Catastrophe in the Name: ETF, Trades, AI

Summary

Money Stuff: The Podcast – Episode Summary Title: Catastrophe in the Name: ETF, Trades, AI
Host/Authors: Matt Levine & Katie Greifeld
Release Date: June 27, 2025

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1. Introduction to ETFs and Structured Products

In the opening segment of this episode, Matt Levine and Katie Greifeld delve into the intricate world of Exchange-Traded Funds (ETFs), focusing particularly on the emerging category of auto-callable ETFs. Matt initiates the conversation by highlighting the proliferation of ETFs in the financial landscape.

Key Discussion Points:

• Evolution of ETFs: Matt emphasizes, "the thing about ETFs is that eventually all of financial products and ultimately all of human existence will be sucked into an ETF" (04:26).
• Auto-Callable ETFs Explained: The hosts unpack the mechanics of auto-callable ETFs, describing them as structured notes where investors receive high yields unless the market crashes, in which case they risk significant losses.

Notable Quotes:

• Matt Levine: "If you're into this sort of thing, it's really cool because it's like the structure of it is basically it's an auto call. So there's like knock ins and knockouts and stuff." (11:25)
• Katie Greifeld: "I still don't quite get it." (05:16)

2. Auto-Callable ETFs: Risks and Popularity

Katie expresses reservations about the viability of auto-callable ETFs for retail investors, comparing them to "Boomer Candy" due to their somewhat opaque structure and high-risk profile.

Key Discussion Points:

• Comparison with Buffer ETFs: Katie contrasts auto-callable ETFs with buffer ETFs, noting that while buffer ETFs offer downside protection at the cost of capped upside, auto-callable ETFs provide high yields with the peril of substantial losses during market downturns.
• Target Audience: The conversation touches on the intended investors for these products, primarily high-net-worth individuals who are comfortable with complex financial instruments.

Notable Quotes:

• Katie Greifeld: "It's like getting the nice coupon except in bad states of the world, in which case you lose a lot of money." (08:34)
• Matt Levine: "This is a little bit similar to a buffer in that it's like a fixed income replacement that maybe has a little extra juice." (08:05)

3. JP Morgan’s Private Credit Trading Desk

Transitioning from ETFs, Matt and Katie explore JP Morgan's endeavor to establish a private credit trading desk, as reported in Bloomberg's recent articles by Alan Schneider and Carmen Arroyo.

Key Discussion Points:

• Challenges Faced: Despite setting up the desk, JP Morgan struggles with attracting trading partners due to the illiquid nature of private credit loans. Matt explains, "95% of it is that these loans don't trade and people don't want them to trade." (15:48).
• Market Dynamics: The hosts discuss the inherent tension between the desire for liquidity in private credit markets and the traditional preference for holding loans to maintain stable, long-term relationships with borrowers.
• Future Outlook: They speculate on potential solutions, such as selling participations in loans rather than the loans themselves, to introduce some level of liquidity without relinquishing control rights.

Notable Quotes:

• Matt Levine: "If private credit loans traded constantly in a liquid market that everyone could see, it would be harder to not mark down your positions when they went down in the market." (17:13)
• Katie Greifeld: "Loan to own investors." (20:35)

4. The Intersection of AI and Financial Compensation

In a lighter yet thought-provoking segment, Matt and Katie shift gears to discuss the competitive landscape of AI research recruitment, humorously alluding to unsolicited calls from Mark Zuckerberg offering exorbitant salaries to AI researchers.

Key Discussion Points:

• Exorbitant Compensation: The hosts joke about the improbable scenario where AI researchers are offered $100 million packages, highlighting the intense competition for top talent in the AI sector.
• Impact on Work Culture: They reflect on how such high compensation could influence career choices and work ethics, contrasting it with the financial industry's approach to employee retention.

Notable Quotes:

• Matt Levine: "Like, you need them to still want more money but not be able to get it elsewhere." (25:12)
• Katie Greifeld: "I feel like, you know, if you pay them more than X, they won't go to your competitors. And if you pay them less than Y, they won't quit to go to the beach." (25:09)

5. Reflections on Meta and the Future of Tech Investments

Concluding the episode, the conversation veers towards Meta (formerly Facebook) and its pivot toward AI, pondering whether this strategic shift mirrors previous missteps like the ill-fated Metaverse investment.

Key Discussion Points:

• Meta’s Strategic Shift: Katie questions if Meta's investment in AI is a savvy pivot or a repeat of past over-enthusiastic ventures.
• AI vs. Metaverse: Matt contrasts the tangible utility of AI advancements with the more abstract applications of the Metaverse, suggesting that AI holds more promise as a transformative technology.

