Money Stuff: The Podcast – Episode Summary: "Bespokeness: AI, Passthrough, UST"

Release Date: February 14, 2025
Hosts: Matt Levine & Katie Greifeld

1. Hostile Takeover Attempt of OpenAI by Elon Musk

In this segment, Matt Levine and Katie Greifeld delve into Elon Musk's audacious attempt to execute a $97 billion hostile takeover of OpenAI. This move is unprecedented, especially considering OpenAI's unique structure, where a nonprofit entity holds control over its for-profit subsidiary.

Key Points:

• OpenAI's Structure: OpenAI operates with a nonprofit parent that oversees its for-profit ventures, aiming to balance profitability with its mission to benefit humanity.
• Musk's Bid: Elon Musk's offer of $97 billion is not for the entirety of OpenAI but specifically to acquire the control rights from the nonprofit. Levine highlights that this sum surpasses the valuation the nonprofit would receive from its existing conversion to a for-profit entity, which was pegged around $75 billion based on a $300 billion valuation.
• Strategic Implications: Musk, known for his leadership roles in various high-profile tech firms, would gain significant influence over AI developments, potentially steering OpenAI’s direction in ways that align with his vision.

Notable Quotes:

• At [04:03] Katie Greifeld: “No one's performing at the Super Bowl here. No one's won a Grammy.”
• At [05:20] Matt Levine: “Musk is saying you got to get at least this much. Right.”
• At [10:22] Katie Greifeld: “It was really personal. It’s also playing out in court and filings, obviously.”

Insights:

• The hosts discuss whether Musk's bid is a genuine attempt or a strategic maneuver to create friction within OpenAI.
• They ponder the potential outcomes if the nonprofit board were to sell control to Musk, considering his extensive portfolio and influence in the tech industry.
• Sam Altman’s stance is examined, where he downplays the seriousness of Musk’s bid, attributing it to personal animosity rather than a business move.

2. Exorbitant Pass-Through Fees at Multi-Strategy Hedge Funds

Levine and Greifeld shift their focus to the opaque world of multi-strategy hedge funds, particularly scrutinizing their pass-through fee structures. This discussion highlights the contrast between traditional hedge fund fee models and the more convoluted arrangements seen in multi-strategy funds.

Key Points:

• Traditional vs. Multi-Strategy Fees: Traditionally, hedge funds charge a straightforward 2% management fee and 20% performance fee. In contrast, multi-strategy funds incorporate pass-through fees that cover a broad range of expenses, from operational costs to salaries, making the actual fee burden less transparent.
• Investor Perception: While these funds promise stable, high-teens returns with low volatility, the hidden fees can erode investor profits. Greifeld expresses skepticism about the true value being delivered versus the fees charged.
• Market Dynamics: Despite rising scrutiny, there appears to be a lack of fee pressure within the multi-strategy hedge fund sector, a point of contention between the hosts.

Notable Quotes:

• At [17:36] Matt Levine: “Pass throughs are wild. You are paying for everything, including the copier paper.”
• At [19:10] Katie Greifeld: “I have to imagine that maybe I'm wrong. I probably am, that if I'm an LP, a potential LP to a multi strategy hedge fund, I’m thinking about I am giving my money to a hedge fund for returns.”
• At [21:05] Matt Levine: “You get pretty high returns with lower volatility and with hopefully no correlation to the broad market.”

Insights:

• The hosts debate the sustainability and fairness of the multi-strategy hedge fund model, questioning whether the hidden fees justify the purported benefits.
• They compare the model to traditional corporate structures, drawing parallels with how corporations handle expenses and profits.
• Ken Griffin’s recent comments suggesting a decline in the boom of multi-strategy hedge funds are analyzed, with Levine arguing it might be more about internal dynamics than an actual market downturn.

3. Thought Experiment: Microsoft vs. US Government as Debt Issuers

The episode also explores a thought experiment presented by DoubleLine, where Microsoft is compared to the US Government in terms of debt issuance and creditworthiness.

Key Points:

• Debt Servicing Capacity: Microsoft’s ability to service its debt is juxtaposed with the US Government’s declining receipts-to-interest expense ratio and persistent deficits.
• Credit Ratings: Despite the US Government’s reputation for reliability, Microsoft's higher credit rating is scrutinized, revealing complexities in how debt is perceived and valued.
• Political Risks: The discussion touches upon the potential impact of political instability and policy decisions on the US Government’s debt obligations, contrasting it with corporate management’s focus on maintaining creditworthiness.

Notable Quotes:

• At [29:55] Katie Greifeld: “It's a strange thought experiment... they didn't reach a conclusion, but it seemed like they were leaning towards Microsoft.”
• At [35:54] Katie Greifeld: “Gaing up some basis points in terms of the spread in...”

Insights:

• Levine and Greifeld debate the practicality and relevance of comparing a multinational corporation like Microsoft to a sovereign entity, highlighting differences in their operational and financial frameworks.
• They discuss the concept of the "sovereign ceiling," questioning whether it accurately applies when comparing corporate and government debt.
• The hosts conclude that while the thought experiment provides interesting perspectives, the inherent differences between corporate and government structures make direct comparisons challenging.

Conclusion

In "Bespokeness: AI, Passthrough, UST," Matt Levine and Katie Greifeld navigate through complex financial topics with clarity and depth. From Elon Musk’s bold maneuver against OpenAI to the intricate fee structures of multi-strategy hedge funds, and finally to an unconventional comparison between Microsoft and the US Government's debt profiles, the episode offers listeners a multifaceted view of contemporary financial landscapes. The inclusion of notable quotes enriches the discussion, providing tangible insights into each subject matter.

Notable Quotes Summary:

• Katie Greifeld at [04:03]: “No one's performing at the Super Bowl here. No one's won a Grammy.”
• Matt Levine at [05:20]: “Musk is saying you got to get at least this much. Right.”
• Katie Greifeld at [10:22]: “It was really personal. It’s also playing out in court and filings, obviously.”
• Matt Levine at [17:36]: “Pass throughs are wild. You are paying for everything, including the copier paper.”
• Katie Greifeld at [19:10]: “I have to imagine that maybe I'm wrong. I probably am, that if I'm an LP, a potential LP to a multi strategy hedge fund, I’m thinking about I am giving my money to a hedge fund for returns.”
• Matt Levine at [21:05]: “You get pretty high returns with lower volatility and with hopefully no correlation to the broad market.”
• Katie Greifeld at [29:55]: “It's a strange thought experiment... they didn't reach a conclusion, but it seemed like they were leaning towards Microsoft.”

This comprehensive summary encapsulates the essence of the episode, ensuring that even those who haven't listened can grasp the critical discussions and insights presented by the hosts.