| The big differences between private companies and public companies are: - Public companies disclose quarterly financial results and business information; private companies don't.
- Anyone can buy shares in public companies on the stock exchange; private companies' shares don't generally trade.
Those two things traditionally go together: Public companies can sell stock to anyone because they disclose information to everyone. But that is not an inevitable fact of nature; it is just a somewhat complicated consequence of US securities laws. And I get the sense that it is changing. Specifically, we seem to be getting closer to a world where anyone (or at least a lot of people) can buy shares in private companies (or at least some of the bigger ones), without those companies disclosing any financial information. We have talked about "tokenization," which I interpret as a sort of Trojan horse for making private-company stocks freely tradable without disclosure. Or there are plans to allow private equity in 401(k) plans, and more generally to offer more private assets to regular investors. How will regular investors evaluate these investments, if their financials aren't public? The actual answer is "they won't, and that's fine." It's not like most ordinary investors who buy shares of public companies are reading the financial statements and building valuation models. They buy a stock because they like the company and because they assume that the institutional investors whose trading sets the price know what they're doing. The same thing probably more or less works with big well-known private companies. If you have the chance to invest in OpenAI or SpaceX at the price of its last funding round, I'm not saying you should — this is not investing advice — but I am saying that professionals with a lot of money on the line probably put some work into deciding that that price was fine, so that price is probably fine for you. There are many, many, many ways for this to go wrong ("Invest in OppenAI for just $75 per share, big venture capital firms like a15z and Kleinman Parker are scrambling to get in," your spam folder probably says), but the basic idea — that market prices are usually efficient enough for amateur investors to rely on — is mostly fine, even if private companies do not always have "market prices" in the ordinary sense. Still it's better if the regular investors can log into their broker's website and read some research telling them what their private companies are worth. Among many other things, Wall Street sell-side research really is a way for ordinary investors to get digestible and forward-looking financial and business information about public companies. Why not private ones? Bloomberg's Henry Ren reports: JPMorgan Chase & Co. is expanding research coverage to private companies in the Wall Street bank's latest effort to capitalize on the rapidly growing field. … In its first move, the bank launched coverage on OpenAI on Friday. Unlike traditional equity research on public firms, the new offering won't include ratings, price targets or estimates on private companies, Hussein Malik, JPMorgan's head of global research, said in an internal memo seen by Bloomberg. The goal is to provide investor clients with structured information and tracking, he said. "Private companies are increasingly pivotal in shaping the growth and outlook of industries," Malik said in an external note to clients. "Understanding their impact is and will remain crucial for both public and private market investors to make informed investment decisions." Right, early on the point here is less "we are going to build our own financial model of OpenAI, so that our retail clients have some useful information in deciding whether or not to buy OpenAI stock," and more "we are going to write generally about OpenAI to inform our clients who might buy Nvidia." But, at some point, will OpenAI's chief financial officer be walking JPMorgan's analysts through the financials, so they can improve their model, so their private-wealth bankers can sell OpenAI stock to customers? It does feel a little bit like that's where we are heading. A problem for investment banks is that every investment banker wants to be in private equity. This is not, as far as I can tell, because the work of private equity is vastly more interesting than the work of banking. It just pays a lot better. Typically this problem comes up with regard to very junior investment bankers. The classic career path is that you graduate from college, spend two years as an investment banking analyst, and then leave for private equity. In recent years private equity recruiting has started earlier and earlier, so that by last year bankers interviewed for private equity jobs before even starting their banking jobs. This year banks, led by JPMorgan Chase & Co., have pushed back, and the big private equity firms have held off, for now, from starting "on-cycle recruiting" for their 2027 associate class. But the problem is, if anything, more acute for very senior investment bankers: If you are a top executive at a big investment bank, you make tens of millions of dollars managing a large and complex financial institution, but if you were a top executive at a big alternative asset manager (as the big private equity firms are now called), you could make hundreds of millions of dollars doing