollo actually made some
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  Speaker 7: estimates a while back in terms of the markets. They
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  Speaker 7: said $ 30 to $ 50 trillion of energy transition that's needed
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  Speaker 7: over the cycle. This is like a big number.
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  Speaker 8: It's like Fed numbers.
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  Speaker 7: And that's just one part of it. The other part
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  Speaker 7: is $ 30 trillion of power and utilities. So you look
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  Speaker 7: at $ 60, $ 80 trillion of opportunity, and we're talking about
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  Speaker 7: a $ 9 billion fund or trillion-dollar infrastructure.
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  Speaker 1: So it's crowded, but there's a lot of opportunity.
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  Speaker 2: Talk to us about the private credit business these days.
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  Speaker 6: Is it still– can I go out there and raise
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  Speaker 6: a gajillion-dollar fund if I'm a KKR or Blackstone? Is
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  Speaker 6: there still as strong demand for private credit today as
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  Speaker 6: there has been over the last 10 years?
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  Speaker 3: It is.
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  Speaker 6: It is.
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  Speaker 7: Again, numbers from the survey, the respondents say growth rate
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  Speaker 7: can be about 10%. And this is of three different categories,
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  Speaker 7: between the asset managers who manage the money, between the
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  Speaker 7: investors who put in the money, and the bankers who
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  Speaker 7: are kind of working together, competing, and so on. So
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  Speaker 7: on average, they said about 10% growth rate just for
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  Speaker 7: the core private credit in terms of replacement of traditional.
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  Speaker 7: It's about 15% potential, so a lot of opportunity there.
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  Speaker 2: So just a red headline crossing the Bloomberg terminal, pretty interesting.
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  Speaker 6: Saudi Arabia postpones the FII investment event, postponing it to
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  Speaker 6: 2027 and reflecting kind of the turmoil we're seeing in
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  Speaker 6: that part of the world.
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  Speaker 2: So that speaks volumes, I think, as to what's going
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  Speaker 2: on out there geopolitically.
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  Speaker 8: Yeah, not fun times over there. That's the second or
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  Speaker 8: third thing now they've had in two weeks they've had
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  Speaker 8: to change.
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  Speaker 9: Yep, absolutely.
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  Speaker 6: So what's going on, just broadly defined with your big,
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  Speaker 6: you cover all the cool names, the.
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  Speaker 2: Blackstones, the KKRs and all that kind of stuff. Here's
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  Speaker 2: the challenge.
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  Speaker 6: This is what I was told when I first started
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  Speaker 6: looking at private equity. It's easy to raise money. It's
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  Speaker 6: really easy to invest it. It's really hard to monetize it.
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  Speaker 6: How are they monetizing or not monetizing?
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  Speaker 7: They're not having a very easy time, especially on the
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  Speaker 7: equity side. So credit kind of matures, so you don't
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  Speaker 7: really go around monetizing it. But on the equity side,
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  Speaker 7: exits are difficult. So this energy, actually, this particular energy bucket,
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  Speaker 7: energy transition at Blackstone, has been doing really well. That's
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  Speaker 7: why they're raising the fund two years after they just
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  Speaker 7: raised the predecessor at a 50% higher AUM.
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  Speaker 2: You know what I don't like? And you can tell Mr. KKR, Mr.
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  Speaker 2: Blackstone this. When KKR... sells a deal to a Blackstone.
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  Speaker 2: There's my exit.
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  Speaker 1: That's cheesy.
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  Speaker 2: That's just like moving the deck chairs around.
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  Speaker 7: In some cases, you can think about it this way,
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  Speaker 7: but in other cases, their portfolios are so large, and
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  Speaker 7: some of the M & As fit in better. So
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  Speaker 7: some of these deals actually do make sense to extract
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  Speaker 7: extra value out of the combinations.
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  Speaker 8: Energy specifically, what's the preferred exit? Are we just not
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  Speaker 8: even close to that, meaning you haven't seen a trend yet?
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  Speaker 7: We haven't seen that much, but a lot of, I mean,
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  Speaker 7: most of the exits are still in M & A sales.
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  Speaker 7: It's not kind of IPOs. If you think of IPOs,
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  Speaker 7: it's maybe 10 to 15% of the activity in general,
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  Speaker 7: not just energy.
