Book of Souls

Summary

Money Stuff: The Podcast

Episode: Book of Souls
Date: June 19, 2026
Hosts: Matt Levine (Money Stuff columnist, Bloomberg Opinion)
Co-host: Katie Greifeld (Reporter & Anchor, Bloomberg News/TV)

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Episode Overview

This episode features Matt Levine and Katie Greifeld diving into the latest big feature on Ken Griffin and Citadel ('the Book of Souls'), the evolving model of hedge funds—especially the shift from alpha hunting to building steady, repeatable business models—and recent developments at Bridgewater. The episode wraps up with a lively discussion of US stock market structure, including coming regulatory shifts and what they could mean for tokenized stocks and crypto. As always, the conversation is a mix of Wall Street industry analysis, deadpan wit, and friendly banter.

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Main Topics & Key Takeaways

1. Sports Talk & the Perils of Late-Night Viewing

• The episode opens with a light-hearted discussion about the stress of watching basketball games late at night, and musings on the joys of the World Cup in more convenient time zones.
• Notable Quote:
  • Matt: “As a crotchety old man, I really appreciate the way that soccer works where they start the clock and then they play soccer and then they finish… Whereas in basketball, when there’s five minutes and 18 seconds of game time left, you’re like, yeah, I got another two hours.” (03:15)

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2. Ken Griffin, Citadel, and the “Book of Souls” (07:00–14:30)

The New Yorker Profile & Hedge Fund Management Philosophy

• The recent New Yorker profile of Ken Griffin (Citadel founder) is used as a springboard to discuss what sets Griffin—and Citadel—apart from traditional hedge fund managers.

The Griffin/Citadel Model: From Alpha to Business

• Matt’s core thesis:
  • Multi-strategy, modern hedge funds like Citadel are closer to what investment banks were 20 years ago: less about heroic investing, more about providing market services at scale.
• Griffin’s innovation was recognizing repeatable “liquidity provision” (e.g., convert arb, index arb) as a steady business rather than aiming for individual alpha bets.
• Notable Quote:
  • Matt: “These multi-strat funds are much more like what investment banks were 20 years ago… They are running businesses that provide services to the market… Providing a service to the market rather than betting on the stock that’ll go up.” (08:22)
• Ken Griffin’s preference for “high quality of earnings” (recurring, steady profits over big swings) is highlighted as his differentiator.
• In the New Yorker profile: Griffn’s famous “unsettlingly bright” blue eyes, and the rumor he doesn’t blink—half-joked to be an evolved hedge fund trait.

No Hedge Fund Heroes—And Owning All the Dinosaurs

• Griffin doesn’t idolize classic investors; unlike Bill Ackman, who “wants to be Warren Buffett,” Griffin is about recurring business/steady returns.
• Lighter aside: Griffin’s post-crisis taste for tangible assets, from art to dinosaur skeletons.
  • Katie: “He does have on loan to actual museums, which is cool.” (12:30)
  • Matt: “If you’re generating billions of dollars of profits from financial trades… all this stuff feels somewhat imaginary, but a Stegosaurus, that’s real.” (11:55)

Citadel’s Culture: Performance and High Turnover

• Citadel is “known as a tough place to work”—the infamous “Book of Souls” refers to a tally of friends lost to Citadel’s firing sprees.
• Notable Quote:
  • Matt: “There’s a real constant churn as signals decay. One Citadel partner says … ‘it’s not about a portfolio, it’s about a business that can recreate great portfolios again and again.’” (14:10)

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3. Bridgewater: Redefining the Hedge Fund Model (16:18–24:44)

Bridgewater's “Reset” and Fund Model Tensions

• Discussion of Bridgewater’s shift under Nir Bar Dea (CEO), away from ‘mega-fund with stable mediocre returns’ to a more performance-focused, nimble hedge fund.
• Reference to Bloomberg reporting about Bridgewater returning capital to investors, shrinking AUM, and shifting incentive structure.
• Notable Quotes:
  • Matt: “Outside investors love management fees because they are the same every year and they don’t like performance fees because who knows what performance will be next year.” (20:47)
• The eternal tension: Employees want outperformance and big variable upside, whereas external investors in the management company crave predictable, steady (management) fees.
• Discussion of Bill Ackman’s approach post-IPO: structuring returns so that ordinary shareholders get a ‘preferred’ performance fee, giving hedge fund employees exposure to the upside.
  • Matt: “They’ve turned the performance fees into something more like a management fee that is a little bit more stable, a little bit more high quality of earnings.” (23:32)
• Employees seem to support the “reset”: when offered to sell shares back to the company, nearly all declined.