Notable Quotes:

• Katie Greifeld: "I truly, truly, truly believe that if he had just waited like a year or two, it would be AI platforms." (28:25)
• Matt Levine: "I think AI is like the real version of the Metaverse." (28:12)

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Conclusion

This episode of Money Stuff offers a deep dive into complex financial instruments like auto-callable ETFs and the challenges of trading in private credit markets. Additionally, it provides a humorous yet insightful look into the competitive world of AI recruitment and tech industry strategies. Matt Levine and Katie Greifeld adeptly balance technical explanations with engaging dialogue, making intricate topics accessible to both seasoned investors and curious listeners alike.

Notable Themes:

• Complexity vs. Accessibility: The hosts highlight the growing complexity of financial products and the importance of investor understanding.
• Market Liquidity vs. Stability: A recurring theme is the balance between liquidity and stability in financial markets, particularly in private credit.
• Technology and Compensation Trends: The speculative discussion on AI talent compensation underscores the broader trends in tech industry recruitment and investment.

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Timestamp References:

• 04:05 – Episode Commencement
• 04:26 – Introduction to ETFs
• 05:16 – Katie’s Initial Confusion on Auto-Callable ETFs
• 08:05 – Comparison with Buffer ETFs
• 08:34 – Risks of Auto-Callable ETFs
• 11:25 – Detailed Explanation of Auto-Callable Structures
• 15:48 – JP Morgan’s Private Credit Challenges
• 17:13 – Market Volatility in Private Credit
• 20:35 – “Loan to Own” Concept
• 25:09 – AI Recruitment Compensation Structure
• 25:12 – Matt on AI Talent Retention
• 28:12 – AI vs. Metaverse
• 28:25 – Katie on AI Platforms

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Transcript

[Katie Greifeld]

This is an iHeart podcast.

[Matt Levine]

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[Katie Greifeld]

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[Katie Greifeld]

Bloomberg Audio Studios Podcasts Radio News Should I give a really quick bird update?

[Bloomberg Host]

Oh yeah.

[Katie Greifeld]

Well, we put out the Cliff Astness episode which was very well received, but we did get a few comments about where's the bird there not being a bird update really quick bird is doing.

[Bloomberg Host]

I was not interested in your bird. Maybe he would have been. Actually I didn't mean to say that.

[Katie Greifeld]

He would have rolled with it.

[Bloomberg Host]

Yeah, he would have rolled it.

[Katie Greifeld]

Yeah, the bird's doing really well. Flying really well. We need to work on perching so he's In a big room.

[Bloomberg Host]

Oh, interesting. He's regressed on perching.

[Katie Greifeld]

Well, the thing is, he falls off. It's hard. He's very comfortable perching on people. He's very comfortable perching on his cage. I put in an old cat tree that I had at my parents house. In the room where he is, he refuses to perch on it. And so if you open.

[Bloomberg Host]

If I were a bird.

[Katie Greifeld]

Yeah, you probably wouldn't perch on the cat tree.

[Bloomberg Host]

Stay away from stuff that smells like it.

[Katie Greifeld]

Yeah, maybe. I don't mean my cat hasn't touched it in several years, so I thought maybe the cat's smell had faded.

[Bloomberg Host]

Never.

[Katie Greifeld]

I think I need to get the.

[Bloomberg Host]

Owner of a wheaten terrier. I can tell you the cat's never fades.

[Katie Greifeld]

Never fades. I think I need to get him an indoor potted tree or something. Because if you open the cage and then run to the other side of the room, he will fly directly to you. He will not land on anything other than his cage in humans. So we need to work on that. Also, we're calling it a he, but it could be a ladybird.

[Bloomberg Host]

Is this whole project still in the service of like one day releasing him or her into the wild? Or is it more just like. It'd be nice if he wasn't clinging to your shoulder all the time.

[Katie Greifeld]

I think given that it's so attached to humans, it would be very hard to release this bird right now. It won't perch. I mean, we'll see when we get at a tree if it'll perch on the tree.

[Bloomberg Host]

I guess I'll stop asking that question. I guess that's just your bird now.

[Katie Greifeld]

There's no and its name is Bird Bird.

[Bloomberg Host]

Hello and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloo Opinion.

[Katie Greifeld]

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

[Bloomberg Host]

Katie, I came to you this week and I was like, I want to talk about ETFs, which sounded great, sounds great. And I was. I'm talking about auto call ETFs.

[Katie Greifeld]

And you're like, no, you know, that's the thing. It really feels like a monkey's paw situation or something. I should be psyched.

[Bloomberg Host]

This is the thing. This is the thing. The thing about ETFs is that eventually all of financial products and ultimately all of human existence will be sucked into an etf. And like, you have to be able to roll with all of the possible forms of ETFs.

[Katie Greifeld]

I, you know, I'm like, super comfortable with the idea that, you know, there's structured products in ETFs. Yeah, I know what a buffer ETF is. The concept of an auto callable ETF is a little bit of a tougher chew. But the first one launched this past week.

[Bloomberg Host]

Yeah, Calamos.