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  Speaker 2: Paul, thanks so much. Appreciate it.
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  Speaker 6: As always, here's another Bloomberg Intelligence analyst based in Princeton
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  Speaker 6: in New York, which again, just like Jeff Langbaum, makes
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  Speaker 6: me believe.
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  Speaker 2: Somebody buying you a lunch or dinner today? Somebody is
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  Speaker 2: buying me a dinner.
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  Speaker 1: See?
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  Speaker 2: That's my theory.
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  Speaker 6: The only way you get these guys out of their
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  Speaker 6: seats and Princeton, which is posh down there, great food.
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  Speaker 2: They've got to come to New York and somebody's buying
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  Speaker 2: them a lunch or dinner. So there you go. My
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  Speaker 2: theory holds yet again. Stay with us. More from Bloomberg
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  Speaker 2: Intelligence coming up after this.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 6:39
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 6:42
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 6:46
  Speaker 5: you get your podcasts or watch us live on YouTube.
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  Speaker 6: You know we love these big take stories, folks. They
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  Speaker 6: come out every day from Bloomberg News, and they are awesome.
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  Speaker 6: They're usually a great topic, very well resourced, it looks like.
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  Speaker 6: Tons of reporting, deep dive stuff. And for me, lots
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  Speaker 6: of cool graphics, funny pictures, that kind of stuff that
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  Speaker 6: helps me understand what's going on.
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  Speaker 2: And today's is a doozy.
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  Speaker 6: I read it this morning at 4.40 in the morning,
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  Speaker 6: driving up the parkway in the backseat.
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  Speaker 2: Here we go. For the three Buffetts, a $ 150 billion
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  Speaker 2: puzzle puzzle over Warren's riches.
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  Speaker 6: What do they do with Warren Buffett's estate once he passes?
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  Speaker 6: Alex Rajbandari, insurance reporter, Bloomberg News, joins us here.
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  Speaker 2: He's in studio. It doesn't matter if I kill his
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  Speaker 2: pronunciation here. Alex, this is a great story here.
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  Speaker 6: Warren Buffett's estate, roughly, I don't know, that's a lot,
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  Speaker 6: $ 150 billion.
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  Speaker 2: I don't know. It was at one point he.
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  Speaker 6: Was giving money to the Gates and the Gates Foundation.
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  Speaker 6: And with the idea that Gates will give that money away.
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  Speaker 6: So Warren doesn't really have to worry about that giving
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  Speaker 6: it away part, which he has said.
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  Speaker 2: Is that not happening anymore? Is that relationship not there?
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  Speaker 9: What happened is in 2006, when Warren Buffett made his
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  Speaker 9: first pledge to give the vast majority of his fortune
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  Speaker 9: away to charity, he was partnering with the Gates Foundation.
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  Speaker 9: They were getting the bulk of the money and.
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  Speaker 2: His kids were.
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  Speaker 9: who still had, each of them have a foundation that's
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  Speaker 9: been set up by the parents. They were in charge
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  Speaker 9: of disbursing part of that money, but like a very
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  Speaker 9: small proportion of it. That's over because over the past month,
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  Speaker 9: Buffett had decided not to give or to pause gifts
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  Speaker 9: to the Gates Foundation. So now we know that his
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  Speaker 9: net worth, which is $ 150 billion, will be in the
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  Speaker 9: hands of his kids when the time comes and they
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  Speaker 9: will be in charge of disbursing it and giving it away.
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  Speaker 8: So what have the kids been doing with that money
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  Speaker 8: that they already have foundations? So we have some track
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  Speaker 8: record here. I mean, is this going to be a
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  Speaker 8: tectonic shift where Gates has a certain favorite area where
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  Speaker 8: he likes to do and focus with his foundation and
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  Speaker 8: the kids are different or is.
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  Speaker 1: It basically business as usual?