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4. Market Structure and Reg NMS Reforms (26:33–33:55)

SEC “Trade Through” Rule Changes: Shrinking Exchanges

• Matt recaps Reg NMS (National Market System), which requires brokers to always route to the exchange with the best visible price.
• Potential reform: Getting rid of trade-through rules, which could reduce the proliferation of tiny exchanges and make market structure less complex (27:33–29:16).
  • Matt: “If I start a stock exchange, every high frequency trader, every broker has to connect to my stock exchange, because what if I have the lower price? … It essentially subsidizes the creation of weird new stock exchanges.” (27:43)

Crypto & Tokenization’s Great Leap Forward

• Both hosts note a surge in excitement among “crypto Twitter” and market infrastructure folks: without trade-through requirements, it’s much easier for tokenized stocks to trade on crypto-native venues.
  • Katie: “There’s a great piece out… [quoting Alex Thorne at Galaxy]: This is one of the biggest unlocks yet for tokenized stocks.” (32:21)
• Matt explains the distinction in tokenization: some of the hype is about market structure (putting stocks on blockchain venues), but much is regulatory arbitrage—not all of which is likely to occur.
  • Matt: “Market structure stuff—crypto people would love, love, love to just list all the stocks on Coinbase rather than listing them on the stock exchange… that is happening, and this is part of that.” (33:27)
• Katie (reflecting): “Maybe I should take tokenization seriously… Probably, yeah. But I mean, that’s a future problem. I’m here for five more weeks.” (33:55)

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Notable Quotes & Memorable Moments

• Matt (deadpan on Citadel collectibles): “If you’re generating billions of dollars of profits from financial trades… all this stuff feels somewhat imaginary, but a Stegosaurus, that’s real.” (11:55)
• On Citadel’s culture:
  • “Citadel is a tough place to work… Someone kept a book of souls about all their friends who got fired.” (13:26–13:49)
• On hedge fund evolution:
  • “Once you have outside capital at your management company, those people want you to gather assets and charge 2% fees.” (21:59)
• On market structure and Reg NMS:
  • “It essentially subsidizes the creation of weird new stock exchanges… there is some inefficiency there.” (27:43)
• On tokenization:
  • “Crypto really doesn’t like the trade-through rules. No, because it just does not work with crypto market structure…” (30:56)

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Timestamps of Key Segments

• Sports and World Cup Banter: 01:35–04:12
• Ken Griffin Profile & Citadel Culture: 06:30–14:30
• Bridgewater’s Hedge Fund Reset & Earnings Models: 16:18–24:44
• Stock Market Structure, Reg NMS, and Tokenization: 26:33–33:55

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Tone & Style

The episode features the trademark Money Stuff style: thoughtful, deeply informed discussion laced with understated humor and gentle self-awareness. Matt keeps things both wry and clear, while Katie matches with quick, curious, and slightly irreverent banter.

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Summary for the Uninitiated

This episode is a compelling and witty tour through today’s most-discussed hedge funds, from the personality-driven model of “alpha geniuses” to the mega-firms now running finance more like a manufacturing business—with all the implications for industry culture, strategy, and who actually profits. The final portion gives a jargon-busting but insightful take on potentially massive changes to stock market plumbing, why they matter, and why the crypto world is so excited. If you want an up-to-the-minute snapshot of how Wall Street is changing in real time—with jokes about dinosaur skeletons—you’ll find this a perfect primer.

Transcript

[Katie Greifeld]

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[OTC Markets / Bloomberg Announcer]

Bloomberg Audio Studios Podcasts Radio News it

[Katie Greifeld]

was a painful game. I don't know if I enjoyed watching it. It was really stressful.

[Matt Levine]

Had the experience, the entire game of being like, well, obviously the Knicks are going to win this.

[Katie Greifeld]

Yeah, I felt that way too.

[Matt Levine]

I said jokingly, but not. I was like, well, we have them right where they want them. Knicks were down like 15 or whatever.

[Katie Greifeld]

I knew that they were gonna win. In my long tenure of watching basketball for two weeks. Cause that's how they started every game. But I was watching with my dad who was having a heart attack like the entire time. So he was not as confident.

[Matt Levine]

But I was also so tired. Yeah, I'm not a, I'm not cut out for late night sports. Which is why I love the World Cup.

[Katie Greifeld]

Yeah.