[Katie Greifeld]

Calamos with JP Morgan is the swap counterparty.

[Bloomberg Host]

Yeah.

[Katie Greifeld]

So you did a breakdown in your Money Stuff column about how theoretically this would work. You provided an example. I still don't quite get it.

[Bloomberg Host]

Okay, so if you're JP Morgan, you're in the business of manufacturing products that clients want to buy. One thing that clients come to with a lot is we would like to hedge our stock market risk. It would be nice if when the market crashed, we could get some insurance. And so there's a big business in manufacturing insurance against market crashes. Because fundamentally, most investors are long equities and they want to have insurance. Some of them want to have insurance against the market crashing. And how do you manufacture that insurance? Because no one's to sell that insurance. Who wants to be in the business of saying, if the market crashes, I'll give you money? It's a terrible wrong way situation to be in. And so a lot of the world of equity derivatives trading is figuring out how to manufacture that sort of market risk insurance crash insurance. And there are ways to do it. Like the dispersion trade in hedge funds is like a kitty's eyes are closing. It's like a complicated way to take single stock volume and turn it into index volume so that you can sell people insurance against market crashes. But a classic way to do it is to say, we're going to have retail investors sell us insurance against market crashes. And the way retail investors sell insurance is essentially they buy bonds. And the bonds they put in $100, they get back $100, plus a very high rate of interest. Except if the market crashes, they get back nothing or they lose money. The thing they buy is sort of a catastrophe bond for market crash. If the market crashes, they don't get back all their money. And the money they don't get back gets used to pay someone else's insurance. One of the main, like the classic form of that is called an auto callable. It's just like the name of it, but it's basically you put in money. If the market stays flat or up or even goes down a little bit, you get back like 115 cents on a dollar in a year. And if the market goes down a lot, you lose the amount of the market crash. And when JP Morgan sells that to you, gives them index volatility that they can turn around and sell to institutional clients who want a hedge against market crash. So that is the auto callable. It is a classic structured note structured product that banks love to sell to retail or high net worth investors. Now it's going into an etf, which was inevitable.

[Katie Greifeld]

I mean buffers have been so popular.

[Bloomberg Host]

I think actually the press release for this ETF said something like this is the latest flavor of Boomer Candy. Pretty much just the name of these kinds of ETFs now.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

And it's like a little bit similar to a buffer in that it's like a fixed income replacement that maybe has a little extra juice.

[Katie Greifeld]

But even still on. I'm prepared to be proven wrong, but I feel like this is a tougher sell.

[Bloomberg Host]

Like buffers, I should say it's different from a buffer in that a buffer is buffered. And this is like in a crash you lose your money.

[Katie Greifeld]

Yeah. A buffer is okay, you're giving up upside, but you're going to be cushioned. Buffered on the downside that this is.

[Bloomberg Host]

Like you're getting a nice coupon except in bad states of the world, in which case you lose a lot of money.

[Katie Greifeld]

Yeah, yeah. So I don't know, I mean, who is this for? Like I hear people love them. I know people love them. I know, I know. I just wonder like these are like.

[Bloomberg Host]

Famously like you know, sold to Asian high net worth investors. And there was a story a while back that I remember I quoted about Korean autocallables or some broker says something like, no one's ever only bought one. Once you buy them, you keep coming back for more because they're so great.

[Katie Greifeld]

You just love them so much.

[Bloomberg Host]

And it's like, you know, you think of the profile of it for a second and you're like, yeah, of course that's true. Right. You keep buying them because you get paid a 15% yield. You keep buying them until there's one crash and then you stop. Right? Maybe. Yeah, but right, it pays a 15% yield unless the market crashes and then it just crashes.

[Katie Greifeld]

Yeah. So Calamos is first out the gate. I think you have Innovator and First Trust have also filed for similar products. It's interesting that JP Morgan hasn't. JP Morgan sort of pioneered this category in the ETF space, this derivatives power defined outcome space. They have jepi, which is a household name in my household. Maybe not in yours, but then, you know, there were a bunch of jeppy copycats. And you've also seen buffers rise up in the last few years. But I don't know, it's somewhat interesting to me that, you know, it's not JP Morgan that's.

[Bloomberg Host]

Well, JP Morgan is the swap counterparty.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Which means their volume that is being bought. They're buying the volume from the retail customers to sell to their institutional customers.

[Katie Greifeld]

Yeah, yeah. But they're not the ones headlining this ETF necessarily.

[Bloomberg Host]

Yeah. Right. I never fully understood the structured notes business, but part of it is the retail and high net worth and private wealth. Bankers are sitting around saying what can we sell to our customers to make money? And then part of it is the institutional volume traders are sitting around thinking where can we get some volume? And there's a meeting of the minds. So here the JP Morgan volume traders are happy, even if they're not making the ETF fee, they're making some sort of fee. On your point about who this is for.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

I wrote about this this week and a reader emailed me to remind me of. There's a catastrophe bond etf.

