Wall Street Insider Exposes The Private Equity Crisis (And The Next Massive AI Boom)

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1:07Not an Empower client paid or sponsored. When traveling for events or festivals throughout the country, every dollar matters. We compare flights, prices, hotel rates, and restaurant options. So why wouldn't we compare rides? Personally, I always check lift before booking a ride. Prices can change throughout the day depending on traffic, weather, and what's happening in the city. If you're headed to a concert, out to dinner, or catching up with your friends on a Friday night, taking a few seconds to check lift could leave you with more money to enjoy the experience. Save money. Check lift. Ernest, what's up?

1:42Look, if you've been sitting on a business idea, a side hustle, or a brand you wanted to launch, this is your sign to finally make it happen. Wix Harmony lets you create an entire website just by telling it what you want. Literally, you type it and it builds a site for you with business features already included. And the best part, you still have full control to edit everything yourself. It's fast, it's smart, and it makes building a website way easier than people think. Try it today at Wix.com slash Harmony. That's Wix.com slash Harmony. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get brex af agentic finance that eliminates that work before it starts learn more at brex.com slash af so let's talk about um etf and as a totality because obviously you're etf strategist so for people let's start let's start at this level right for people that are just getting into the stock market or people that's already been in the stock market what in your opinion makes etfs attractive and why should people consider ETFs as opposed to just having all of their money invested in just individual stocks?

2:56Okay. Sorry about that. So my point of what I was saying is like the ETF investment vehicle is just innovation to the entire space of investing. The most important thing for people to understand and know is they can get the same level of professional advice and exposure through the ETF wrapper that they used to get with mutual funds. and you get to build in more precision into what you want to hold in investments. So here's my example to the question that you guys were talking about before. The concentration of the S &P 500 today, 40 % is basically your mag seven of the S &P 500. You're talking there's 500 or so plus names in that.

3:40When you look at the Qs, the exact same thing, the concentration is north of 45, 50 % in information technology. The market right now is priced in for perfection, meaning everyone knows what's going to happen with the AI trade. Most companies have basically provided guidance on what they're doing and why they're doing it. But if I'm a general person and I'm concerned about what's going on in the market and there's a slight miss on any of those top companies, that will have a material impact on the overall index, both the S &P 500 and the Qs. So if I'm a general person just starting out and I say, you know what, I want to buy these same companies that everyone's talking about, you can just buy the index.

4:22I don't need to trade the individual securities on a day-to-day basis. So that's why the ETF is so important. More importantly, though, it's completely transparent. You know exactly what's inside of these investment vehicles, right? That's critical for people to say, okay, I know exactly what I hold. Then I'll give you another opportunity to think about something else. because it's so transparent, I can see what other companies that might be on the up and coming that I want to trade in the future that you may not be privy to that even falls into a specific sector. So I just think like the ETF wrapper should be seen as innovation to the entire industry.

5:00And it creates space for the retail investor to participate, if that makes sense. Hold on, let me just follow up on that because you said something that was insightful. because when I used to be a financial advisor and we do a lot of mutual funds, are mutual funds essentially over? I was thinking the same thing. No one even talks about mutual funds anymore. I try to explain. I'm like, you know what? There's no point. I mean, look, from an industry perspective, most asset managers, do you guys hear that? That was Ian's. Most asset managers are not launching new mutual funds. Very seldom do you see a money manager say, I'm going to launch a mutual fund.

5:40And it's because of the structure. So here, let me just break down a couple of things of the mutual fund that makes it a little more archaic. So one, if I'm an investor of a mutual fund, and let's just say the mutual fund has$10 million in it, and a large investment or trade comes in to sell a million dollars. So you're talking about a 10th of the overall assets need to be sold to liquidate. What happens is whatever positions that are held in that mutual fund, the gains or losses will need to be sold in the fund, and then those are passed off to the investors. Well, why does that matter? Why is that important?

