Elliott Management’s Pollock on Crypto, China, Markets
I specialize in shareholder activism, uh. We have the privilege today to have jonathan pollock co, ceo co, chief investment officer for elliott investment management, the 48 billion dollar activist fund. I was about to say its based in new york, but now uh during the pandemic. They moved their headquarters down to florida. Uh john thanks for coming in today. Um it looks like youre in the office. Are you uh? Are you in the new york office, florida office or yeah scott thanks for having me uh im were actually in the greenwich office. Is our new office uh in greenwich? But, as you know, we did move to to west palm, but we still have a substantial presence here in the northeast. You were part of the the exodus from wall street to to florida over the pandemic. There were a lot of hedge funds that moved down there. What do you think that means to to the culture of wall street um going forward? Do you know uh? I dont really know much about the culture of wall. Street um were kind of you know in it, but not of it. Um look. I. I think that uh technology today allows us to be connected in ways that we havent been in the past. I dont think its its really central to be located in a specific place and so um yeah. I i dont think that it has any big impact. Okay, so the last two years have been.
Obviously you know unprecedented im just curious. You know: elliott has a platform in private equity activism, uh credit platform and distressed uh, a real estate portfolio, you youre pretty well across the entire market and im just curious uh. What did what kind of challenges and opportunities did the the pandemic create for elliott? Well, youre right were not just a an activist fund were a multi strategy fund engaged in a variety of things. Look we were busy during the pandemic lows, as everybody was probably didnt. Put enough money to work at the lows, but you know, fortunately we do have all these businesses and its its its a relative value game for us. So in the activist space you know were both long and short and were still even at these levels, which are up dramatically from from the pandemic. Lows were finding things to do. Weve also been lucky to put money to work in the private equity space, and you know were looking for companies that have sustainable cash flows that we can own with confidence through the cycle. So thats been an area of deployment, thats been fairly satisfying for us, but also were in a direct real estate space and we have been active throughout europe uh mostly, but weve done some things in the states as well, so weve been pretty busy. It seems like um youve, taken a lot of active positions in europe this year is that, are you seeing some kind of opportunity in the european market? Um, and more generally i mean how does elliott determine what companies its going to target in an activist situation? You know we screen companies globally and each situation is unique, so weve never put money to work based on a specific geographic theme.
It just happened that in europe a few situations did line up, but lining up for us means a whole variety of different elements need to come together and they they happen to in. In with these companies in europe, but weve been an active. You know uh in the us as well, so um weve. We managed to do a lot of work. Each situation is unique. You have to go through and take your time and really pick your spots and and thats what we try to do and we try to populate the portfolio kind of situation by situation, brick by brick and thats, how we build it im curious. It looks like inflation and interest rates are likely to continue to rise. What do you think that means to the broader markets and for elliots business in particular? Well, you know, i think, weve all enjoyed the benefits of low rates for a long time and ultra accommodative monetary policy globally. Anybody thats managed to put risk uh on the page in the last 13 years, but more specifically, the last 18 months has been well rewarded. Im not sure its all genius. I think those uh tailwinds have have made us all look good, but now i think the cycle is evolving, and so what does that mean? You know if you think about just taking a step back. I dont know if youve seen these numbers household wealth has increased by about five trillion dollars for the last five quarters.
Five trillion dollars, so, i think, were at all time highs for household wealth to nominal gdp, which is like at six and a quarter times. At the same time. You know we have uh household wealth at like almost a 50 allocation to equities. So you start to think about. Is there real sensitivity to rates? Is that is that wealth imperiled? You know bank of america recently did some work on uh, the s p and figuring out what the duration of the s p was, and i think they came up with 35 36 years and composition makes a difference a lot of high growth companies. But then goldman did the same analysis for the russell 1000 and came out with a 22 duration for equities. Well, if you start fooling around with the numbers, you know 100 basis, point move for a 22 duration. Zero coupon is a big move. You know its down. You know 20 percent and im not saying that the markets going to go down 20 tomorrow, but i am saying that there is sensitivity where that attachment point is its a whole. Other question: do you have any sense of you know when that might occur, or you know why the markets not reacting at this point? Okay, i think its its really really difficult to know right now. It feels like were in this goldilocks moment, with the delta variant behind us people coming back to value rates. Rising, i mean just in august.