[Katie Greifeld]

Yes. I love this one. ILS is the ticker. ILS and launched without a lead market maker.

[Bloomberg Host]

Yeah. And there's like a Bloomberg article about it from April saying the securities can be a hard sell for retail investors who have never before had to price the risk of a typhoon or earthquake. By the way, they're not pricing it now, so they're a price taker. But anyway, they quote someone saying the asset class does itself no favors by having catastrophe in the name.

[Katie Greifeld]

Right.

[Bloomberg Host]

At least it's clear though. At least you kind of know the basic contours of what you're doing when it's this catastrophe in the name. Here it's called an auto callable. Which tells you nothing.

[Katie Greifeld]

No.

[Bloomberg Host]

And there's a big headline. This is how much yield you get. And you're like, oh, yield great. But then you're like, oh, I can lose all my money.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Also it's like if you're into this sort of thing, which I know you're not.

[Katie Greifeld]

No. But go ahead.

[Bloomberg Host]

If you're into this sort of thing, it's really cool because it's like the structure of it is basically it's an auto call. So there's like knock ins and knockouts and stuff. Basically if the index is down 40% is when you start to lose money instead of getting the nice coupon, which.

[Katie Greifeld]

Very rarely happens by the way.

[Bloomberg Host]

Okay, you say that.

[Katie Greifeld]

Yeah, I do.

[Bloomberg Host]

But the reason you say that is because you and I and probably most of the people buying it have an intuition of what the index is. But the index that they use is not the S and P. The index that they use is a like volatility targeted S and P. Oh no. So basically they lever the S and P to get you to a 35% volatility, which is like in the ballpark of 2x levered, a little more than 2x levered. So a 20% drop in the S and P is not that common either. But it's like it happens. Yeah. And you see 40%, you're like, Ah, 40%. That never happens. But if the index drops like 20ish percent, you lose 40% of your money. So it's like the structure is not a lot of structured notes. It's like you can tell the story in a simple. You're like if the market is down 20%, you lose 20%. It's very easy to understand here. It's like you get this nice yield and sometimes you don't. It's not like when the market is down 20%. It's like, yeah, math. And sometimes you don't. So it's an unintuitive product for retail investors.

[Katie Greifeld]

Yeah. I'm interested to see if, I mean just given how popular these types of ETFs would be if we were recording this in 2019, which we wouldn't, but I'd be like, oh, who's going to buy this? But I don't know, it could happen. It could see some uptake, but I don't really get it. So we'll see if you can't explain it in an elevator ride.

[Bloomberg Host]

You can explain it. It pays a high yield. Except when the market crashes.

[Katie Greifeld]

Except when the market crashes. Yeah, but it's, you know, if the index is above this level, if it's.

[Bloomberg Host]

Below this numbers, it's hard to explain, but. Well, yeah, it's not a lot of stuff. It's not like floors and caps and everything. It's just like is 15% except when the market's down more than X percent.

[Katie Greifeld]

Something else. I was wondering. This has typically been the domain of high net worth individuals who is making less money as a result of this being put in the ETF wrapper. Does JP Morgan care if they're selling these to Kalamos versus selling this in some other structure?

[Bloomberg Host]

I always used to have the impression that structured notes had very juicy fees, but actually I think it's kind of A competitive business. It's not that juicy.

[Katie Greifeld]

Yeah. Well, this ETF charges 74 basis points.

[Bloomberg Host]

Yeah. But with anything like this, there's a lot of mouths to feed. And they're doing a swap with J.P. morgan, which is probably. J.P. morgan expects to make a certain amount of money on the swap. I don't know, it's hard to exactly compare the pricing of this to a structured note, but I don't get the sense that like I think these are, these are comparable products. Right? Like these are sort of advisor sold like upper end retail products. And so like, you know, they're all kind of competitive spaces. But this is not like wildly undercutting some super lucrative uncompetitive business. Right. Like the structured notes is like everyone's kind of in on that game.

[Katie Greifeld]

Okay, good.

[Bloomberg Host]

You were worried.

[Katie Greifeld]

JP Morgan isn't losing out on anything.

[Bloomberg Host]

Yeah. Yeah.

[Katie Greifeld]

Hmm.

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[Katie Greifeld]

Should we move on to the next JP Morgan story?

[Bloomberg Host]

I guess the private credit trading story.

[Katie Greifeld]

Private credit trading, it's so good. Yeah.

[Bloomberg Host]

So right. There's a Bloomberg story this week by Alan Schneider and Carmen Arroyo about how.

[Katie Greifeld]

Such a fun read.

[Bloomberg Host]

JP Morgan has set up this entire private credit trading desk, which is so smart, like getting in early on what is quite plausibly going to be next. Bank loan trading, like a huge business, but unfortunately they don't do any trades.

[Katie Greifeld]

No one wants to trade with them.