[Matt Levine]

Because actually I prefer the World cup in other parts of the world. You know, not going to any games. And I'd rather it be in like Asia and have games on at like eight in the New York time because like then I can watch the games.

[Katie Greifeld]

You know, I think you're, you're a rare bird.

[Matt Levine]

No, but like there are games in this World cup that are at like 9pm it's too late.

[Katie Greifeld]

It's too late.

[Matt Levine]

They start at midnight. I'm like, I'm never gonna watch that.

[Katie Greifeld]

I just don't know if I have the emotional energy to, like, get invested in another sport that I so casually follow, you know, I feel like the

[Matt Levine]

World cup is extremely great for not getting very invested.

[Katie Greifeld]

Yeah.

[Matt Levine]

You can watch two countries you've never thought about play each other and it's just fun. Yeah, it's just like, there's no stakes. I mean, there's stakes for that.

[Katie Greifeld]

That's true. I just think basketball is the perfect sport for someone who doesn't follow it to watch it because it's super fast. They score a ton. They're all, like, kind of concentrated together. You always know where the basketball is, whereas, you know, soccer, it's bigger and they don't score as much.

[Matt Levine]

I hear you, but as a crotchety old man, I really appreciate the. The way that soccer works where they start the clock and then they play soccer and then they finish the half or the game. Whereas in basketball, when there's five minutes of 18 seconds of game time left, you're like, yeah, I got another two hours.

[Katie Greifeld]

Yeah. Right.

[OTC Markets / Bloomberg Announcer]

I gotta go to bed, go to the bathroom again.

[Matt Levine]

This is a real sports podcast hosted by and for people who don't really pay a lot of attention to sports. Although I will say we talked the other day about my very slight desire to catch Little League.

[Katie Greifeld]

Yes.

[Matt Levine]

And I got an email from a reader being like, please coach Little League. He's like, I do some administration for our league. And like, the dads who are like, I must coach Little League, like, need to be balanced. The other dads are like, yeah, yeah, sure.

[Katie Greifeld]

You've got to even them out.

[Matt Levine]

Like, you need. You need some low commitment Little League coaches.

[Katie Greifeld]

That's good. Yeah. Remind everyone that they should be having fun.

[Matt Levine]

Right?

[Katie Greifeld]

Yeah.

[Matt Levine]

Right. Sportsmanship. Hello and welcome to the Money Stuff Podcast. Your weekly podcast where you talk about stuff related to money. I'm Matt Levine. I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

I was thinking we just not talk about SpaceX.

[Katie Greifeld]

I'm SpaceXed out. Even though I will say as we're recording this on Fed Day, by the way, we're going to miss the starting minutes of Kevin Morrish at the podium for the first time. Not that I don't think you care. I care a little bit. SpaceX is a little bit lower today.

[Matt Levine]

I know, right?

[Katie Greifeld]

On this Wednesday.

[Matt Levine]

I know profit taking.

[Katie Greifeld]

The line hasn't moved in that direction before in its short life as a publicly listed equity, but we don't have to talk about SpaceX.

[Matt Levine]

I feel like I have a lot of ill formed thoughts about its stock going up, but who cares?

[Katie Greifeld]

I tweeted something about SpaceX today. Okay, okay.

[Matt Levine]

It is funny that tweeting is now part of SpaceX's business.

[Katie Greifeld]

Yeah, that's true, that's true.

[Matt Levine]

You were using SpaceX to tweet about SpaceX.

[Katie Greifeld]

I tweeted on X or I posted on X. Owned by the parent company SpaceX. Would the discovery of aliens be bullish or bearish for SpaceX's valuation?

[Matt Levine]

That's a great question.

[Katie Greifeld]

It's kind of fun to think about.

[Matt Levine]

I've joked that like their medium term plan is data centers in space to run enterprise AI, but their long term plan is to colonize the universe and sell spice to alien civilizations. So I'm going to go with bullish. But obviously if the aliens have better space faring technology and also robustly developed capital markets, then you don't need to own SpaceX when you can own intergalactic space conglomerate.

[Katie Greifeld]

I do think it would introduce some short lived volatility as we sort through those questions, but possibly long lived volatility. Yeah, that's true. Anyways, SpaceX. So I mean it's like which hedge fund ish do you want to talk about?

[Matt Levine]

I don't know. What do you want to talk about?

[Katie Greifeld]

I mean, we could talk about Ken Griffin first.

[Matt Levine]

Let's talk about Ken Griffin.

[Katie Greifeld]

Yeah.