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  Speaker 9: It's very different in a sense that each kid has
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  Speaker 9: their own enthusiasm and priorities and interest in philanthropy, and
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  Speaker 9: they're widely different. Take Howard Buffett, who has a police
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  Speaker 9: training facility in Illinois, also funds a lot of the
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  Speaker 9: effort in Ukraine and mining and food security. At the
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  Speaker 9: same time, Susie Buffett is mostly focusing on Omaha, on
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  Speaker 9: early childhood education. Peter Buffett is doing a lot of
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  Speaker 9: work around marginalized communities, also kind of helping with the
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  Speaker 9: town of Kingston where he lives to refurbish and recreate
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  Speaker 9: a lot of momentum.
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  Speaker 1: In the area.
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  Speaker 9: So these are widely different perspectives on what philanthropy can be.
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  Speaker 2: It's different also.
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  Speaker 9: From what Gates was doing, which when he was getting
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  Speaker 9: all the money from Buffett, they were like big ticket
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  Speaker 9: ideas like controlling HIV, eradicating malaria. So it's definitely a
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  Speaker 9: change in, you know, the picture of what's going to happen.
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  Speaker 9: But to be clear, what the kids have been doing
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  Speaker 9: so far is limited to compared to what they're going
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  Speaker 9: to have to do. It's a drop in the ocean
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  Speaker 9: compared to what they're going to have to do.
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  Speaker 2: All right.
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  Speaker 6: Reading the story, my takeaway was this is a disaster
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  Speaker 6: waiting to happen.
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  Speaker 2: These guys are not prepared to do anything on this scale.
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  Speaker 6: Is there a plan? I mean, people of this size,
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  Speaker 6: they have companies. Literally, their only job is to manage
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  Speaker 6: this money and to give it away and to do
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  Speaker 6: all that kind of stuff. And it seemed like Warren
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  Speaker 6: had kind of offloaded that to Bill Gates and his infrastructure.
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  Speaker 6: Is there any infrastructure for these three siblings to do
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  Speaker 6: any of this effectively?
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  Speaker 2: So, you know, there's a.
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  Speaker 9: Belief in philanthropy that if you give a lot of
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  Speaker 9: money to a small organization, you can overwhelm them. And
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  Speaker 9: the three kids in different ways are kind of adepts
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  Speaker 9: of that philosophy and they don't want to give like big,
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  Speaker 9: like Mackenzie Scott is kind of re just rewriting the
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  Speaker 9: rules of how you do philanthropy these days. They're not
• 11:02
  Speaker 9: in that vein. They won't make big, no strings attached, uh, checks. Uh,
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  Speaker 9: so they focus on very specific areas that they are really, um,
• 11:10
  Speaker 9: you know, they like to work on with, Trusted allies,
• 11:14
  Speaker 9: people they've been working with forever. They do have small
• 11:16
  Speaker 9: crews compared to bigger organizations. So it's a big question
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  Speaker 9: mark for sure as to what's going to happen. And
• 11:22
  Speaker 9: they don't really know themselves whether they're going to be
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  Speaker 9: pulling resources together or doing coordination. We know they're talking
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  Speaker 9: among each other to, you know, kind of exchanging ideas
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  Speaker 9: of what they can do together.
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  Speaker 2: But there's no plan that's shared.
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  Speaker 9: Or like, you know.
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  Speaker 2: They better come up with something fast. Warren Buffett's 96, right?
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  Speaker 2: They're very much aware of that.
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  Speaker 1: And then they're working on this.
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  Speaker 9: Yeah.
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  Speaker 1: There's still going to be three.
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  Speaker 8: And so just to make this clear, they're going to
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  Speaker 8: combine into one with this chunk of capital, or is
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  Speaker 8: it going to still be three that get equally distributed?
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  Speaker 9: So that's, I mean, Warren Buffett said that when he
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  Speaker 9: passes away, uh, the fortune is going to be handled
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  Speaker 9: by his three kids. Um, there are trustees that will
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  Speaker 9: take over after that, but it's not clear really whether
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  Speaker 9: they're going to do this with their own charities or
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  Speaker 9: whether it's going to be like a common effort.
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  Speaker 2: So did you go out to Omaha and meet with
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  Speaker 2: principals here? And if so, what did you learn? I
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  Speaker 2: went to Omaha.
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  Speaker 9: It's interesting because, you know, the impact of the Buffett
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  Speaker 9: family and the Sherwood Foundation, which is the one of
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  Speaker 9: Susie Buffett, who's still in Omaha, is visible across the city.