You know rates were you know. Well, the 10 years at 110 were up 40 basis points or so and um you havent seen any real move in equity, so its really hard to know when that comes, but right now with earnings growing. I think you know, and and again you know with the recent past – that it only has paid you to buy the dips um. You know, i think that mentality is kind of still in full swing, hard to call it top okay um. So over the last few years, theres been an evolution in the credit market youre a big player in the credit market, in particular in distressed um theres, been a movement by big private equity players and non bank lenders to to move into the space. You know blackstone apollo, even yourself and just displacing traditional lenders. What do you think that will mean, as the the credit cycle evolves? Well, you know um times used to be that in in the cycle. There would be plenty opportunities in the credit space and i still think there will be opportunities. But i think, as you point out, the composition of the players have changed changed to the point where theyre better placed to own credits, distress, credits, stress credits through the entire cycle. So if theres a process, these players, the blackstones, the ares, the apollos theyre better placed to hold on to it. So i dont know exactly what that means for the next cycle, but it could mean that opportunities are less plentiful, its important for us to think about how to configure ourselves to play, and so you know were busy thinking about what that means to us.
Just to ensure that you know you know well be there for those opportunities that do arise. What does that mean? I mean how do you position yourself for that that uh kind of cycle, if people are holding the paper longer well, look as we saw in energy, and i think, as as youve uh written about there have been, you know, opportunities in the energy space for uh Alternative players like ourselves, and i think that that kind of space that space enter whole energy space is in transition. There will be opportunities its important to have the depth of industry coverage, but its important also to have some platform companies of your own to originate. Your own uh volumes so youll be able to put money to work throughout the cycle. Theres been an interesting situation developing out of china with the evergreen situation um and it kind of highlights the risk of investing in china elliots been hesitant. I think, to some extent to to dabble in the chinese market. Why is that, and i mean, is there any opportunity for you there well chinas been a difficult market. You know for us were deeply involved in every uh position that we run, and you know its often the case that you know we need to lean against the rule of law. Rule of law thats consistently applied, but i think in china its been one of those places that made that more difficult for us. So traditionally we havent been big players in china.
I do think that there will be opportunities, as this kind of policy uh generated slowdown occurs, but its uh harder for us to um to think about big deployments in that geography. So another area that youve been quite hesitant to get into is the uh cryptocurrency market. I think at one point, uh paul singer referred to as the biggest scam in history. I was wondering if elliotts views on the crypto market had changed much or uh, or do you still believe that there should be some hesitancy in in terms of investing in it? Look scott were naturally skeptical about everything. Um, you know, crypto is uh its its really it. I think its done a lot for the world. I think block chain technology was going to be rolled out through a variety of industries and um its a really really important technology. You know whether you know bitcoin and ethereum. You know survive at the end of the day, im, not sure, but we just saw china uh. You know um ban the use of bitcoin for transactions when you think about it and the whole space kind of impinges on the domain. Thats traditionally been. You know that of the sovereign and so when, when i think about the potential risks, i think about what happens at the introduction of an electronic dollar. What does that do to the value of of crypto and im, not sure that its a positive? I do think that its likely at some stage we can see an electronic dollar thats controlled by the fed.
I think that that has various elements that will appeal to the policy makers, whether that can coexist with bitcoin and ethereum is, is i dont know, but i dont think its uh, a necessarily a positive for the value of bitcoin, uh and ethereum when it does happen, But when it happens and at what level bitcoin ethereum will be at it is hard to know yeah, it seems that uh, you know if there was a federal alternative, it might lead to some kind of devaluing of the existing systems. Is that what you is that? What you mean or yeah look, i think, the whole value of uh you know bitcoin ethereum would be challenged if that were to occur. I mean its hard for us to invest in something that could be. You know effectively regulated out of existence with the stroke of a pen right so elliot earlier. This year raised two special purpose: acquisition companies um. Since then the spac market has started to hit some hiccups. I guess would be the uh, the generous way of saying it. Um, i know you cant speak directly to you know what your specs are pursuing, but generally, how are you viewing the spac market these days and the opportunities that uh might be available? Look, as you pointed out, we raised some money in this back important. I cant talk too much about our specific uh situation, but i will say that you know the incentives that uh relate to the spec run directly to our investors, and i think that alignment is important.