[Bloomberg Host]

That's how you have to start, right?

[Katie Greifeld]

Yeah. Yeah.

[Bloomberg Host]

This is not that no one wants to trade with them. It's product doesn't trade.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

It's not entirely true. Some of it is that no one wants to trade with JP Morgan and like there are some private credit firms trying to stand up trading desks and like maybe it's just the competitive dynamic. I think 95% of it is that these loans don't trade and people don't want them to trade. And so JP Morgan constantly sends out runs saying, we're looking to buy $5 million chunks of these 40 loans and here are our bids. And everyone's like, no, thank you, shooting.

[Katie Greifeld]

Out those runs into the void.

[Bloomberg Host]

And then they're calling and saying, hey, just want to see if you got my run. And everyone's like, goodbye.

[Katie Greifeld]

God.

[Bloomberg Host]

Yeah, it's really bad. It's great.

[Katie Greifeld]

The human psychology of that is just brutal.

[Bloomberg Host]

I know, but it's what you gotta do. Right. And you know that, like, the people doing that are like, well, this is my shot at, like, being the person who invented a whole new category and bringing in, you know, hundreds of millions of dollars of revenue and being a superstar. But one, it's not guaranteed that it'll work out. And two, it is guaranteed that before it works out, I will spend a lot of time cold calling people and getting nowhere. Right.

[Katie Greifeld]

Yeah. And I mean, as a journalist, I sympathize with that.

[Bloomberg Host]

Oh, yeah.

[Katie Greifeld]

Jeez Louise. I hate cold call.

[Bloomberg Host]

As a not very good investment banker in my former life, I think about, like, how long one could have zero in one's P and L. Yeah. You know, like, they've got some Runway. Right. No one's expecting them to do a lot of trades this month.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

You know, like, at some point someone will be like, hey, guys.

[Katie Greifeld]

Well, there's.

[Bloomberg Host]

Where are the trades?

[Katie Greifeld]

There's a few interesting reasons in the article that are raised for why JP Morgan is getting shut out. One is that the private credit firms want big banks to stay out of their turf.

[Bloomberg Host]

I don't think that's the main reason.

[Katie Greifeld]

Yeah. Presented as a reason.

[Bloomberg Host]

That's part of it. The competitive dynamic of, like, we want to freeze. And that might be part of it. I think the main reasons. Okay, so I think an important reason that the article highlights, that I think is the second most important reason, is that this is what Cliff was talking about when he came on nice callback. Private markets are very attractive to a lot of investors because they are less volatile than public markets. And if you think about that for a fraction of a second or if you talk to Cliff, you'll be like, wait a minute.

[Katie Greifeld]

It's magic.

[Bloomberg Host]

They're not actually less volatile. It's just they don't trade. So you don't see the fluctuations in the values that you see in public markets because they trade constantly. And so nonetheless, like, you know, as Cliff has written about, like, there is for some classes of investors, like, a real value in not having to mark down your positions.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

And if private credit loans traded constantly in a liquid market that everyone could see, it would be harder to not mark down your positions when they went down in the market.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

And then some of the perceived advantage of private credit would go away. And nobody trying to stuff private credit into 401ks is going to be all that excited about, like, increasing the volatility of the market. So yeah, that is, I think, the second most important reason.

[Katie Greifeld]

But even still, I mean, you have Apollo trying to do that, trying to make trading a thing, but they're also trying to shove private credit into 401ks.

[Bloomberg Host]

Yes. So this is the tension, right? Like you don't want volatility.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

But like you want retail customers and it is hard to build a retail product that is completely illiquid.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Like it makes sense. There's like an economic intuition for like you can put private credit into your 401k or your target date fund and you'll know with certainty that you won't need the money for 30 years so that you can take the illiquidity risk. You don't need liquidity because you're a long term saver.

[Katie Greifeld]

Right.

[Bloomberg Host]

But nobody actually believes that because like retail is like, it's hard to lock up retail for, you know, 10 years.

[Katie Greifeld]

Right.

[Bloomberg Host]

And so in practice to have a retail product, you need something like at least an interval fund and maybe an etf. Right. And an etf, you need trading. Right. Like you need to be able to trade this stuff. So yeah, like there is definitely a push for trading of private credit to get it into retail. So. Right. So it goes the other way. But I do think the most important reason that it's hard to trade private credit is that the deal that private credit firms are offering to borrowers, like private equity sponsors, is we will look you in the eye and write you this loan and we will own that loan for the duration of the loan. And if you have problems, you come to us and like, we won't be jerks because we're repeat players in this game. And so once private credit trades, like, you know, there's opportunities for vulture funds and activists and like, you know, loan to own investors. And so it's less pleasant for the private equity sponsors. And so, you know, as they say in the article, you know, unlike most bonds, private credit loans require the approval of the lead lender and the private equity sponsor to trade.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

So even if JP Morgan could get someone to sell to them, they'd have to go to the sponsor and say, hey, can we buy this loan? The sponsor could say no.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Which puts a damper.