[Matt Levine]

He was profiled in the New Yorker by Gary Cernovitz, who's a guy I know whose book I blurbed. And he was photographed for that story by Jeff Brown, who photographed me for my Bloomberg. No kidding, My Bloomberg. Very cool publicity stills. Like me slept in a chair at Frank. I had the best time doing this photo shoot.

[Katie Greifeld]

Yeah.

[Matt Levine]

Anyway, Jeff Brown's a genius and he photographed Ken Griffin and it's a profile of what makes Ken Griffin tickets.

[Katie Greifeld]

I really enjoyed it, I have to say. My attention span is so shot. This was the most.

[Matt Levine]

You've never read a New Yorker article.

[Katie Greifeld]

Yeah, exactly. I couldn't quite get there. No, I do make it through money stuff, but I made it probably 3/4 the way through. That's why I asked to push to 210. I was wondering at what point Ken Griffin's eyes would come up. And they came up pretty quickly. Here's the sentence in particular. Griffin's blue eyes are unsettlingly bright. Colleagues debate, half in jest about whether he lacks the normal need to blink. I love that I just made a

[Matt Levine]

joke today about hedge fund Managers not having time to blink. No miss market moves. Maybe he's evolved to keep his eyes open all the time.

[Katie Greifeld]

I feel like he might like that joke.

[Matt Levine]

Right?

[Katie Greifeld]

But yeah, no, it was a great profile. There were a lot of interesting things I like when I'm reading a thing that I know that we're going to talk about and then I find the angle while I'm reading it that I know that you're going to want to

[Matt Levine]

talk about seeing behind the scenes podcast making process. What am I going to want to talk about?

[Katie Greifeld]

You're going to want to talk about.

[Matt Levine]

You do my part for me.

[Katie Greifeld]

The quality of earnings.

[Matt Levine]

Yes, exactly. I did write about that too. Right. My shtick for a while has been that I think that people have this view of what a hedge fund manager is or what a hedge fund is, that it's like an investing firm.

[IBM Advertiser]

And.

[Matt Levine]

And my view is that these multi strat funds are much more like what investment banks were 20 years ago. And they're not best thought of as making investment decisions, but rather as running businesses that provide services to the market. Some of those services are making prices more efficient through long short equity trading, but some of those services are liquidity services. And the dispersion trade and the index arb trades are really just real liquidity provision services that used to be done by banks and are now being done by these hedge funds. And what is pleasing in this article is that thesis has sort of been enshrined in the New Yorker. Gary Cernovitz writes about Ken Griffin being in college at Cabot House, which is also where I lived in college, you guys. She and I are among the illustrious Cabin House alumni. Ken Griffin was doing options trades and he was like, well, I've made money on these options trades, but like the market maker on the other side makes money on all of the options trades. I should do that. And so eventually he started a market maker, but also he had the more holistic view of I want a higher earnings quality even in my regular trading. So he got into a convert Arb business that used to be done by banks and is now Convert Arb is just the standard hedge fundraiser. So he got into these businesses that are repeatable liquidity provision, almost like fee for service businesses where you do stuff that gets a steady return because you're providing a service to the market rather than paying in the stock that'll go up.

[Katie Greifeld]

Yeah, I thought that was an interesting anecdote in sort of explaining the starting point of his thinking, because I can connect that story easily into why? He started a market maker eventually.

[Matt Levine]

Yes. But he didn't start in a market maker initially. He started a hedge fund that did trades that sort of had that shape of being repeatable businesses rather than being stock picking.

[Katie Greifeld]

Yeah. I did think it's interesting that when Cernowitz sort of asked him, who are your heroes? Ken Griffin didn't really have anyone to name.

[Matt Levine]

Yeah. Because there are a lot of hedge fund managers, Bill Ackman being perhaps the most prominent among them.

[Katie Greifeld]

Also has piercing blue eyes or hazel.

[Matt Levine]

A matter of some controversy. He would be the first to tell you that he wants to be Warren Buffett. And there's a lot of hedge fund managers like that. And that is the opposite of what Ken Griffin's approach is. He is not like, I'm going to pick good businesses and own their stocks forever. He is like, I'm going to. To have a high quality of earnings. I'm going to have recurring earnings every quarter. And so that model, the sort of big swing hedge fund manager Gary mentions George Soros as a name who other hedge fund managers have admired. That's not what he's trying to do. He's trying to build high quality earnings and repeatable business.