6:17Well, if I didn't sell my fund, I don't want to pay capital gains on an investment that I was hoping could be more tax efficient. So historically, the mutual fund provided exposure, institutional management, low fees, and all these benefits that we typically didn't have. But now the innovation of the ETF, because of the structure of it, it's more tax efficient. People don't need to participate in the buying and selling of other people in the fund. More importantly, fees have come down. And then to your point, transparency is another important aspect of it, Bilal, because mutual funds actually report like 30 days or 60 days or even a quarter behind to show what securities they hold.

6:56That was one of the benefits of the money managers. So we kind of have seen basically passing of the torch. I don't want to say that they're completely dead, but it's a passing of the torch that the ETF is a more efficient vehicle for the future. I agree with you. I like what you said about finding new companies. I remember going inside of SMH maybe six years ago and just looking at the allocations and that's what you know. Well, what is TSM? Oh, let me go study what that company is because it's the number two allocation. Oh, wait, wait, Texas Instrument. I used to get that at the calculator. And so you start finding companies.

7:30ETFs have, I mean, just blown up. I mean, they're everywhere. What's at the forefront of a lot of people's minds right now are these leveraged ETFs. We talked about it a little earlier when we talked about South Korea. People will tell you it's too risky. From your expert opinion, is there a way that they can be used in a beneficial manner for an investor? Yeah, absolutely. So first is I think we need to just answer what is a leveraged and inverse product, right, to tell people and give them scope of what's going on. And then the second thing is we need to just cover the entire ETF ecosystem in a totality.

8:03So I'll start with the second question and then dive into the inverse. So one, there are 5 ,500 ETFs in the market. 5 ,500. That's more than the publicly traded stocks that are out there. Let's just be clear about that. So how do you determine which one is the appropriate one for you? So that's a big question. The second thing is ETFs are pulling in around$1.2 to$1.5 trillion a year. That means people are allocating a lot more to ETFs than they've ever done before in history. So because of that, now we say, well, how many issuers are in the marketplace like the BlackRock's of the World Order Direction ETFs?

8:41There's about 500 ETF issuers that are coming in and they're launching products for people to invest in. So that's the size, scope of the market. When it comes to leverage and inverse space, they basically launched back during the financial crisis and they were basically built for banks and institutional investors and traders. So they were liquidity trading tools. They've evolved really, I would say, up until, I would say, what is it, 2020 when the whole COVID situation happened and retail really came to market. So what we call LNI or leveraged and inverse, there's only about 500 levered ETFs in the market and maybe about 120 inversed ETFs in the market.

9:26And the way that these products are structured, I'm going to say some terms that I don't want to lose people. I know you guys get it, but I don't want your audience to lose it. We're going to just talk about derivatives for a moment. Everyone knows derivatives because they trade options. I'm sure your audience, you guys have done a phenomenal job of educating people. They trade options. The second derivative that people should know about is futures. Well, a lot of people trade futures, so I don't think that's too complex for people either. The third one, which is not talked about as much and why levered ETFs make a lot of sense for people, is because we use swaps.

9:59Swaps are institutional bank contracts or basically an agreement between two counterparties that one pledges to get exposure through the contract of said underlying security. However, you don't have to commit so much capital to get that exposure. So an example would be our SpaceX 2X levered ETF loft, L-O-F-F. We basically have a swap counterparty. They give us and pledge us basically 2X exposure to SpaceX. However, we don't have to commit all of the capital to buy a bunch of SpaceX to get that exposure. Does that make sense? So why is that important is because what we've seen is the explosion of sector and single stock ETFs because people really want to lean into the concentration opportunities that you guys were just talking about before.

10:49Can I get 2x exposure on Microsoft? Can I get 2x exposure on NVIDIA? Can I get 2x exposure on Micron? Because I've been following the trading pattern. I see what the opportunity is. I believe these levels from a technical perspective make a lot of sense. But now let me really show the precision of my conviction in this trade. So an example would be last week when Micron reported, we have a 2x levered Micron ETF as well as an inverse ETF. I'm just giving you raw numbers here. Micron was up 14%. That ETF that we had was up 28%. So if you said, hey, Micron going in, Micron was going to beat earnings, but you really wanted to lean into that trade, you could actually had an ETF to get you the exposure that you wanted and the performance that you probably were looking for.