[Katie Greifeld]

So they have veto power, basically.

[Bloomberg Host]

Yeah, it's not just veto power. It's not just like we don't want our loans to end up in the hands of like activists were scared of. It's also just like we want our loans to be held by five people. We negotiated with rather than like any random person.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Because we want to be able to have a like, relationship with them if we need to, you know, extend or refinance the loan or, you know, if we run into problems and we need to restructure. Like we want to be able to talk to people who we know and who like, we have a long term repeat relationship with rather than, you know, some random CLO manager.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

And so that makes it hard to trade private credit.

[Katie Greifeld]

So how does this evolve? I know that you're in the camp. It seems that it kind of feels inevitable.

[Bloomberg Host]

Yeah, I think so.

[Katie Greifeld]

But.

[Bloomberg Host]

But there's like a real counterargument.

[Katie Greifeld]

Yeah. And you also have, I mean, like you said, the private equity sponsors don't want this. You also have like the likes of Blue Owl who thinks that private should stay private. I mean, like, how do you see this evolving? Will there be be a corner that remains in the shadows or do you think that everything eventually will be out in the open and traded?

[Bloomberg Host]

I think it's going to be contractual. And so you see a little of this in the broadly syndicated loan market where some loans are very restrictive about who can buy them. For the most part, people think of the broadly syndicated loan market as trading. And banks have trading desks and IT trades and you can get marks and stuff, but it's not as liquid as the bond market. And some loans have long restricted lists where people can't buy it. You can have that in private credit. Right. Where some sponsors, some deals don't trade very much because they're very restrictive. And other people say, I don't really care, I will get a better price if I allow more trading of my loans. And so I'll just take the better price. And it's like, interestingly, there aren't that many private credit firms and there aren't that many private equity sponsors. It's all kind of like oligopolistic. And so you could imagine people just come into arrangements and say, okay, fine, or you have your reasons for borrowing from firms that really don't allow trading, or you have your reasons for borrowing from firms that love trading and maybe you get a better price with more liquidity and all the other stuff.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Another possibility I've gotten a couple of reader emails about this is you can sort of halfway allow private credit trading where instead of selling the loan to someone, you sell like a participation in the loan where the original lender keeps like the servicing rights and keeps the relationship with the borrower, but someone else is buying the economic value of the loan. That's like sort of a compromise that might work and might give you some of the things that you want, like letting the original lenders cash out a little bit or de risk a little bit. It's like a little hard to imagine because with leveraged loans, a lot of what people do want is the control rights and the servicing rights and the ability to, like, have a seat at the table in the restructuring. But maybe that's the way for it to go.

[Katie Greifeld]

Yeah, it'll be fun to find out.

[Bloomberg Advertiser]

A warming planet, complex geopolitics and fierce competition means business operations are under more scrutiny than ever before. Returning to Singapore this July, the Bloomberg Sustainable Business Summit is uniting leaders and investors to explore how sustainability efforts can bolster resilience and mitigate risk. Learn [e-mail] SBS Singapore. That's BloombergLive.com SBS Singapore.

[Bloomberg Host]

Katie, this is my last podcast because.

[Katie Greifeld]

Because you got the call from Mark Zuckerman. Me too.

[Bloomberg Host]

I think it was fake, though.

[Katie Greifeld]

It's hard to know because apparently we're not alone in thinking that our Mark Zuckerberg calls were fake.

[Bloomberg Host]

I'm just kidding. But in fact it is.

[Katie Greifeld]

Oh, I'm not. No, no, I'm kidding.

[Bloomberg Host]

It does seem to be the case that every single AI researcher in the world has gotten Mark Zuckerberg sliding into their DMs, and 95% of them have been like, that's not Mark Zuckerberg. Which is weird, right? Yeah, which is weird because, I don't know, AI is so weird. I was writing a little bit.

[Katie Greifeld]

Like just the concept.

[Bloomberg Host]

No, the job market.

[Katie Greifeld]

Oh, yeah.

[Bloomberg Host]

I was writing a little bit about this. I'm used to the financial industry where the job is to pay people enough that they don't leave for your competitors, but not so much that they leave to sit on a beach.

[Katie Greifeld]

Right, right.

[Bloomberg Host]

You need them to still want more money but not be able to get it elsewhere. And there's a range. If you pay them more than X, they won't go to your competitors. And if you pay them less than Y, they won't quit to go to the beach. And like, you know, Y is greater than the next in AI, it's like it's flipped. Like in AI, to out compete your competitors for the best AI talent, you need to pay the best AI talent $100 million.

[Katie Greifeld]

Yeah, it's an impossible.

[Bloomberg Host]

Like a 28 year old, right?

[Katie Greifeld]

Yeah.

[Bloomberg Host]

I love my job, but like.