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  Speaker 9: They funded the museum, the science museum next to the riverfront.
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  Speaker 9: There's a lot of places in the city where you
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  Speaker 9: would see the name Sherwood Foundation. We went to a
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  Speaker 9: restaurant that hires the formerly incarcerated, for instance. It's kind
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  Speaker 9: of sprinkled all over the place. A lot of childhood
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  Speaker 9: education programs that a lot of families in the area
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  Speaker 9: depend on are financed by that foundation.
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  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 12:51
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 12:55
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 12:58
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 13:01
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 13:06
  Speaker 2: Michael Ball sitting in for Scarlett Fu. I'm Paul Sweeney.
• 13:08
  Speaker 6: We're live here in our Bloomberg Interactive Broker Studio streaming.
• 13:11
  Speaker 2: Live on YouTube as well.
• 13:13
  Speaker 6: I just flew round trip back and forth to Paris.
• 13:17
  Speaker 6: Up until recently, I would say maybe 20% of the
• 13:21
  Speaker 6: cabin was kind of like business class.
• 13:25
  Speaker 2: Now, it's like 40%, I would think, on this big
• 13:28
  Speaker 2: plane I took back.
• 13:29
  Speaker 8: That's what we're being told, the pricing powers.
• 13:31
  Speaker 2: I don't know what's going on out there, but I
• 13:32
  Speaker 2: think that's good for airlines.
• 13:33
  Speaker 6: George Ferguson joins us here, Senior Aerospace Defense and Airlines
• 13:36
  Speaker 6: Analyst for Bloomberg Intelligence. George, talk to us about kind
• 13:39
  Speaker 6: of what's going on with the airline business in terms
• 13:43
  Speaker 6: of capacity these days. Because, again, I just went round
• 13:46
  Speaker 6: trip to Paris, and my bird was full to the
• 13:49
  Speaker 6: gills there.
• 13:51
  Speaker 4: Well, I think people always want to go to Paris,
• 13:53
  Speaker 4: especially in the fall when Paul Sweeney's gone. So it
• 13:58
  Speaker 4: doesn't surprise me. Look, we're starting to look at capacity
• 14:03
  Speaker 4: for 4Q. And what we're seeing is in the most
• 14:07
  Speaker 4: important markets, domestic and into Europe, we're still seeing some
• 14:11
  Speaker 4: pretty significant capacity increases. The United was like 8% in seats.
• 14:17
  Speaker 1: Delta was actually.
• 14:19
  Speaker 4: one-ish, two-ish percent in seats, so not bad. But American
• 14:24
  Speaker 4: was 6%. Even some of the low-cost carriers still adding
• 14:29
  Speaker 4: sort of mid-single digits. I mean, to me, when we
• 14:32
  Speaker 4: look at that, I don't really think that's a sustainable
• 14:35
  Speaker 4: schedule for 4Q. I'm kind of thinking that the airlines
• 14:39
  Speaker 4: haven't cut the capacity they need to if fuel prices
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  Speaker 4: stay here. But I think if they try to fly
• 14:46
  Speaker 4: that schedule, again, with current fuel prices, I think fares
• 14:50
  Speaker 4: are declining. Again, they're focusing on catering to the well-heeled,
• 14:56
  Speaker 4: like the Sweeneys. And so you're going to see more
• 15:01
  Speaker 4: and more of these airplanes get re-racked for either business
• 15:04
  Speaker 4: class or premium, but you can't do that as much
• 15:07
  Speaker 4: in the domestic market.
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  Speaker 1: Europe is a much more, I think, again, sort of
• 15:13
  Speaker 1: higher-end market.
• 15:14
  Speaker 4: So I think the airlines still have decisions to make
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  Speaker 4: on 4Q, again, especially.
• 15:21
  Speaker 1: If fuel prices stay here, they won't be able to
• 15:23
  Speaker 1: pivot at.
• 15:24
  Speaker 4: All to the high-end traveler rolling out the domestic market,
• 15:27
  Speaker 4: which is their biggest market.
• 15:29
  Speaker 8: So, George, it doesn't sound like anyone's going to really
• 15:31
  Speaker 8: step in and offer these ex-spirit flyers kind of the
• 15:35
  Speaker 8: discounted routes they used to get. I know from personal experience,
• 15:38
  Speaker 8: a few routes are missing. Is that sort of the case?