that. That's more! For an investment bank, there is an obvious unified solution to this problem at all levels, which is: Become a private equity firm. (Sorry, "alternative asset manager.") The boundaries are always a little porous. The main things that investment bankers do are (1) advise companies on mergers and (2) arrange loans for leveraged buyouts; the main things that alternative asset managers do are (1) acquire companies in mergers (private equity) and (2) make loans for leveraged buyouts (private credit); each side intrudes a bit into the other's turf. Banks have big asset management businesses, including alternative assets like private equity and credit. Just talk more about that and less about the investment banking. So we talked in April about how Goldman Sachs Group Inc. Chief Executive Officer David Solomon would like to get paid like an alternative asset manager CEO, not an investment bank CEO, because really when you think about it Goldman kind of is an alts manager. "The board considered the unique competitive threats for talent that Goldman Sachs faces, including from alternative management firms and others beyond the traditional banking sector," the company told shareholders, adding that Goldman is "a top 5 alternative asset manager." (Disclosure, I used to work at Goldman, but just as an investment banker.) And we talked a couple of weeks ago about how Goldman has also told its incoming junior analysts that they are not allowed to accept jobs elsewhere (meaning: in private equity) while working at Goldman. But when you think about it, working at Goldman kind of is like working in private equity. I mean, not quite, if you work in banking, but that can be fixed. Bloomberg's Jayna Rohslau and Todd Gillespie reported last week: Goldman Sachs Group Inc. is launching a program aimed at dissuading interns who get full-time offers from later jumping ship for potentially more lucrative jobs at private equity firms and other competitors. For those interested in buy-side careers, Goldman will offer "an early entry point," according to an internal memo seen by Bloomberg News. Selected applicants will get a full-time offer to join investment banking, followed by a shift to its asset-management unit — which has a private-markets arm — after two years. "Our goal with such a talented cohort is to offer the options to you," Dan Dees, co-head of global banking and markets, wrote in the memo. "I might be a little biased, but the path you find yourself on at Goldman Sachs might just be the one that keeps you here many, many years later." Do your two years in investment banking at Goldman, and then move into private equity at Goldman, which in case you haven't heard is an alts manager. I should say that, when I started working at Goldman in 2007, there were big banks like JPMorgan Chase & Co., and there were big private equity firms like Blackstone and KKR, but there was also a third category: investment banks, like Goldman and Morgan Stanley and Bear Stearns and Merrill Lynch and Lehman Brothers. Goldman in fact did have a big private equity business, and did a lot of investing with its own balance sheet and with customer money, because that was a thing that investment banks did back then. Two legacies of the 2008 financial crisis were that (1) the big investment banks all either became or were acquired by regulated bank holding companies and (2) there were much stricter regulations about the businesses that those banks were allowed to do. And so I write all the time now about how non-banks (alts managers, hedge funds, etc.) are now doing businesses that used to be done by big investment banks, because the big investment banks have become more regulated and conservative. But Goldman doesn't have to like it, and that was all a long time ago, and we are in a more permissive and deregulatory age, and if Goldman wants to be an alternative asset manager now sure, why not, give it a try. One theory of crypto treasury companies, which I write about a lot, is that the US stock market will pay $2 for $1 worth of crypto, so if you have a big pot of crypto, you should put it in a company and sell shares on the stock exchange, because then it will be worth more. This seems to me like a good plan for people who own a lot of crypto, and those people are constantly looking for small public companies to do this trade with. But there is, I think, another important theory that comes at it from the other direction. What if you own, not a big pot of crypto, but a controlling stake in a meme-stock company? You own a bunch of stock in a company that is worth billions of dollars on the stock market, but for no particular reason. You might worry. "How long can this last," you might wonder, and also "how can I turn this meme-y stock into actual money?" Just selling the stock won't work: If you, the meme-linked controlling shareholder, start dumping your stock, the price will collapse. Non-recourse borrowing seems tough. (Who would lend you the money?) I once proposed donating the stock to get tax benefits, but that has problems too. [1] No, your best bet is to take the stock's sky-high valuation and try to build a real valuable company with it: Issue stock to hire talented executives, do good acquisitions, raise cash to build enduring businesses, etc. But that's hard, for two reasons: - Building a real business is hard!