[Katie Greifeld]

Yeah, for sure, if I got $100.

[Bloomberg Host]

Million, I wouldn't do it. Anymore.

[Katie Greifeld]

Yeah, yeah, that's true.

[Bloomberg Host]

That's too much money. So are you don't need to work anymore?

[Katie Greifeld]

Are you implying it's just more important that they don't work at OpenAI?

[Bloomberg Host]

What do you mean?

[Katie Greifeld]

Listening to you talk, it sounds like you're saying that Mark Zuckerberg is hiring these people just so they're not working at OpenAI.

[Bloomberg Host]

Working. It's very bizarre to me. I assume there's some sort of structure on their compensation where they don't just get a bag of money on the.

[Katie Greifeld]

First day and then leave.

[Bloomberg Host]

But no, I don't think he's hiring them to get them out of OpenAI. I think he's genuinely trying to build a giant AI research project.

[Katie Greifeld]

Is it Super Intelligence? Super Intelligence, thank you.

[Bloomberg Host]

And it's apparently intended to include every AI researcher in the world at $100 million a pop. And it's amazing.

[Katie Greifeld]

I think their desks are also going to be close to Mark Zuckerberg. They're going to be physically close to him as well.

[Bloomberg Host]

And they're going to be made out of diamonds. I'm used to finance, but in tech, it's a famous concept of resting investing. It's famously. There are people who, by virtue of being early employees at successful companies, don't need to work anymore. And in AI, there are only those people. Every person who works in AI doesn't need to work anymore. It's so strange. They must all be really motivated by building AI.

[Katie Greifeld]

Yeah. I mean, I just find I'm exaggerating.

[Bloomberg Host]

I'm sure there's some listeners who are like, I only get paid, like, $8 million a year, and I work in AI, and it's really like. You're really exaggerating. I agree. I'm really exaggerating. But you keep reading stories about people forgetting.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Really enormous confidence.

[Katie Greifeld]

Yeah. Super disheartening, I thought.

[Bloomberg Host]

No, it's great. I love when people get paid a lot of money. It's just like rising tides lift all butts.

[Katie Greifeld]

You're just a good guy. I find Mark Zuckerberg just a fascinating individual. I find Meta fascinating as well. You know, Meta used to be called Facebook, and then he spent so much money on the Metaverse, tanked the stock. This was a huge, like, how much money he was funneling in for no return. Then they had to do the Year of Efficiency or whatever. They fired a bunch of people. I do wonder if we're watching this build up again. When it comes specifically to Meta as.

[Bloomberg Host]

A general matter, I kind of think that AI Is the real version of the Metaverse crypto in the metaverse or the fake version? I don't know, man.

[Katie Greifeld]

Do you think AI is more real than the Metaverse? I just feel like, like the grown up version.

[Bloomberg Host]

I just feel like you can look at the LLMs and ask them to do useful things and they do useful things and you're like, oh, that was useful. Right? And then like the Metaverse, it's like, ah, I don't have legs. And a video.

[Katie Greifeld]

You know, like, here's the Eiffel Tower.

[Bloomberg Host]

Right? Like, the Metaverse was obviously intuitively stupid the whole time. I don't know how to do that.

[Katie Greifeld]

He spent so much money.

[Bloomberg Host]

No, I know.

[Katie Greifeld]

No, we're not cutting this. This is good. I don't know if I've made this point on the podcast before, but I truly, truly, truly believe that if he had just waited like a year or two, it would be AI platforms. I feel like.

[Bloomberg Host]

I know, I know, I know.

[Katie Greifeld]

In his heart of heart, does he regret naming it Meta Platforms? I would like to say, like, at.

[Bloomberg Host]

Some level, he must. At another level, like, Meta platforms is a fine name for whatever nonsense you're doing. Like, it's fine if you need it. Metaverse platform is terrible.

[Katie Greifeld]

That's true.

[Bloomberg Host]

Like meta. It's like meta. It's fine.

[Katie Greifeld]

Yeah. I feel like everyone has kind of forgotten that the meta refers to the metaverse.

[Bloomberg Host]

Yeah, I agree with that.

[Katie Greifeld]

I do seriously wonder, though, if we're watching round two of this, though, this buildup and that in a couple years maybe we're going to be talking about massive layoffs and Meta's next year.

[Bloomberg Host]

Because if it stops being fun, they'll just leave because they have $100 million.

[Katie Greifeld]

That's true, that's true. It is interesting to contrast how hard Mark Zuckerberg and Meta are going at AI versus Apple, where the narrative is very much that they've fallen behind. And then you think about Microsoft, which has just been shedding thousands and thousands of jobs. Meta stands.

[Bloomberg Host]

Yeah, but Microsoft has like the OpenAI. Well, sort of. It's like complicated, but Microsoft sort of has OpenAI as its AI horse and sort of not.