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  Speaker 4: I mean, I think we've seen some strong capacity growth
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  Speaker 4: by Frontier, by JetBlue.
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  Speaker 1: I mean, the prices aren't there anymore, right?
• 15:52
  Speaker 4: Just again, because of the fuel price increases. But when
• 15:57
  Speaker 4: you look at these other carriers, Frontier, JetBlue, they're not
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  Speaker 4: making great returns either, not making great profitability. So I
• 16:05
  Speaker 4: think they're really pushing themselves to try to keep flying
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  Speaker 4: this capacity forward. and pull in some of those spirit flyers.
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  Speaker 4: The spirit flyers are the ones that are falling away
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  Speaker 4: from the marketplace right now as interest rates rise, as
• 16:20
  Speaker 4: the cost of their groceries rise, as fuel prices stay high.
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  Speaker 1: So I think that group is just sort of diminishing.
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  Speaker 4: But those carriers are trying to give them a pretty
• 16:30
  Speaker 4: good deal. And if you look at profitability of the airlines,
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  Speaker 4: I think they are giving them a good deal.
• 16:36
  Speaker 2: How successful, George, are the airlines in passing along these
• 16:38
  Speaker 2: higher fuel costs?
• 16:41
  Speaker 4: So, you know, they said they said, sorry, United Delta
• 16:45
  Speaker 4: said they could probably pass along all of the increase
• 16:49
  Speaker 4: needed to cover higher fuel costs by year end. You know,
• 16:54
  Speaker 4: I think today there may be in the 75 percent range.
• 16:59
  Speaker 4: Not bad, again, for the high end airlines. I don't
• 17:02
  Speaker 4: think they're going to get to 100 percent by year end. Again,
• 17:05
  Speaker 4: I think if fuel prices stay here, the market probably
• 17:09
  Speaker 4: has to shrink. And in a shrinking environment, you fly
• 17:12
  Speaker 4: less capacity, your costs rise besides fuel because you lose
• 17:16
  Speaker 4: some of your efficiencies. And I think it's going to
• 17:19
  Speaker 4: make it harder and harder for them to recover that
• 17:22
  Speaker 4: full cost.
• 17:23
  Speaker 1: Again, I think capacity needs to come out of the
• 17:25
  Speaker 1: marketplace if fuel prices stay here.
• 17:29
  Speaker 4: If the administration or if the world events occur such
• 17:32
  Speaker 4: that fuel prices drop back to, I Look, I think
• 17:39
  Speaker 4: there's plenty of demand out there that will return. And
• 17:43
  Speaker 4: I think the airlines will have a much better winter season.
• 17:45
  Speaker 4: But at these prices right now, I think capacity has
• 17:47
  Speaker 4: to come out of the system.
• 17:49
  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 17:56
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 18:00
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 18:03
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• 18:06
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• 18:11
  Speaker 6: Let's get back to these markets here and take a
• 18:13
  Speaker 6: look at what's happening in the world of technology here.
• 18:15
  Speaker 6: Looks like some of these tech companies are doing a
• 18:17
  Speaker 6: little bit of public relations. Elon Musk pledged to distribute
• 18:20
  Speaker 6: a share of SpaceX to every kid in America. Anthropic
• 18:23
  Speaker 6: plans to put 5% of its shares in a new
• 18:26
  Speaker 6: public benefit fund to address, quote, the public good. Is
• 18:29
  Speaker 6: this a trend here? Ed Ludlow, Bloomberg Tech host. He's
• 18:33
  Speaker 6: out there in San Francisco, right in the heart of
• 18:35
  Speaker 6: Silicon Valley. Ed, what's going on with some of these
• 18:38
  Speaker 6: big technology companies, some of these big AI companies? It
• 18:41
  Speaker 6: seems like they're reading the tea leaves and they're saying, hey,
• 18:43
  Speaker 6: maybe the public sentiment isn't necessarily behind us here.