11:36Now, those products, meaning levered and inverse, they're designed to be daily traded products. I want to be very clear. The education, daily traded, they are not designed to be held, bought and held like long-term investment solutions because there are other risks associated with them because the leverage that you exposure on the way up is the same leverage and exposure that you get on the way down. And I think the audience should be familiar with that no matter what inverse or leverage product they buy.

12:06When traveling for events or festivals throughout the country, every dollar matters. We compare flights, prices, hotel rates, and restaurant options. So why wouldn't we compare rides? Personally, I always check lift before booking a ride. Prices can change throughout the day depending on traffic, weather, and what's happening in the city. If you're headed to a concert, out to dinner, or catching up with your friends on a Friday night, taking a few seconds to check lift could leave you with more money to enjoy the experience. Save money. Check lift. Ask yourself, what are your best people spending their time on right now?

12:41Expense reports, receipt chasing, month-end close that takes weeks. You become what you spend on, and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts. AI agents that handle the manual stuff automatically so your team can spend their time on what actually compounds. It's time to get Brex AF. Learn more at brex.com slash AF. Run a business and not thinking about podcasting? Think again. More Americans listen to podcasts than ad-supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined.

13:19So whatever your customers listen to, they'll hear your message. Plus, only iHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business? Think iHeart. Streaming, radio, and podcasting. Let us show you at iHeartAdvertising.com. That's iHeartAdvertising.com. Hey, I'm Hoda Kotb, host of the podcast Joy 101 with Hoda Kotb. Okay, if you know me, you know this. I'm always searching for inspiration, for support, and useful tools to help maximize joy. So this podcast lets us uncover all of that together. We're going to have these meaningful conversations with the world's most fascinating people.

13:59Like when actress Olivia Munn shared how she overcame fierce health challenges that she never saw coming. I've gone through breast cancer and then helped my mother through breast cancer. And that was more difficult. There's a lot of people who understand postpartum depression. I was not prepared for postpartum anxiety. Olympic champ Shawn Johnson revealed why she had no choice but to be a gymnast. There was something about gymnastics that was intoxicating to me. It's given me a belief that we all have one of those treasures inside of us. We just have to find it. Listen to Joy 101 with Hoda Kotb on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

14:45Millie Bobby Brown. That's right. 11 herself. We talk about her new movie, Enola Holmes 3, Family Life, and all the amazing things she has going on right now. This blew my mind when I saw this, Millie Bobby Brown. You have over 60 animals. First of all, how do you even keep track of everybody? And second, do you have favorites? Who are they and why? Yeah, I need to know about this. Okay. I don't know where the number's 60. I've really got to figure that out. And I could actually have over 60. I just need to really know that number. there have been plenty of sheep in my bed and um yeah in the bed literally sleeping in the bed yeah plus we find out what she really feels about stranger things ending five seasons almost 10 years of your life i could have never have guessed it i started when i was 10 years old our conversation with millie bobby brown is out now go check it out listen to hey jonas on the iheart radio app apple podcast or wherever you get your podcasts um in your opinion on the institutional side between, let's say, AI, crypto, space, private equity, which theme do you think is most overrated or overhyped right now?

15:50It's not even a question. So here's why. Here's why. So private equity right now, a lot of the firms are basically seeking additional capital through loans to pay back investors because they need to meet redemptions. So a lot of the private equity firms are basically going out and getting these private loans specific for private equity to make sure that they can pay back some investors. That's one. Yeah, yeah, yeah, yeah. It's basically special financing. You've probably read in the news all over the place that a lot of these have redemption issues. Why would you possibly have redemption issues?