[Katie Greifeld]

Yeah. There was a great quote here from Lloyd Blankfein, the former CEO of Goldman, who told Cernowitz that he still can't figure out who mentored him to who he has a debt. Because, I mean, Griffin also, I mean, he started Citadel so early, like in

[Matt Levine]

the Cabot House, more or less. I mean, not literally, but like he started the stuff he was doing at Cabot House, grew very quickly into being Citadel.

[Katie Greifeld]

Yeah. No real time to like find a mentor if you just start out the gate. Also, it's also a very different model from like a Bridgewater, for example.

[Matt Levine]

Oh, yeah.

[Katie Greifeld]

Oh, yeah.

[Matt Levine]

Oh, yeah. Two important things about Ken Griffin, one is that he owns all the houses, also all the constitutions.

[Katie Greifeld]

Yes.

[Matt Levine]

All the dinosaurs.

[Katie Greifeld]

Yeah.

[Matt Levine]

All the art. If you're in the business of like generating billions of dollars of profits from doing financial trades, like, I appreciate people who are like, I'm going to like turn that as rapidly as possible into tangible wealth. You know, like all this stuff feels somewhat imaginary, but a Stegosaurus, that's real.

[Katie Greifeld]

Well, the profile does go into, you know, he had a really rough time during the financial crisis and made the decision at that point that he wanted to have non financial assets. From that point on, diversify out of

[Matt Levine]

market, making businesses into stegosaurus constitutions.

[Katie Greifeld]

Yeah. Magna Cartas and a lot of pieces. He does have on loan to actual museums, which is cool.

[Matt Levine]

Sure, sure, sure.

[Katie Greifeld]

Versus just sitting in the various basements of his billion and a half dollar real estate portfolio.

[Matt Levine]

Right. I don't know if he has a dinosaur at any of his houses. If I had a billion dollar collection of stuff, I would probably want a stegosaurus in my living room because that is very cool. I get that Having it at a museum is also cool in its way.

[Katie Greifeld]

It might just be because I'm sick, but I did get the shivers thinking about that. Like here's a. A dinosaur. This is something that was alive once a long time ago and now I own it. Yeah, I have a lot of alive horses.

[Matt Levine]

Yeah, right.

[Katie Greifeld]

Alive being key.

[Matt Levine]

Right. Totally different collecting impulse. The other thing about Citadel.

[Katie Greifeld]

Yeah.

[Matt Levine]

About Ken Griffin and Citadel is it is known as a tough place to work. And the story gets into things like someone calls it a highway wreck of human bodies. Not meaning that the body have been wrecked, but rather that people get fired a lot when they transition.

[Katie Greifeld]

A lot of turnover.

[Matt Levine]

A lot of turnover. Someone kept a book of souls about all their friends who got fired.

[Katie Greifeld]

I love that.

[Matt Levine]

And again, it's like there's something about quality of earnings, right? It's like if you think about hedge funds generating alpha, there are alphas that are just repeatable forever because you're providing a service. But there's a lot of stuff that's like eh, people didn't notice it and then you notice it. You made a little money and then people notice it and it stops making money. And so there's a real constant churn as signals decay. One Citadel partner says in the story, it's not about a portfolio, it's about a business that can recreate great portfolios again and again. Which is like you think about what a person does. Often a person is good at finding a particular portfolio and if you need to totally recreate the portfolios, then that means getting all new people.

[Katie Greifeld]

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[Katie Greifeld]

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[Matt Levine]

So in other hedge fund news. Yeah, Bridgewater.

[Katie Greifeld]

Yeah. Capacity constraints, tensions between GPs and LPs.

[Matt Levine]

I don't want to say this, but you should know Bridgewater had this reputation

[Katie Greifeld]

for a while, okay.

[Matt Levine]

Forgetting low to mid single digit returns, being very stable, leading with its reputation as being the biggest hedge fund in the world and being sort of not taking big swings, making lots of money kind of place. Right. And that reputation was not entirely a positive thing.

[Katie Greifeld]

I thought you were going to talk about their other reputation.

[Matt Levine]

Oh sure, sure, sure. They had a reputation for being very interpersonally weird.

[Katie Greifeld]

Yeah. They actually got a name drop in the New Yorker profile about Ray Dalio.

[Matt Levine]

Oh yeah.

[Katie Greifeld]

About being pregnant woman cry.

[Matt Levine]

Yeah, yeah. Like it being just so ostentatiously weird personally. But like they were doing all of that and like doing all that ruthless self examination and like struggle sessions where they all got in a room and berated each other. Well, their performance is like kind of mediocre. It's like take a step back and do a struggle session about that.