• 18:47
  Speaker 3: Well, I think Anthropic would say, we said this first,
• 18:50
  Speaker 3: you know, we did it first. When the company was founded,
• 18:54
  Speaker 3: you know, in those early days of Anthropic, which wasn't
• 18:56
  Speaker 3: too long ago, all of the co-founders had this pledge
• 19:00
  Speaker 3: of giving away 80%, 80% of their equity anyway. It
• 19:04
  Speaker 3: was kind of one of the founding principles of Anthropic
• 19:07
  Speaker 3: when it was set up. And it is a PBC.
• 19:10
  Speaker 3: With this mechanism, Anthropic is setting up an LLC, so
• 19:14
  Speaker 3: not a charity, but an LLC that It's 5% of
• 19:17
  Speaker 3: stock if approved by shareholders. And that's a really key point.
• 19:21
  Speaker 3: Because I think a lot of like investors, existing private
• 19:25
  Speaker 3: market investors, but also the IPO on the horizon, right, Paul?
• 19:28
  Speaker 3: Where's the stock coming from? They didn't say, right? They
• 19:31
  Speaker 3: didn't say they'd issue stock every time they did this
• 19:34
  Speaker 3: to fund the fund. Or are they just expecting that
• 19:38
  Speaker 3: the investor base goes along with this public benefit principle?
• 19:41
  Speaker 3: So they sell in order to fund it. We just
• 19:43
  Speaker 3: don't know the answers to that.
• 19:45
  Speaker 8: And is this going to go through things like Trump
• 19:47
  Speaker 8: accounts or like this just smells a little bit hard
• 19:49
  Speaker 8: to actually execute. And I understand this is being a
• 19:52
  Speaker 8: PR nightmare. So still light on details there I'm taking
• 19:55
  Speaker 8: from that.
• 19:57
  Speaker 3: On Anthropic, the fact that I emphasize it's an LLC
• 20:00
  Speaker 3: as the legal entity as opposed to a charity is
• 20:02
  Speaker 3: kind of interesting. The fund, again, is subject to shareholder ratification,
• 20:08
  Speaker 3: but it can distribute directly to individuals, according to the
• 20:12
  Speaker 3: communication from Anthropic. it can make charitable donations, not just
• 20:16
  Speaker 3: in the US, but internationally. Now, with Elon Musk, he
• 20:19
  Speaker 3: is pledged to give one SpaceX share, single share, to
• 20:23
  Speaker 3: every kid in America. Census data, there's like 72, 73
• 20:26
  Speaker 3: million kids. We have no idea how that would work.
• 20:29
  Speaker 3: But I reposted the Bloomberg tweet about that story, and
• 20:33
  Speaker 3: Brad Gerstner, who's one of the sort of co-founders of
• 20:36
  Speaker 3: the Trump Accounts Initiatives, replied to me saying true, and
• 20:41
  Speaker 3: then tagged at Trump accounts. So I guess that's the
• 20:44
  Speaker 3: mechanism that Elon Musk would use, but we just don't know.
• 20:46
  Speaker 3: All I have to go on is Brad Gerstner posting
• 20:49
  Speaker 3: at me on X.
• 20:50
  Speaker 2: That's a nice sign there. Talk to us about just
• 20:54
  Speaker 2: the IPOs of these AI companies. I'm waiting for Anthropic.
• 20:58
  Speaker 2: I'm waiting for Open. I don't know. Are these things
• 21:00
  Speaker 2: going to happen? Are they going to happen this year?
• 21:03
  Speaker 3: Paul, you know the answer I'm going to give you
• 21:04
  Speaker 3: because I've been waiting to speak. Everyone on staff, you're
• 21:07
  Speaker 3: the only guy that I think will get where I'm
• 21:09
  Speaker 3: at right now. The SEC's office hours are 6 a.m.
• 21:13
  Speaker 3: Eastern until 6.30 p.m.
• 21:15
  Speaker 2: Eastern.
• 21:16
  Speaker 3: And at some point, this Anthropic S1 will flip public.
• 21:20
  Speaker 3: And if they're going to go public by Thanksgiving, it's
• 21:23
  Speaker 3: going to have to happen by the middle of next week, probably,
• 21:27
  Speaker 3: based on the number of days you have to do
• 21:28
  Speaker 3: for full marketing, etc., So I've just sat here at
• 21:31
  Speaker 3: this desk from 6 a.m. Eastern until 6.30 p.m. Eastern
• 21:35
  Speaker 3: every weekday waiting for it to happen. And I think
• 21:38
  Speaker 3: that that is a bit of hyperbole, but it's how
• 21:42
  Speaker 3: the market is kind of acting in this moment as well.
