00:00Oh, yes, it is my pleasure to welcome in back coffin the SVP and out of
00:08ETFs of Kalamazoo investments.
00:09Wonderful to be with you today, Matt Dan.
00:11Thanks for having me Bears fan.
00:13Don't hold it against me.
00:14Yeah, so I got to go from what Bears fan to what I listen.
00:17It's not a problem, but I wish you the best, but I wish Kalamazoo
00:21investments the super best.
00:22Can you give us an overview of Kalamazoo?
00:24Yeah, Kalamazoo is about a 50 year old risk manager or the largest
00:29convertible bond manager in the United States.
00:32We were founded a few short years after the options markets actually
00:35opened in Chicago Chicago board options exchange.
00:38So we were founded in 1977 again, a framework of risk management got
00:43about 40 billion in assets under management.
00:46One of the largest alts providers in the country.
00:48We're doing a lot in the ETF space over the last couple years.
00:51We've built a closed-end fund ETF convertible ETF, which converts have
00:57actually had a little bit of a Renaissance with Michael Saylor and
00:59you know, the Bitcoin related converts coming to market.
01:02You can actually access those in CVRT.
01:05It's one of our converts ETFs and we launched the world's first 100%
01:10protection ETFs on over one year last last May.
01:15I'm looking my calendar here and yesterday on the 22nd.
01:18We launched the first protected Bitcoin ETF.
01:21So imagine we'll touch on that a little bit too.
01:22Absolutely.
01:23By the way, you're founded the year.
01:24I was bored.
01:25So I don't know if I feel older.
01:26That's like a grant a grant thing as well.
01:28Let's talk about this man.
01:31How do the values and investing philosophy of your founder?
01:35John P.
01:36Calmo senior guide, how you guys do business today?
01:39Yeah, again, we're built on a framework of risk management.
01:43I think when you try to combine these two concepts of innovation and
01:48risk management, you can innovate but you have to do it with security.
01:51You have to make sure that it works.
01:54I think about a technology company who you might, you know, build an
01:58iPhone or operating system and you can do the beta version, you know,
02:01I can build a beta version of AI not me personally, but you know, you
02:05go by the tech version and it doesn't work.
02:07Like maybe it'll tell you the wrong answer.
02:09You ask it to draw a picture of something and comes back totally
02:13wrong.
02:13But then you just keep keep iterating like you cannot do that in
02:17financial services.
02:18You have to build things that work and they have to work the first
02:21time because a lot of times we're dealing with people's life savings.
02:24So we've made a you know, half a century career doing that and we're
02:30applying that to the Bitcoin space now as well using options on a
02:34SIBO Bitcoin index US Treasury's really stable instruments and
02:39delivering exposure to Bitcoin now.
02:40So it's what's going to continue.
02:42But again, 50 years of risk management now applied to a new asset.
02:46No, I like what you say about that to consumers.
02:48You mentioned it's a lot of times.
02:49It is people's life savings and you take that very seriously.
02:52That's a very important thing.
02:53And I know you're also Kelmos is launching the world's first hundred
02:57percent downside protected Bitcoin ETS being a protection.
03:01How will this work?
03:02Yeah, there's a lot to unpack in that headline, you know, when you
03:06whenever you put 100% and Bitcoin protection in the same sentence,
03:10everybody kind of got ears perk up.
03:12So the way that we're doing this, you know, you you had that spot
03:16Bitcoin ETP market just explode out of the gate in January of 2024
03:21more than 100 billion dollars went into that space.
03:25If you follow the ETF marketplace when there's a liquid big ETF, you
03:30can pretty much bet there's going to be options that come shortly
03:33after that.
03:34And so you got a lot of options based off of S&P 500 and spy QQQ
03:40options IWM and so we thought we were going to get those options on
03:46the spot Bitcoin ETPs a lot sooner.
03:48The SEC put their hand up said, hold on.
03:50We want to come slow roll this make sure the ETPs work then we'll
03:54consider options.
03:55So long story short, the options ended up coming to market last
03:59November.
04:00So just a couple of months ago.
04:01There's a tremendous amount of liquidity in those spot Bitcoin ETPs
04:06again, a hundred billion dollar space two to five billion worth of
04:10trading every single day.
04:12So you go back to my point about building things with security.
04:15We really only build risk-managed products on very liquid underlying.
04:20So if you look at the outcome based ETF space, it's usually on spy
04:23or queues or small cap, maybe international.
04:27You're getting kind of close to the edge there.
04:29Well, Bitcoin is one of those large liquid instruments, believe it
04:33or not.
04:33And so we can build a portfolio that consists of largely of US Treasury.
04:39So, you know, if I go through an example, I'll give you a hundred
04:41dollars or a hundred percent of the portfolio.
04:43We spend 96% of that on a basket of US Treasuries.
04:49These are zero coupon, which means they're discounted by the risk-free
04:53rate.
04:54So risk-free rate today will say is about 4%.
04:56So we're going to spend about 96% knowing that we're going to go up
05:01to 100 over the next year.
05:03I can take that 4% and I can buy a call spread and buy a call spread
05:07on options on the US Bitcoin ETF index issued by SIBO.
05:13So I buy an at-the-money call and then I'm going to sell off some of
05:16my upside to help fund that upside exposure.
05:19So there's no free lunch.
05:20It's a fully financed 100% financed package of Treasuries and options.
05:26You get the upside of Bitcoin to a cap that cap right now is 11.65%.
05:32You can buy CBOJ today trading around $25.
05:36So you get 100% protection to buy in at $25 the upside to 11.65% and
05:43then we also have a 90% protection and an 80% launching on February
05:484th.
05:49The cap rates just go up with with that.
05:51So the way that I would frame that is you can now get Bitcoin with a
05:55safety net and you can choose where to put that net.