[Katie Greifeld]

Yeah, that's true. Simply making the point that Meta is moving in a lot of different ways than some of its Magnificent Seven peers.

[Bloomberg Host]

Sure. Right. No, I'm sure that a lot of the peers are having the same thought you are. Which is spending billions and billions of dollars to hire 20 people is surely not an efficient way to do anything.

[Katie Greifeld]

Yeah. Seems like shareholders are on board for the time being though.

[Bloomberg Host]

I think enough reasonable people think there's some sort of winner take all aspect to this, that it's not insane to be like we're going to spend billions and billions of dollars to hire every AI researcher so that no one else can have them. I mean, it's a little insane, but it's within the. I do want to say I've been talking about people getting paid $100 million, but that's not the cap. There's like, what is it Scale AI that they bought.

[Katie Greifeld]

Yeah, that's the other thing they sort.

[Bloomberg Host]

Of bought for $14 billion.

[Katie Greifeld]

Yeah.

[Bloomberg Host]

Of which not all of it goes to the handful of founders they wanted. But those people are getting paid more than a hundred million dollars to come work for Meta. It's not called salary, it's called like acquisition.

[Katie Greifeld]

But like I think you jokingly referred to 28 year olds. But isn't the co founder.

[Bloomberg Host]

He's 28. This is the thing. For one thing, these salaries are so much higher than 28 year olds usually get paid in the financial industry. But for another thing, I joked about this, but it's kind of true. When you work in finance, you start out making a nice living, but you see everyone around you with their compounds and amaganza and you're like, oh, I want that. And then as you move up the ladder, you get paid millions of dollars, but you're like, I need more millions of dollars to have the lifestyle that I've come to expect right in AI. Like all these people started two years ago. They don't need anymore. I don't. It's like a bizarre.

[Katie Greifeld]

So just retire.

[Bloomberg Host]

It's just like finance does a good job of creating the wants in people that lead them to want to keep working, even if they're making tens of millions of dollars a year. Yeah, I guess that's true in the tech industry too, but it seems less reliable. Like all these people are right out of grad school and they're getting paid $100 million. They weren't getting paid $100 million five years ago. They weren't starting at firms where the CEOs of those firms were making hundreds of millions of dollars because five years ago AI people weren't making hundreds of millions of dollars.

[Katie Greifeld]

This is vaguely reminding me of a conversation, I believe, that we had on this podcast a couple weeks ago about how it feels like every tech founder or social media site, there has to be some element of we're saving the world or we're changing humanity or something like that. I wish I could remember what exactly we were talking about. And I think I made the point, or at least I was thinking. I wish that they would just say I'm making a social media site that I'm going to sell ads on or something. I feel like with these people that are making so much money, though, maybe it is true that they view their mission as higher than.

[Bloomberg Host]

Well, I think that AI, I mean, whatever. I think AI is like there is some level at which you are ultimately selling ads on social media sites, but, like, not a notch.

[Katie Greifeld]

No, no, no.

[Bloomberg Host]

I think that, like, there are a lot of grandiose claims about, like, the effects on humanity of like, you know, these LLMs, but, like, some of it's true. I don't know, man. It seems like a more fundamental thing to work on than.

[Katie Greifeld]

No, this seems increasing engagement. This seems a little bit more like.

[Bloomberg Host]

I could have like a real, you know, we're changing the world.

[Katie Greifeld]

You could have a real mission statement when it comes to this.

[Bloomberg Host]

Yeah.

[Katie Greifeld]

But I can't remember what exactly.

[Bloomberg Host]

Also, you can get paid $100 million. That's really important.

[Katie Greifeld]

That's true. I would take one year at $100 million and then I'd probably leave.

[Bloomberg Host]

Well, that's what I'm saying.

[Katie Greifeld]

Yeah, we're in alignment.

[Bloomberg Host]

I feel like. Okay, so I feel like that's why.

[Katie Greifeld]

We both picked up the phone call from Mark Zuckerberg.

[Bloomberg Host]

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

[Katie Greifeld]

And I'm Katie Greifeld.

[Bloomberg Host]

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 Open Interest between 9 to 11am Eastern.

[Bloomberg Host]

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

[Katie Greifeld]

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

[Bloomberg Host]

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

[Katie Greifeld]

Our theme music was composed by Blake Maples.

[Bloomberg Host]

Brendan Francis Newnham is our executive producer.

[Katie Greifeld]

And Sage Bauman is Bloomberg's head of podcasts.

[Bloomberg Host]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

[Bloomberg Advertiser]

A warming planet, complex geopolitics and fierce competition means business operations are under more scrutiny than ever before. Returning to Singapore this July, the Bloomberg Sustainable Business Summit is uniting leaders and investors to explore how sustainability efforts can bolster resilience and mitigate risk. Learn more at BloombergLive.com SBS-SINGAPORE that's BloombergLive.com SBS-Singapore this is an iHeart podcast.