16:28Yes. Right? You would have redemption issues if you're not willing and ready to actually go price an asset back in the market where you think you can get the rate of return that you need to not only make your gains, but also to pay out your investors. So that is a major issue and concern. Over the last five years, you've seen private equity try to tap into the wealth management space like you've never seen before. Because what happens with maturing assets is they tend to then go to the retail public as a way to provide liquidity into the marketplace. So right now, you think about the amount of private equity investors and people that you have, and I'm not saying all, I'm not speaking for the entire category.

17:07I'm just saying from what we think where we are in a late stage cycle. Does private equity have the ability to pass off the cost of an investment and get the premium that they want to meet the redemptions that they need? I just don't think so in the marketplace where it's already priced to perfection. So what are they going to offload? Where will they offload? Who's going to provide the liquidity? At the end of the game, this is a liquidity conversation, Right. So that's why I think. And then if you go. So now let's just look at the other assets, asset classes that you asked me about. Take crypto.

17:39Crypto has been beaten up pretty, pretty bad. I'm not a Bitcoin maxi or anything like that. We provide trading vehicles so you can trade whatever you want. But if crypto is beaten up to where it is, the market is kind of turned its back on it. You also have an administration that's extremely supportive, knowing that we need to win the crypto rails, just like we need to win the A.I. rails of the digital infrastructure of the future. something tells me that has a little more life in it than a private equity fund or a vehicle right that's at the later stages of an investment cycle think about the concentration right now in the marketplace you guys are just talking about it right it's highly concentrated in the whole ai trade after you get away from that it kind of breaks down fairly quickly so that's why i think the private equity trade is a little long in a tooth

18:30if i can do a follow-up why isn't this a bigger sketch because the way you put it i mean if you read you knew but if michael burry heard this he would be forming a short right now why do you think some of this information is hidden for those who don't know if they can't pay out the redictions and they're getting a loan if we did that correct it would be unfavorable to say the least why do you think this isn't a bigger A couple of things. One, because they are. Oh, I got to be mindful because you guys putting this up on YouTube. Be careful. Be careful. Yeah. So let's just look at it from a commercial perspective.

19:08The biggest selling point that President Trump and the administration is talking about is possibly having the ability to put private investments into retirement accounts and into more retail into the hands of retail. So just think about that for a second. With that being the case, you need a positive tailwind and storyline to make sure that the market absorbs that in an appropriate way. That's really, really important. So I think they have an administrative support system to help commercialize why private equity is still a really attractive opportunity for people. When traveling for events or festivals throughout the country, every dollar matters.

19:50We compare flights, prices, hotel rates, and restaurant options. So why wouldn't we compare rides? Personally, I always check lift before booking a ride. Prices can change throughout the day depending on traffic, weather, and what's happening in the city. If you're headed to a concert, out to dinner, or catching up with your friends on a Friday night, taking a few seconds to check lift could leave you with more money to enjoy the experience. Save money. Check lift. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a gentic finance that eliminates that work before it starts.

20:28Learn more at brex.com slash AF. Run a business and not thinking about podcasting? Think again. More Americans listen to podcasts than ad-supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined. So whatever your customers listen to, they'll hear your message. Plus, only iHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business? Think iHeart. Streaming, radio, and podcasting. Let us show you at iHeartAdvertising.com. That's iHeartAdvertising.com. Hey, I'm Hoda Kotb, host of the podcast, Joy 101 with Hoda Kotb.

21:05Okay, if you know me, you know this. I'm always searching for inspiration, for support. and useful tools to help maximize joy. So this podcast lets us uncover all of that together. We're gonna have these meaningful conversations with the world's most fascinating people. Like when actress Olivia Munn shared how she overcame fierce health challenges that she never saw coming. I've gone through breast cancer and then helped my mother through breast cancer and that was more difficult. There's a lot of people who understand postpartum depression. I was not prepared for postpartum anxiety. Olympic champ Shawn Johnson revealed why she had no choice but to be a gymnast.