- Your meme stock might not work for these purposes. Talented executives and merger targets might significantly discount the meme stock you offer them, and if you sell stock to raise cash, shareholders might get nervous about dilution and the stock price might collapse.
The crypto treasury strategy solves this problem. What you do is: - Have the company sell stock, at high meme-y prices, to buy Bitcoin. (Unlike building a real business, buying Bitcoin is not especially hard.)
- The stock won't crash: Meme-stock shareholders don't like dilution, but they do love Bitcoin, so selling stock to buy Bitcoin is fine. In fact, selling stock at a premium to buy Bitcoin is clearly accretive to existing shareholders (it's "accretive dilution"), so they should have no complaints.
- Now your company owns a lot of Bitcoin.
- Bitcoin is valuable for reasons that have nothing to do with your meme-y company.
- So now your company has real enduring value, not because you built any particular business but because you bought a lot of Bitcoin.
- Now you can go ahead and sell your own stock, or borrow against it: There's some floor of real asset value; the stock price doesn't rely solely on memes and confidence. [2]
In a different context, I wrote about a crypto strategy of "(1) Ponzi, (2) acceptance, (3) diversification, (4) permanence," and I think that has broad explanatory power. If people will buy your stuff for bad reasons, you should sell it to them and use the money to buy real assets, so that one day people will buy your stuff for good reasons. Bitcoin is not intrinsically necessary to any of this, and you could imagine doing this strategy to buy farmland or gold or Treasury bills, or to roll up pest-control companies. But the key element is my No. 2: People will enthusiastically buy your stock if your plan is to increase your Bitcoin per share, but they will have doubts if your plan is to put the money in cash or gold or even a business. Bitcoin is the smooth exit for meme stocks. This form of the crypto treasury strategy might not push up your stock price — because your stock price is already implausibly high — but that doesn't matter. With this trade, you are perfectly happy to drive your stock's premium to net asset value down to zero, as long as you're doing so by increasing your net asset value (from, you know, zero to a large number). Anyway: "Trump Media Buys $2 Billion in Bitcoin for Crypto Treasury Plan." It's possible that my introduction to high finance was reviewing change-of-control clauses. It is a standard part of due diligence in mergers and acquisitions: One company wants to buy another, so the buyer will get a big stack of all the target's contracts and read through them to see if the merger will cause any problems. Each contract will probably have a clause saying something like "the company may not transfer its rights and obligations under this contract to anyone else." And then the question is: If the company is acquired in a merger, does that trigger that clause? Does being acquired count as a transfer of the contract? Or does nothing change? The normal answer is that nothing changes. (The normal form of merger, in the US, is the "reverse triangular merger," in which a subsidiary of the acquirer merges into the target, leaving the target as the surviving company and wholly owned by the acquirer. Because the target is the surviving company, its contracts should continue uninterrupted: As far as its counterparties are concerned, nothing has happened to the company; it just has different owners.) But different contracts will say different words, and some of those words might sweep up mergers. Each contract will have its own long complicated definitions of terms like "transfer," some of which might seem to include mergers. And so, back in my day, some junior M&A lawyer would have to review all the contracts and make a table of which ones might cause problems in a merger. Nowadays I assume it is done by AI. Back then, it struck me as a weird assignment to give to the junior lawyers: On the one hand, sure, it was incredibly tedious and no senior person would want to do it, but on the other hand, how were the junior lawyers supposed to know? You graduate from law school, you know nothing about mergers, you read some long dense paragraph defining the term "Prohibited Transfer," and, what, you just take a wild guess about whether that includes reverse triangular mergers? How are you supposed to know the nuances of those terms, the things that courts have read into them, the accepted market standards for what they mean? As I got older, though, I realized that it's fine because nobody knows. The dispute among Exxon Mobil Corp., Hess Corp. and Chevron Corp. is really incredibly embarrassing for lawyers everywhere. Exxon is the operating partner on a big lucrative oil joint venture in Guyana; Hess owns a non-operating stake, which makes up a big chunk of the total value of Hess. The joint venture agreement, which is not public, contains a right of first refusal: Exxon can buy back Hess's stake if Hess tries to transfer it. Chevron agreed to buy Hess in a completely straightforward and garden-variety reverse triangular merger. Did that trigger the right of first refusal? Hess and Chevron said no. Exxon said yes, and last year it went to arbitration to try to enforce the right of first refusal. We talked about it at the time. It seemed to me that, from first principles, Hess really ought to be able to keep the JV. I wrote: If every company lost all of its office leases and customers and supply deals and employment contracts when it was acquired, who would want to acquire it? A company mostly is a big pile of contracts; if an acquisition terminated all of those contracts then there would be no acquisitions.