[Katie Greifeld]

Yeah. It wasn't in service of like improving their returns.

[Matt Levine]

Right. It was just like, it was just its own thing.

[Katie Greifeld]

Yeah. Like a weird social experiment.

[Matt Levine]

Exactly. If you talk about that to an investor, an alligator, that sounds bad. It's like, no, I want a good return rather than a bad return, but I'd rather be in a good fund that generates high returns than in a giant fund that doesn't. But as a business matter, it's nice to run a giant fund that has very sticky capital for a variety of reasons and that generates steady mediocre returns. Because as a business matter, you're charging management fees. And it is nice to have very predictable recurring management fee revenue. And so arguably, it was a good business for Bridgewater to be running as much money as possible and like, yeah. Having okay returns.

[Katie Greifeld]

Yeah.

[Matt Levine]

But they moved on from that. And so Bloomberg's Hema Parmar, Preeti Singh and Lai and Oda have a story about how basically near Bardea, who's like the. I was going to say new CEO. He's not that new, but he's a guy who took over when Ray Dalio kind of retired from Bridgewater. He has been trying to make it a smaller, more focused higher performance fund. I think it's operating a little bit more like a hedge fund than it used to.

[Katie Greifeld]

Which makes sense.

[Matt Levine]

Which makes sense because when it was Ray Dalio's baby, it was just a strange giant institution, but now it's like the guy around a hedge fund. And so one thing that means the performance is better, another thing it means is that they've returned capital to investors because they don't think they have the capacity to run as much money as they used to run. And a third thing it means is they sold stakes to, in their general partner. They sold stakes in the management company to a bunch of investors, including some people who swapped out hedge fund stakes into management company stakes, which is a very strange signal. But anyway, those people are now disappointed because they're like, I was signing up for a steady stream of management fees on this giant pool of capital, and now I'm getting good but variable performance fees on a smaller pool of capital. And that's not what I wanted. I wanted a high quality of earnings.

[Katie Greifeld]

Yeah, no, it's great reporting. Bloomberg saying that two of the firm's seven institutional owners have sold their shares back to Bridgewater at a discount to their purchase price.

[Matt Levine]

Right. Because when you buy the thing and it's like, you know, a stream of management fees on a giant pool of money, like, then it goes down when it has a smaller pool of money.

[Katie Greifeld]

Yeah, but they're not alone. There's a third, the Teacher Retirement System of Texas. It's also looking to sell. It's already slashed its value of its holding by 9% last year. So that's the rub, right? Like, you would think before you think of, like, really think about it, that, okay, it makes sense the new CEO would come in and be like, we need to improve returns. We are way too big. We're constrained by how big we are. Let's improve this. But even though, I mean, 2025 was a great year for Their Pure Alpha fund, which had been sort of having a middling decade or so. But I guess the anxiety there is that in addition to you're earning less on the big pool of money, that there's no guarantee that they're going to be able to replicate their 2025.

[Matt Levine]

Right. It's a quality of earnings thing.

[IBM Advertiser]

Right.

[Matt Levine]

Like, like outside investors love management fees because they are the same every year and they don't like performance fees because who knows what performance will be next year. I think that most people who like, work at hedge funds think, like you were saying, like, what you would expect, which is like, of course our job is to make the returns good. Right, Right, of course our job is to make as much money as possible for our clients.

[Katie Greifeld]

Yes.

[Matt Levine]

And if you don't have outside money at your gp, if you don't have outside money at the management company, like you just sort of think that now you might not think that you might like in your secret evil heart, I'm just gonna gather as much capital as I can and charge 2% fees. And who cares about their performance? But like, you don't say that out

[Katie Greifeld]

loud inside the line.

[Matt Levine]

You probably don't even really think it. Right. Like, like, that's like a, that's like a. That's like an insulting thing you might say about someone else. But you wouldn't like, do that because, like, your whole life is devoted to like having the best possible performance and like winning at the hedge fund game and all this. And so it would be very embarrassing and psychologically damaging to sit there and be like, yeah, just gather assets and not worry about performance. But once you have outside capital at your management company, then those people, those people want you to gather assets and charge 2% fees.

[Katie Greifeld]

Yeah, they can say that out loud.

