Man Not Bird

Stephen Carroll and Caroline Hepke discuss significant European decisions and their market implications on the Bloomberg Daybreak Europe podcast. Matt Levine delves into Bill Ackman's recent efforts to launch closed-end funds, specifically the IPO filings for Pershing Square USA and Pershing Square Inc. He explains the strategy of offering shares of the management company as an incentive for investors, noting that the management company, previously valued at around $10 billion, could increase in value, potentially offering investors a bonus of $5 to $10.

The conversation highlights the historical context of closed-end funds, which often trade at a discount, and Ackman's fund's complicated discount history. There is anticipation regarding trading behavior post-IPO, with expectations that the fund may trade down if the package exceeds $50. Ackman's focus on large-cap public stocks may not attract the same interest as Robinhood's recent closed-end venture fund, despite demand for private companies from retail investors.

Ackman's management company is going public to facilitate the closed-end fund deal rather than to raise capital. The compensation structure reveals Ackman earned $143 million last year, with a performance fee model designed to incentivize employees while providing predictable returns for investors.

In the private credit market, sentiment is negative, with a Goldman executive noting that clients are distracted by external events. H-Lend gated itself after significant redemption requests, allowing limited redemptions to prevent a run on the bank. Blackstone faces increasing redemption requests, with 7.9% reported, creating investor nervousness. Apollo is addressing this by offering more frequent portfolio marks to build trust in valuations and reduce redemptions.

The inclusion of private credit in retirement funds is scrutinized, with concerns from Elizabeth Warren and Treasury Secretary Scott Besson about liquidity issues. Retail investors are hesitant to lock up funds for long periods, and structural challenges exist in providing liquidity, as private credit funds often return only a portion of investments quarterly.

JP Morgan's involvement in the private credit market is examined, with allegations of discrepancies in loan valuations. Jamie Dimon's warnings about market issues emphasize the psychological factors driving investor behavior, often stemming from macroeconomic concerns.

The discussion shifts to Kalshi, facing legal challenges over its betting structure related to political events. The lawsuit claims Kalshi's terms lack clarity regarding payouts tied to political figures' departures. Kalshi has refunded users but cannot pay out 100% due to CFTC regulations. In contrast, Polymarket has been able to pay out claims without similar restrictions. The conversation critiques the lack of regulatory oversight for user interfaces in consumer gambling platforms, calling for better design and transparency.

Shane Copeland from Polymarket comments on resistance to innovation in sensitive betting topics, suggesting it often conceals unethical practices. He notes interest from individuals in the Middle East using Polymarket to assess safety, raising ethical concerns about profiting from bets on violent events.

Levine discusses the implications of rising odds in prediction markets, questioning motivations behind these increases. Katie Greifeld adds that in dangerous situations, such as those in the Middle East, insider trading should be considered when evaluating rising odds. Levine suggests insider trading could enhance the informativeness of prediction markets but expresses ethical concerns about profiting from conflict. Greifeld emphasizes the importance for relevant parties, like the US military, to be aware of increasing odds of military action to prepare accordingly.