Money Stuff: The Podcast
Episode: Matt Levine Ripped My Face Off: CEF, FX, A
Release Date: August 1, 2025
Hosts: Matt Levine and Katie Greifeld

1. Introduction to Closed-End Funds and Private Company Exposure

In this episode, Matt Levine and Katie Greifeld delve into the evolving landscape of closed-end funds (CEFs), particularly those that provide exposure to private companies. Responding to listener feedback, they shift focus from traditional ETFs to more niche financial instruments that cater to retail investors seeking access to high-growth private firms like SpaceX and OpenAI.

Key Discussion Points:

• River North’s Paired Closed-End Funds: The hosts discuss River North's innovative approach with paired CEFs based on the "Prime Unicorn Index," which tracks major private companies. These funds offer both long and short exposures, allowing investors to bet on the performance of private firms without directly purchasing their shares.

  Matt Levine [03:11]:
  “We've talked a lot about people who are trying to jam private stuff into retail investors. The people doing most of the jamming are the people doing private credit funds.”

• Mechanics of the Funds: The paired CEFs utilize cash-settled swaps on the index, enabling investors to gain or negate exposure to the combined performance of private and public companies within the index. This structure aims to balance out investment risks while providing novel products to the market.

  Matt Levine [04:22]:
  “They are writing cash settled swaps on that index. The index measures, let's say, the value of these private stocks and public stocks.”

2. Trading Mechanics, Risks, and Potential Strategies

Levine and Greifeld explore the intricacies of how these funds operate, emphasizing the potential for trading at discounts or premiums and the implications for investors.

Key Discussion Points:

• Discounts and Premiums: The conversation covers historical instances where similar funds traded at significant premiums, questioning whether River North’s funds will follow suit or manage to maintain stability through their swap-based structure.

  Katie Greifeld [06:30]:
  “We often talk about how they trade at discounts. Does that matter at all here, that these are going to launch and then probably trade at a discount?”

• Volatility Drag Comparison: The hosts compare these paired CEFs to inverse ETFs, discussing how the lack of daily rebalancing in the CEFs might mitigate typical volatility drag seen in inverse ETFs.

  Matt Levine [08:47]:
  “With this thing, it's just swaps, it's a little easier. They're not leveraged and you are not giving them down from today. You're giving them the total return over the period.”

• Speculative Investment Strategies: Levine shares anecdotes about potential trading strategies involving both long and short funds to capture discounts, though he humorously warns against personally engaging in such trades.

  Matt Levine [07:53]:
  “My first PA trade in 20 years, we'll be buying both of them.”

3. UBS’s Complex Derivative Products and Client Losses

A significant portion of the episode is dedicated to dissecting UBS's sale of intricate foreign exchange (FX) derivative products, specifically Range Target Profit Forwards (RTPFs). These products were marketed to wealthy individual clients but resulted in substantial losses when unexpected market movements occurred.

Key Discussion Points:

• Structure of RTPFs: Matt explains how these derivatives were designed to offer advantageous exchange rates most of the time, but with the potential for severe losses during rare adverse events.

  Matt Levine [16:09]:
  “The thing they were doing is basically like we will sell you dollars at like 3/10 of a cent below the forward price. So you're getting a bargain. But if the actual price... goes below that target price, we will sell it to you at that target price.”

• Client Misunderstanding and Losses: The hosts highlight instances where clients, possibly lacking sophisticated understanding of the products, faced significant losses when the dollar plunged unexpectedly on Liberation Day tariffs.

  Katie Greifeld [18:48]:
  “Well, the FTA gave some great examples of the harm that was wrought by some of these trades really kind of blowing up.”

• Regulatory and Ethical Concerns: Levine criticizes UBS for selling complex derivatives without ensuring that clients fully comprehend the risks, leading to regulatory interventions and goodwill payments to affected clients.

  Matt Levine [17:02]:
  “It's this great tension in investment banking where obviously you want the client who, when you come to them with some crazy derivative, they're like, okay, sure, sounds good.”

4. Insurance Industry Challenges and Rating Agencies

Transitioning from derivatives to the insurance sector, Levine and Greifeld examine the systemic issues within insurance companies operating in hurricane-prone regions, particularly focusing on the role of rating agencies.

Key Discussion Points:

• Market Failure in Hurricane Zones: The difficulty and high cost of obtaining insurance for homes in hurricane zones have led to the emergence of "never pay" policies, which offer limited coverage and often fail during major disasters.

  Matt Levine [27:31]:
  “It seems like people want the never pay policy.”

• Role of Rating Agencies: They discuss Demotech, a smaller rating agency that has been granting high ratings to many insurance companies that subsequently face insolvency, raising concerns about the reliability of such ratings.

  Matt Levine [28:22]:
  “There's a ratings agency, it's like a mom and pop operation called demotech that rates a lot of smaller, less well-capitalized insurance companies.”

• State Guarantee Funds: The conversation touches on how states step in to cover claims when insurers fail, highlighting the short-term benefits versus long-term systemic risks.

  Matt Levine [29:22]:
  “If you're a homeowner, you can buy the bad insurance policy figuring either it'll pay out, or if it doesn't pay out, someone else will step in to pay it out.”

5. Conclusion and Upcoming Topics

As the episode wraps up, Levine and Greifeld humorously reflect on their discussions, hinting at future topics and encouraging listener engagement through a forthcoming mailbag episode.

Notable Quotes:

• Matt Levine [20:43]:
  “I really didn't. I was also very ineffectual, so it was fine.”

• Katie Greifeld [30:17]:
  “Well, the FTA gave some great examples of the harm that was wrought by some of these trades really kind of blowing up.”

• Matt Levine [31:34]:
  “Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.”

Key Takeaways

• Innovative Investment Products: The emergence of closed-end funds targeting private company exposure represents a novel but complex avenue for retail investors, blending traditional fund mechanisms with derivative-based strategies.

• Risks of Complex Derivatives: UBS’s RTPFs serve as a cautionary tale about the dangers of selling sophisticated financial products to clients who may not fully understand the associated risks, emphasizing the need for transparency and proper regulation.

• Insurance Sector Vulnerabilities: The challenges within the insurance industry, exacerbated by unreliable rating agencies and the reliance on state guarantees, highlight systemic risks that could have broader financial implications during large-scale disasters.

• Regulatory Oversight Importance: Across financial products and services, the episode underscores the crucial role of robust regulatory frameworks to protect investors and maintain market integrity.

This episode of Money Stuff: The Podcast offers an insightful exploration into the complexities of modern financial instruments and the inherent risks they pose to both investors and the broader financial system. Whether discussing the innovative pairing of closed-end funds or the pitfalls of complex derivative products, Levine and Greifeld provide a nuanced analysis, enriched with real-world examples and expert commentary.