• 21:45
  Speaker 8: Do you think this will be a positive or negative
• 21:48
  Speaker 8: for the general AI trade, which has now become, again,
• 21:50
  Speaker 8: an open source versus frontier? And obviously there's other considerations,
• 21:54
  Speaker 8: but that seemed to be last week's real vibes now.
• 21:58
  Speaker 3: Yes, when they held the Investor Day last Wednesday, the
• 22:01
  Speaker 3: number that everyone went with was the third quarter real
• 22:04
  Speaker 3: or actual revenue, $ 16.
• 22:05
  Speaker 2: 8 billion.
• 22:08
  Speaker 3: Which would mark decelerating growth from the prior quarter. Anthropic
• 22:13
  Speaker 3: was basically growing at 100% quarter on quarter, year on year,
• 22:16
  Speaker 3: and then it slowed down. And so the immediate reaction
• 22:19
  Speaker 3: was like, you don't want to be seeing that in
• 22:21
  Speaker 3: the frontier labs specifically, decelerating growth, dropping to that level.
• 22:26
  Speaker 3: But actually with a few days, people seem a lot
• 22:28
  Speaker 3: calmer about that now. They see the numbers as being
• 22:31
  Speaker 3: utterly impressive. There was a gap basis gross margin of 85%.
• 22:37
  Speaker 3: adjusted operating profit is positive for two consecutive quarters. A
• 22:41
  Speaker 3: lot of people are asking like, you guys are not
• 22:43
  Speaker 3: explaining very well how you're accounting for that. But remember,
• 22:46
  Speaker 3: this is all Bloomberg reporting on what Anthropic is telling
• 22:49
  Speaker 3: investors behind closed doors. So generally there's enthusiasm for the IPO.
• 22:55
  Speaker 3: And now really, Michael, it just becomes a question of
• 22:58
  Speaker 3: do they price it conservatively to leave some upside and
• 23:01
  Speaker 3: see like for investors to see a path to a
• 23:04
  Speaker 3: future greater valuation?
• 23:06
  Speaker 6: Well, it seems like the AI market, the investing market
• 23:09
  Speaker 6: has kind of changed in the last several weeks and
• 23:11
  Speaker 6: not for the better, I would say. Now there's the
• 23:14
  Speaker 6: fundamental questions of really what's the correct way to fund
• 23:16
  Speaker 6: this expansion? Does that, I would think that would be
• 23:19
  Speaker 6: somewhat of a headwind for somebody trying to go public
• 23:22
  Speaker 6: on the AI trade.
• 23:24
  Speaker 3: I mean, not every company is the same, but debt
• 23:28
  Speaker 3: is probably the common denominator, right? And so last week,
• 23:31
  Speaker 3: The anxiety in the market was specifically around CoreWeave. A neocloud,
• 23:35
  Speaker 3: a neocloud is just a fancy word for a company
• 23:37
  Speaker 3: that runs data centers for AI workloads. And the math
• 23:41
  Speaker 3: on that is really simple. So there's their debt load.
• 23:43
  Speaker 3: It's about $ 52 billion. But the main point that was
• 23:47
  Speaker 3: coming out of that is they're relying on debt to
• 23:50
  Speaker 3: fund data centers that they really need. The demand for
• 23:54
  Speaker 3: their compute is beyond their ability to supply. In the
• 23:57
  Speaker 3: medium term, the issue is that their interest obligations, what
• 24:01
  Speaker 3: they're paying on the debt... is running beyond their operating income.
• 24:06
  Speaker 3: And so it's very hard for investors to see how
• 24:08
  Speaker 3: that conversion of money into real data centers fixes that.
• 24:13
  Speaker 3: The economics aren't quite there. And that concern hasn't changed
• 24:17
  Speaker 3: over the weekend. Even with a good night's sleep, everyone's
• 24:19
  Speaker 3: still very worried about that issue.
• 24:22
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• 24:27
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• 24:31
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