[Matt Levine]

Yeah. So it's a different. Or they can ask for their money back if you don't do it. If you own your own hedge fund firm, you are thinking like a hedge fund manager. But once you have outside capital, you're like steward of shareholder value and you're becoming an asset accumulator. And this, by the way, has some relevance to publicly traded alts managers who. Why is private credit so big? Because you can charge fees on a lot of capital. I also want to talk briefly about Bill Ackman, who I don't think I've ever actually written about this, but we've talked about it on the podcast when he took his management company public and he had this structure that he thought and I think is really interesting, which is where Basically like the company, the management company, and thus the shareholders get a preferred return on the incentive fees. So like they get the incentive fees on the first, like, let's say 5% of performance. So if like Pershing Square funds go up 5% a year, the management company and the shareholders get the performance fees on that. And then the rest, if they go up 30% a year, the other 25%, the employees get that. So basically the employees get the upper tail performance fees and the shareholders get the preferred performance fees. So they've turned the performance fees into something more like a management fee that is a little bit more stable, a little bit more high quality of earnings. And so they're giving that to their public shareholders while they take the juicy upside options for the hedge fund managers, which I think is a good way to split this and give the public shareholders what they want, which is steady returns, and give the actual hedge fund management employees the incentives to make returns go up. Possibly Bridgewater should have done that.

[Katie Greifeld]

Yeah, I will say you make the point in money stuff that the employees probably care more about returns. It's more exciting to work hedge funds.

[Matt Levine]

It's not necessarily true. If you just get a bigger check for running a giant pool of assets, then you're like, okay, good, big check. But I think it's true. I think most of them would rather have higher returns than they go beat their hedge fund friends and like, we're up 35% this year. It's like great.

[Katie Greifeld]

Yeah, it's good. Well, Bloomberg reported that it looks like Bridgewater employees are on board with this sort of reset. Apparently the hedge fund recently offered current and former staffers a chance to sell their shares back to the company. And all but four said no, according to people familiar with the matter. So, I mean, it has the backing of the people who actually work there.

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[Matt Levine]

There's like 10 market structure sickos who listen to this podcast or read my newsletter and you know what market structure sickos don't like?

[Katie Greifeld]

Tell me Reg. NMS well, what a wonderful week that they've been having.

[Matt Levine]

So, like 20 years ago, the SEC 2005 created rules that say that if a stock is available for sale at a lower price on one stock exchange, you can't buy it at a higher price on another stock exchange. By the way, that's not a correct summary of the rule. And like, there's like a technical error there that people will complain about. That's essentially a useful summary of the rule. Basically, it's like there's like 12 stock exchanges now or 14. There's a lot of stock exchanges. And the SEC 20 years ago created what's called a national market system or nms, where essentially all those stock exchanges are linked and whichever exchange offers the best price, you trade there. And I'm sure that that seemed very intuitive and sensible at the time.

[Katie Greifeld]

It does.

[Matt Levine]

It still does. Right.

[Katie Greifeld]

I mean, I had to really read and feel and search for the unintended consequences because at first blush that seems reasonable.

[Matt Levine]

Right. And so like, brokers have a best execution requirement, so brokers are supposed to get their clients the best price for stock. And so separate from that, but obviously related to that is like this reganims rule that says, you know, if it's available at a low price, you got to buy it at a low price, not at a high price. And so this is like a sensible rule. And everyone's like, sure, yeah, let's do it. And that's not true. People objected at the time, but that was a long time ago. But I think that since then, many people have decided that there are some unintended consequences of it that are bad. And one of them, which I think we maybe talked about in this podcast, is that if I start a stock exchange, every high frequency trader, every broker has to connect to my stock exchange, because what if I have the lower price? I might never have the lower price, but they don't know that until they pay me a lot for a data feed and a fast connection and all this stuff. So it, like, essentially subsidizes the creation of weird new stock exchanges. Yeah, but all these weird new stock exchanges, like, you know, the Texas Stock Exchange, and I've written about all of them, like, so what's going on here is like marketing positioning, like, really thinking you've got a better mousetrap. But some of it is just like, you start a stock exchange and every trader is like, okay, we got to connect to your stock exchange. How much are you charging? So there is some inefficiencies there.

[Katie Greifeld]

Yeah, that was interesting to me. I mean, I have to admit, I haven't spent a lot of time thinking about Reagan. A mess. But I mean, looking at this proposal, there is that feeling there that there are too many stock exchanges that, you

[Matt Levine]

know, the SEC calls that out specifically. Yeah, there might be fewer stock exchanges,

[Katie Greifeld]

which to a casual person, you just think it's so top heavy. The exchanges that you don't really think about, like the little guys.