"The majority of oil and gas operations globally are governed by joint ventures": Big complicated risky offshore drilling projects tend to be co-owned by several big oil companies, to pool resources and share risks, and "many of the world's largest publicly traded oil and gas companies have sizeable non-operated portfolios — in some instances, over two-thirds of all assets owned." Big oil and gas mergers would be essentially impossible if those portfolios couldn't go with the companies. Still, first principles only get you so far; I didn't know what the agreement said (and still don't), and I certainly didn't know what it meant. Last week, though, Hess won the arbitration and Chevron closed its deal. Bloomberg's Kevin Crowley has more on the dispute: The 20-month feud between the Western Hemisphere's two most powerful oil companies over the biggest offshore discovery in a generation hinged on a single clause of a contract few people have ever seen. ... The ensuing dispute upended Chevron's and Hess's strategies for nearly two years and threatened to mar the legacies of both companies' CEOs. ... "It should have been resolved much quicker," Chevron CEO Mike Wirth said in an interview Friday. "This was a straightforward, plain reading of a contract." That's what he thinks. Here's Exxon's view: "We understand the intent of this language, of the whole contract, because we wrote it," [Exxon Senior Vice President Neil] Chapman said. ... "Most observers in this industry would understand our reputation for rigor, attention to detail in contract language. I mean, it's a brand we have as a company."
And here's the merger arbitrageurs' view: While the Stabroek Block's joint operating agreement was private, investors began to gather clues by looking at a template model contract published by the Association of International Energy Negotiators, upon which the Guyana one was based. It said the right-of-first-refusal clause did not apply when there was "ongoing control by an affiliate" entity. This appeared to support Chevron and Hess's case because the Guyana stake would still be held by Hess's Guyana unit, even if that would now be controlled by Chevron.
That seems to have been basically right: The Chevron/Hess deal is a reverse triangular merger in which Hess survives as a subsidiary of Chevron, so it hasn't transferred its joint venture stake, so there's no transfer and so no right of first refusal. Fairly straightforward, but it took almost two years. Anyway: The ruling announced Friday by the International Chamber of Commerce in favor of Hess and Chevon eliminates the concern that contracts used for partnerships like the one for Guyana's giant oil field could be used to "peel assets out of a corporate level transaction," Chief Executive Officer Mike Wirth said in an interview on Bloomberg TV. That's important for an industry where deal making is vital to success, Wirth said. "We have companies that come into this industry and people who build them, and the way they get rewarded is selling the company," Wirth said on the heels of a career-defining acquisition. "It is in the nature of our industry that transactions are part and parcel with how it functions." Again, I sympathize: It can't really be the intention of oil-and-gas joint venture agreements to prevent mergers. But you'd think they could say that more clearly. Obviously: Polymarket, the crypto-betting platform that was kicked offshore by federal regulators, has struck a deal to return to the US market just weeks after prosecutors shut down a probe of the company. The predictions marketplace is buying a little-known derivatives exchange called QCX, that will allow Polymarket to legally re-enter the US, according to people with knowledge of the matter. The move will formally open the betting site to US users after its surging popularity in 2024 when users placed millions of dollars of wagers on President Donald Trump returning to office. For a long time, Polymarket has been winkingly off-limits to US investors, because technically the events contracts that it offers are "commodity futures," and it was not a registered futures exchange in the US. Now it will be. This is good for Polymarket, because prediction markets are having a moment, both as a matter of regulatory acceptance and as a matter of popularity. But it is really good for Polymarket because, somewhat by accident, prediction markets are now lightly regulated (and tax-advantaged!) legal