05:58You can put it at the floor and so you have no downside risk and get a
06:0212% upside cap.
06:04You can put it at 10% but 10% at risk and get 30% upside cap is what
06:09we're seeing right now where you can put 20% of your money at risk and
06:13get about a 55% upside cap.
06:15So, you know, you can really choose how much risk you take on relative
06:20to Bitcoin.
06:20That's exactly how a lot of investors approach the markets.
06:25It's how they work with their financial advisors.
06:27They have a risk tolerance and so we've given the financial advisor
06:31the ability to now access Bitcoin in a way that works in their
06:34portfolio.
06:34Thanks for that beautifully as much as we want it.
06:37There are no free lunches, even though they take their tasty, you know,
06:39you gotta make sure that you gotta make sure it's protective and for
06:42the right reasons.
06:42Now, how do you see all this fitting into a client's portfolio?
06:45I think it can be pulled from different sides.
06:48So if we take the product we launched yesterday, CBOJ 100% protection,
06:54you know, we talked about the 11.65% cap.
06:57The first thing I think that might come to people's minds is why would
07:00I give up all my upside?
07:01Like, what am I?
07:02Why would I do that?
07:03I want the thousand-point run that Bitcoin may offer.
07:06And the reason is you can use this as a tool for risk management.
07:09If you're a growth-oriented investor, maybe you're in your 20s or 30s,
07:13you've got a long way to run.
07:14And so you can tie this to your spot Bitcoin ETP exposure, you know,
07:20maybe you're buying 60-70% IBIT, you put some in CBOJ and you've cut
07:25off your tail risk, but you're still got all that upside.
07:28The other way to think about it is now you have a way to move your safe
07:32money and tie it to Bitcoin.
07:34No one's ever been able to say that before.
07:36Like maybe you have cash on the sidelines.
07:39Maybe you've got an index CD sitting in the bank.
07:41You can actually take that money now and tie it to Bitcoin because you
07:45have no downside risk and Bitcoin is actually your best power source for
07:50that money.
07:50You might get a 4% risk-free rate on that money somewhere else or you
07:55can get up to 12% three times what you're going to get on the risk-free
07:59rate.
07:59So that's how we're seeing people use the 100% and then on the 90 and
08:03the 80, a lot of folks just love that trade off, you know, one one on
08:07the down to three on the up 10 down 30 up.
08:09That's a great trade 20 down 50 up.
08:12There's a lot of a lot of good upside built into that that most people
08:16have been sitting on the sidelines because of the epic volatility of
08:20Bitcoin.
08:20This gives them trade-offs that they're willing to take.
08:23Yeah, there's definitely numbers investors music to their ears and I
08:27know that you've spoken of four Megatrends when it comes to, you know,
08:30long-term growth.
08:31What are they and how can investors take advantage of them?
08:33When you what do you mean when you say Megatrends, you'll just see if
08:38you suffer the long-term, you know, as far as the investing goes,
08:40especially with obviously what you're doing.
08:42You're talking about the protected ETFs and all that stuff.
08:44Yeah, that makes sense.
08:45One of the things that you know, we really think a lot about is inflation
08:49and how that impact impacts people.
08:50So, you know, one of the Megatrends we're seeing is for retirees.
08:54There's about 11,000 retirees entering the market every single day or
09:00entering retirement.
09:01It's the largest swath of people that we've ever seen enter retirement.
09:05Think about when the Social Security Act was passed about 1 in 16 people
09:09were retired.
09:10A lot of people didn't live past retirement age to on you fast forward
09:14to today and we're almost at a point where nearly a quarter of Americans
09:19are of retirement age and those folks are going to be using their
09:23portfolios to provide for themselves when they no longer work.
09:26They face longevity risk inflation risk volatility.
09:31They have to be able to outpace inflation to keep up with their
09:35spending.
09:35You know that I'm not sure if every retiree under fully understands
09:40that the price of goods and services go up a lot of times.
09:43They're in bonds inversely tied to inflation.
09:46Well, now you think about equity markets risk managed equity markets.
09:50You can be in Bitcoin with protection now and you're if you get a 12%
09:55upside that's going to help you outpace inflation over time.
09:57So that's one of the big themes that we're seeing.
10:00We want people to be invested in the markets.
10:03We want to give people an opportunity to be invested in things like
10:07crypto.
10:08You want to access the crypto frontier, but in a much more familiar
10:11landscape and so we think we're bringing all these things together
10:14for everybody.
10:15Absolutely.
10:16And Matt, I know that some people don't want to accept or they want
10:18to look the other way or they don't want to realize we're in this
10:21new day and age of AI.
10:22How do you feel like AI is changing investing because it's here
10:26obviously, it really is.
10:28There's some interesting AI tools when it comes to investing the
10:32others indexes in the market that are invested in AI companies.
10:36So you can buy the companies involved in AI, you can buy the picks
10:39and the shovels or some companies using AI to select stock.
10:43So there's different ways you can think about accessing AI from
10:46that perspective, but the productivity that we're seeing from AI is
10:51tremendous.
10:51You think about a financial analyst that might have to read through
10:55100 reports in a week.
10:59Will you plug all those into AI and say summarize all these for me
11:02and you can get results within a matter of seconds instead of a
11:06matter of weeks.
11:07So it's just supercharging our ability to deliver value back to
11:12our clients.
11:12You know, working on math models and plugging those into AI, you
11:16know, asking them if they can make them better and you know, that's
11:19all training AI to just help give us better results as well.
11:23So there's a tremendous amount of opportunity that we're seeing in
11:27use cases for AI all across the board.
11:29Like I love to say that what a time to be alive.
11:33It was an absolute pleasure talking with you today, Matt.
11:36Thank you so much for your time.
11:38Another one of the best going forward.
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