00:00We talked about this a few weeks ago in the lead up to this IPO, and there's a lot of
00:04questions now
00:05as to whether you even have the option as a steward for the pension funds here to actually
00:12have any sort of passive investments that are ex-SpaceX. Yeah. Well, hello, Romain and Katie.
00:18Great to see you all again. You've covered and we've talked in the past about how this is an
00:22incredibly undemocratic governance structure. Also, unusual financials, right? I think with
00:28the price now, we're like at 100 PE ratio. And if you're an individual investor and you want to
00:33make the decision to buy, okay. But I and many other institutional investors are not going to have
00:39a choice, and that is because of indexing. That has changed the game. We have almost 100 billion
00:46in indexes. And that means that we're going to be major shareholders of SpaceX, like it or not.
00:53We track the Russell 3000, and they're going to fast track SpaceX. They're going to
00:58throw away all the normal criteria. And we could potentially own a billion and a half of SpaceX
01:04by the end of the week. Well, I am curious, though, too. And just yesterday on this program,
01:09we had one of the executives at FTSE Russell talking about this inclusion process. And the
01:15idea that, at least for the FTSE Russell, this is more automatic. The idea is that their view,
01:19not mine, their view is that they represent the market. It doesn't matter what that market is,
01:24the quality of the companies. They have certain corporate governance provisions. But overall,
01:28they want to represent whatever the largest stocks are. It's a similar story for some of the MSCI
01:32indexes, a little bit different with S&P, although they're holding off for a year, as some people had
01:37advocated for. So I guess my question is that, how do you sort of balance out this idea that there
01:43is a
01:44market out there, either you're in it or you're out of it, and sometimes you can't be selective?
01:47Look, the idea that has reigned for decades is that you need to give it some time, a period of
01:54seasoning to track how the stock performs, to ensure that there are actual earnings, to track
02:01the float, so that it's a more stable investment at the time that it enters into the index. And as
02:07institutional investors, that's what we're looking for. That is all being thrown out of the window
02:11because of the power of one man, setting a very difficult precedent. And I get that founders
02:17want control of their companies. We've seen that happen with Meta and Google to some extent. This
02:22is next level. This is beyond what we have seen. We've never seen a major company where a single
02:27person has this much of a stranglehold on governance with very limited share rights,
02:31shareholder rights, no independent board, and no sunset to any of this. So this is a very,
02:38very unusual governance structure, an unusual financial profile. And again, if people want
02:43to buy, great. But you have not just major institutions. You have millions of retail
02:47investors who, through their 401k, are in a similar situation. And it's not just New York
02:52City that's making noise about this. Through the Council of Institutional Investors, we have
02:56dozens of pension funds and other investors, collectively over two trillion in assets, that
03:02signed a letter to the exchanges. We're all saying the same thing. We're very worried about
03:06the precedent this sets. Right. Well, I mean, the pushback would be that, you know, you're
03:10choosing to invest in these passive index funds, that, you know, you could make the choice to
03:15actively manage the portfolio. Because, you know, to build on Romain's point, you think about
03:19the goal of the NASDAQ 100, for example. It's just the 100 largest domestic and international
03:25non-financial companies that are in the NASDAQ, listed on the NASDAQ Stock Exchange, MSCI,
03:31FTSE Russell. They're just trying to, you know, track the market here. So, I mean, I mean, how do you
03:38sort of make that trade off that, OK, I want to be a passive investor, but I feel very strongly
03:44about this one particular stock?
03:46Look, as a fiduciary, I have to ensure we have a diverse portfolio, that we maximize risk-adjusted
03:52returns, and that we also negotiate good agreements and good fees with our fund managers. And increasingly,
03:59passive investment has been critical to that strategy, in part because it's extremely low
04:05fee, and at the scale we're operating, I mentioned we have almost $100 billion in passive. That
04:11matters to us. I mean, the fees could be enormous if these were actively managed. It's not our
04:17only strategy, but it's extremely important. It's a growing component. To abandon that, there'd
04:22be an enormous cost to us. I couldn't justify it as a person who's protecting the retirement
04:26accounts of three quarters of a million people. I think it's fair that we stick to rigorous
04:32standards about what the components of these indices are, especially for investors like
04:38us. At scale, we own so much that we're going to be major shareholders in SpaceX, whether we
04:43like it or not, with no period to monitor this. And look, the last time I was on the show,
04:48our pressure was not on the indices. It was on the company itself. And I can tell you that
04:52because we are going to be major shareholders soon, like it or not, we're going to continue
04:56the fight to ensure that SpaceX becomes more democratic for shareholders.
05:01Well, I am curious to know, as you mentioned, originally you were putting pressure on the
05:05company itself. You've shifted that over to the indices. You've sent some letters.
05:09Have you gotten any responses?
05:11There have been some very bland statements from the indices so far. Not much response. This is our
05:16challenge as shareholders with the company that is disempowered shareholders. But we are left with
05:22tools. And I can tell you that the fight will not be over once we become owners through the index.
05:28We are going to be very active with fiduciaries around the country that collectively are going
05:33to be owning a major piece of this company. Well, Mark, we didn't even get to the Knicks,
05:37so we'll have to have you back. All I got to say is Knicks in five. You're going to have
05:41me back
05:42to celebrate the victory. You don't want to game six here. What about the economic activity that
05:46you're the control? I'm not that much of a bean counter that I'm going to risk losing the series
05:51for the economic uplift. I want us to win as soon as possible.
Comments