21:44There was something about gymnastics that was intoxicating to me. It's given me a belief that we all have one of those treasures inside of us. We just have to find it. Listen to Joy 101 with Hoda Kotb on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

22:09Millie Bobby Brown. That's right. 11 herself. We talk about her new movie, Enola Holmes 3, Family Life, and all the amazing things she has going on right now. This blew my mind when I saw this, Millie Bobby Brown. You have over 60 animals. First of all, how do you even keep track of everybody? And second, do you have favorites? Who are they and why? Yeah, I need to know about this. Okay. I don't know where the number's 60. I've really got to figure that out. And I could actually have over 60. I just need to really know that number. there have been plenty of sheep in my bed and um yeah in the bed literally sleeping in the bed yeah plus we find out what she really feels about stranger things ending five seasons almost 10 years of your life i could have never have guessed it i started when i was 10 years old our conversation with millie bobby brown is out now go check it out listen to hey jonas on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

23:07Well played. We didn't get a chance to talk about your bio in depth, but can you explain even how you got here in your role? Because I know in the past you had leadership roles at BlackRock Harbor Capital, New York Stock Exchange. You recently served as the director of exchange-traded funds at the New York Stock Exchange. As I said, you're the leader. I think your current position is a global ETF strategist. So can you walk us through your career journey and how you got to this point? Thanks for the setup, Bilal. Love the name, brother. Yeah, good name. So look, I started my career in 2006 at Neuberger Berman when it was a subsidiary of Lehman Brothers.

23:55So, you know, probably similar to when you became an advisor back then, I was just getting in the game and I just wanted to get in the game. And we were working in the mutual fund business. And then in 2010, after the GFC, I moved out to California with the company to consult financial advisors. So you'll get a kick out of this B. I was a wholesaler. So I would actually go to the financial advisors and I was the advisor's advisor. I was consulting them on the different investment vehicles, solutions, and portfolio construction ideas that they needed to have to not only build durable portfolios, but also think differently about what they currently have.

24:32So I did that for 15 years. I was in business school at USC. I did the executive program while I was out in California, and then I joined BlackRock in 2015. While I was at BlackRock, I was there for seven years. I was a director. I was a top sales rep. I had a wonderful run there. But my curiosity pulled me down the crypto rabbit hole during, I would say, COVID in 2020 and really around George Floyd, Floyd's murder. And what I realized was this was the complete future of security and I would say accounting. Right. If we like think about what it's used for from a utility perspective. And when I saw it, I couldn't see it.

25:14So I was at BlackRock. I'm like, hey, can I work in crypto? They're like, absolutely not. You raise money really well. So please continue to raise capital. So no problem. I said, OK, well, I left and I went and did some things in tech. So I went and built a tech startup with a buddy. I also worked for a crypto startup. And then I had an opportunity to pursue a role at the New York Stock Exchange. When I went to the New York Stock Exchange, I already had amassed a bunch of tools, meaning my background in crypto, my background in the ETF space at BlackRock, my background of going to school, to where the opportunity was just basically right for me to come in and do well.

25:53In the sense of, I was still me, my commercial self, if you will, but I had the technical background to really support the engine that was growing behind ETFs. So last year, obviously, we raised 1 ,100 ETFs launched in the market. This year, it's probably going to be over 1 ,100 or 1 ,200 new ETFs. But I got to Direction because our CEO actually ran the ETF business at the New York Stock Exchange before I got there. And he and I were very friendly, and he actually recruited me to accept the role as global ETF strategist here at Direction. And effectively, what that means is I'm sitting between our marketing department, our sales and distribution department, and our product development department to commercialize some of these complex stories and ideas and simplify them as we go out and communicate to the retail trading public.

26:44There definitely is an ETF boom. And obviously you just laid out the measurements for it, right? You said 1200 listed last year, probably around 1200 this year. We're watching them being created and we can kind of see a theme, right? Like I feel like every year, maybe every few years, there's a theme. Memory for sure is the theme this year. I wonder as you look at it from your landscape is there a category a sector that you see has the potential to be the next boom like is it infrastructure is it energy or do we look at how software has been beat down and saying you know what software has the potential when it gets to that level of the ai story to have a good question troy look i think the way the investor public should think about uh the theme of the day is that AI infrastructure, that's the compounders.