Look. We think that theres a lot of optionality in having this money and marrying that, with a full elliott platform to find interesting investments. Whether well be able to do that over the two year period is an open question. But we think that there will be things to look at, and hopefully the environment changes a bit to provide a little bit of dislocation to find things that are compelling right, so im kind of curious how elliott the mechanisms of elliot actually works. So youve been co. Ceo, since i think 2015 you work alongside paul singer um, you keep a much lower profile than he does and im just kind of curious. How do how does elliott operate with two ceos like? How does how do you make a decision on on on your investments or your strategies? I think uh most people know that pauls deeply involved in every aspect of the business. You know its only been six years that ive been co ceo, but weve kind of been together in some form for 32 years, a bit like a marriage. You can kind of complete the other persons sentences, but at the same time you know youre able to constructively disagree, and so you know we view ourselves as the ultimate risk managers at the firm. So what were trying to ensure is that the right kind of risk is onboarded at the firm and that were there at the moments that key decisions need to be made, and i think weve been effective in doing that.
You know were also lucky to have a deep team theres a no. We have six partners and i have a number of uh employees that have been with us, for you know, 10 to 20 years, weve recently, uh augmented the ranks we hired zeon showhead from city whos, our ceo rich zabel whos. Now our chief legal officer joined us about five years ago, and so we managed to deepen the team, so were pretty, were pretty fortunate to have that kind of experience to draw on in you know a big big size so who overrules? Who, when uh, when you have a dispute? Well, i think you know we have this natural give and take. I think he knows when i feel strongly about something um and you know hell hes able to to run with my decision and im the same way with him. You know in in this kind of partnership its really really important to you know never say i told you so were uh been doing this a long time, and we know that you know risks dont, always turn out the way that wed contemplated from the onset and So you know its its just kind of a natural. You know i yield he yields and were, but both of us are focused on getting to the right place, which is what we try to do in all instances. So we mentioned uh at the outset that youre in the office today, how is um elliott looking at bringing people back um, you know you were one of the.
I think one of the most cautious people in the beginning. You you know you, you moved uh remotely very quickly as the pandemic started. What are you thinking about now? Bringing people back um and when do you think theyll be back in the offices yeah scott? We were very fortunate to have the infrastructure in place to almost seamlessly move to a you know, remote setting and its its worked actually better than i had anticipated. Having said that, its been two years now and i think that theres a desire for people to maintain flexibility, you know i think people enjoy the flexibility of remote work, but also to convene with regularity so were planning on going back to the office in january um. I think you know, barring unforeseen circumstances, well, stick with that look i think the covet in some form is going to be around for a long time and we just got to work through it, but there are important reasons for us to get back and we will Be getting back, are you thinking about a hybrid model or a flex model, or do you want people back in the office on a full time basis, yeah its its a hybrid model, well be working three days a week from the office. I think people, as i said, enjoy that flexibility, but also miss. You know the the the back and forth of convening in person, and so you know were going to do a little bit of both.
You know. Look: these things are always hard to know how theyre going to play out so its its a giant experiment and im. Sure things will go, you know not according to plan and well have to alter it, but thats the way were going to start and well just get into it and see what works and what doesnt plus. I guess you have now the the added integration issue of having your new florida offices too. Have you had an opportunity to see whether thats thats that dynamics working uh yet because you havent been back in the office or no were still remote, and so we havent really tested the full hybrid model? I mean it is uh, it will be a test and it will, you know, launch in january, and you know well see how it goes. I dont really anticipate that much uh in the way of you know, problems weve been connected remotely for so long that i dont think you know working in you know, other locations is going to be problematic, plus well be convening regularly together.