sports betting sites, and there is just way more demand for sports betting than there is for predicting off-cycle elections. Obviously it makes sense for Polymarket to buy a little-known derivatives exchange, but the real move is for sports books to buy little-known derivatives exchanges. If you can't beat 'em, join 'em: If "regulated futures exchange" is the most efficient way to run a sports betting business, then the sports gambling sites really should get into the regulated futures exchange business. I wrote last year: I feel like I read a dozen articles a week about Jane Street Group, and they all mention how secretive and press-shy it is. … I used to work at Goldman Sachs Group Inc., back when people were writing stuff like that about Goldman. Goldman, people were saying in like 2010, used to be secretive and press-shy, but recently it had exploded into the public consciousness. But in a bad way! Goldman was "a great vampire squid wrapped around the face of humanity," people learned, when they first heard about it. There are a lot of financial firms that go from "relatively obscure" to "very well-known," but usually for bad reasons. Jane Street, on the other hand, now gets constant press, but usually good press. Ahahaha, well, yeah. Since then, Jane Street has become even more well-known, but for bad reasons. (India's securities regulator accused it of doing massive market manipulation.) Last week Bloomberg's Katherine Doherty and Bernard Goyder published a fun profile of the firm. ("Now the 25-year-old trading powerhouse is in the glare of a global spotlight," etc.) I used to say that investment banks are socialist collectives run for the benefit of their employees, but that has gotten less true over time as they have become more institutionalized and more beholden to shareholders. But Jane Street remains a private partnership, and it really does sound like a socialist paradise (but with tons of money): It's a privately controlled company so clandestine that it doesn't publicly identify a leader at the top. A staffer who once tried to track down an email list of governing partners recalled giving up, learning that Jane Street doesn't want something like that circulating, not even to people working there. … The firm spent a total of $4.1 billion on compensation and benefits last year, according to a bond prospectus, equating to an average of roughly $1.4 million per employee. … On top of that, Jane Street paid out $4.2 billion in capital to equity holders last year, the prospectus shows. The firm said that it had 38 equity unit holders as of March 31. ... Rather than the usual hierarchy topped by a CEO, Jane Street is run collectively by a few dozen executives who generally eschew interviews and speaking engagements, lest it create the appearance that one has more clout than others. That's sweet. Also: People close to the company say it stands out from other high-frequency firms that have grown into major players, as well as investment banks that once dominated the business. … Jane Street's risk appetite is often greater, according to former employees and others close to the company. It's willing to work out positions, including big blocks of stock, over time — even in niche areas, such as emerging-market ETFs.
Plausibly those things are related. The traditional justification for the old investment banking partnership culture was not just that it makes the partners feel important, it's that if all of the senior risk-takers feel like they are part of a partnership, they can trust one another to take good risks with their collective capital. If you work for a powerful CEO and invest shareholder money, the CEO has to spend a lot of time thinking about managing your risks; if you and your 37 best friends share responsibility for investing your own collective billions, maybe you can trust each other more. Millions Stolen, Death Threats: Should Banks Do More to Fight 'Pig Butchering'? Trump Urges Supreme Court to Reject Challenge to His Tariffs. Wise co-founder urges investors to block US listing in row over voting rights. Michael Saylor's Strategy Owns 3% of Bitcoin in Circulation After Latest Purchase. People are worried about muni junk bond market liquidity. Trump golf club ditches goats — but keeps $240,000 farm tax break. Musk Says xAI Will Make Kid-Friendly App Called Baby Grok. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! | 
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