[Matt Levine]

Right. In a world where it was just competitive, a broker might say, look, I'm satisfying my best execution obligations by sending orders to a big liquid exchange where most of the orders are. And if somewhere there's one share available at a penny better price, it doesn't matter. I'm doing the best I can for my clients and I'm saving on connection fees and everything. That's kind of a reasonable judgment to make. But in a world of reg nms, you sort of have to send the orders wherever the best order is. And so you all those smaller exchanges just kind of continue bopping along, whereas, like, in a more competitive world, maybe more volume would be consolidated at the biggest exchanges. Reganims also became very controversial around the Flashboys IEX situation, because basically, IEX launched an exchange with like a sort of speed bump situation, more or less. It's called the speed bump. So we'll keep calling it a speed bump. And a lot of people are like, well, how can I be forced to connect to this thing that delays quotes? And basically the SEC is like, yeah, it's fine. But every decision that an exchange makes is more fraught and controversial when you have to route to that exchange, when you have to trade on that exchange. And so getting rid of reg nms might just make it a little bit easier for exchanges to do different things because if you don't like it, you don't have to trade there. I do want to say though, the other thing that is going on with this is crypto.

[Katie Greifeld]

Oh my God.

[Matt Levine]

Crypto really doesn't like the trade through rules. No, because it just does not work with crypto market structure. For one thing, like, the funding mechanisms are different where like stock Exchange trades settle T +1 and so you could do a trade on whichever exchange has the best price and then settle out the next day. Crypto, like if you're pre funding trades, if you're like doing trades on a blockchain, like, it is harder to do that if you're forced to execute wherever the best price is. And then also, like, crypto is just slower than regular markets. Like, crypto operates on block time where like, you know, blockchain does a batch of transactions every, you know, six seconds or every second or whatever.

[Katie Greifeld]

It's a lifetime.

[Matt Levine]

It's a lifetime for equity market structure. And so it's very hard to think about how a crypto exchange could be held to these rules. Now, you might say crypto exchanges aren't held to these rules, but everyone wants to tokenize stocks. Everyone wants to list stocks on crypto exchanges. And if you list stocks on crypto exchanges, you have to get around reg nms and the simplest way to do that is to get rid of these rules.

[Katie Greifeld]

Yeah, that was definitely the reaction on crypto Twitter. And there's a great piece out by Scott Patterson on the Bloomberg terminal. And he does quote Alex Thorne, who's at Galaxy and Alex Thorne, I think he tweeted something to the effect of this is one of the biggest unlocks yet for tokenized stocks.

[Matt Levine]

Right.

[Katie Greifeld]

So it's all happening.

[Matt Levine]

It's all happening.

[Katie Greifeld]

Tokenization is one of those things that's been on my list to take seriously and like really like do some homework on for a while now. And I keep hoping that maybe when I'm on maternity leave, I'm gonna get serious about it, which is really naive.

[Matt Levine]

I think tokenization has been on my list of things to not take seriously and I've made fun of it. Tokenization is two things. Some of it is like, market structure stuff where, like, crypto people would love, love, love to just list all the stocks on Coinbase rather than listing them on the stock exchange. But then some of it is genuinely getting around US registration requirements and listing all the private stocks on Coinbase so that you can go public without going public. I will say that that was how I interpreted tokenization for a long time because it's what everyone said and I don't think that's what's happening. I think that has been kind of like pushed back a little bit. Like everyone's like, no, you can't really like, just list tokens on Robinhood of like, you know, anthropic stock. That's not allowed.

[Katie Greifeld]

No.

[Matt Levine]

But the other stuff, the market structure stuff, to like, let's list stocks on crypto exchanges is happening and this is part of that.

[Katie Greifeld]

Yeah. I don't know. I feel like getting rid of the trade through rule would suggest that maybe I should take tokenization seriously. Alex Thorne says this is one of the biggest unlocks yet for tokenized stocks. Probably, yeah. But I mean, that's a future problem. I'm here for five more weeks.

[Matt Levine]

And that was the Money Stuff podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on bloomberg.com

[Katie Greifeld]

and you can find me on Bloomberg TV every day on the close between 3 and 5pm Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodlumberg.net Ask us a question and we might answer it on the air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff podcast is produced by Anna Mazarakis, Moses Andam and Alexis Haut.

[Katie Greifeld]

Our theme music was composed by Blake Maples.

[Matt Levine]

Amy Keen is our executive producer. Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

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It's a long term contract with no release clause.

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