tv The David Rubenstein Show Peer to Peer Conversations Bloomberg May 8, 2019 9:00pm-9:30pm EDT
♪ upid: hal do you pick insider trading? jay: we use algorithms. we catch people. david: what is the biggest investment mistake? jay: diversify, keep costs low, and not panic. david: the sec case government salaries. jay: i think they have the respect of wall street. david: is there anything i might be -- i was trying to get them a raise. [laughter] >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. just leave it this way. alright. ♪
david: i don't consider myself a journalist. and nobody else would consider myself a journalist. i began to take on the life of being an interviewer even though i have a day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? and thelk about the sec job being chairman of the sec. you were a lawyer in private practice. what is the biggest change now that you are doing this? jay: the biggest change his my client is different. my client is the american investor. that is a change from a single client to a group of clients. david: it can't be that stressful. you have no gray hair. is that genetic or good fortune for the job is not that stressful? jay: good makeup. [laughter]
david: when people say to you i , i can interest, you say give you general principles, is that what you say? jay: that is what i say. david: maybe i should be chairman of the sec. you said smaller investors through 401(k)s or iras should be able to invest in liquid securities. jay: we are studying it. marketvate investment has grown substantially in the last 20 years. was year, more capital raised in the private markets than in the public markets. our retail investors are not having access to those investment opportunities. thoseome periods, performed better than the public capital markets. we are looking at this. we want to make sure retail is not left behind. david: in the investment world
for the last four or five years, people have been worried another recession will come. no one is predicting recession tomorrow, but you said leverage loans are relatively high and it reminded you of 2008. what is your concerns about the market? jay: let me clarify. i'm not saying the leveraged loan market reminds me of 2008. there were mismatches in expectations and economic realities. all008, we thought not mortgages moving the same direction. they did. 25thought a guarantee fee of basis points was right for all mortgages. it wasn't. you look around and say where our expectations and realities out of whack? one place they may be is that leveraged loans don't settle like others. it takes a while. if you want to settle a bond, you would settle three days
later. if people think those loans are as liquid has bonds -- as bonds, they may be wrong, so you don't want a high concentration of those leverage loans in a liquidity product like a mutual fund. david: is or anything else? jay: i have been worried about a hard brexit. it would have significant economic effects. we have asked our public companies to describe what a hard brexit would do to their operations. there would be significant changes in operations. david: you have written that you are worried about cyber risks. jay: we have a ways to go on preparation. there are single points of failure in our information economy that we need to make sure our resilient. the ones we worry about, exchanges, clearing houses, large banks, if there is a cyber
problem, are they able to get up and running quickly? we need to move to where we are more comfortable that that is happening. so,d: 1997, 20 years ago or there were twice as many companies that were public as today, maybe 7200 then, and half that now. tothat because the sec is telephone companies and they don't want to go public because of the constraints, or other factors in the market? jay: announcer: there are a number of factors. one is regulation. another one is the emergence of private investment opportunities , private equity, credit for private equity. another is consolidation. each of those three has contributed to that reduction. what i don't like is that companies are not choosing to go public early in their life cycle. we are seeing companies with high valuations going public,
but not nearly as many in the 500 million to $2 billion. david: why? jay: i want to retail investors to get a chance to invest in those companies when they are growing. it is great to invest in a $20 billion company. it is really nice when it was $2 billion two years ago. david: many are confused about one thing about the sec. they think the sec says this is a good investment, not a good investment. your mission has been to make sure people are adequately getting information. jay: that is true. two principles. transparency, you have to be transparent and honest. in trading securities, we can have unfair practices manipulation. those are the sec's core missions. david: when somebody files to go
people say you have to put so much information in the document that it discourages people from wanting to go public. is it possible you could say we don't need all this information, or you think what you are doing now is working? jay: i think the approach is the right approach, which is give us all the material information about the company when you are going public. that is the right approach. should we have the same disclosure for our largest companies that we do for smaller and medium-sized companies? probably not. the maker, global companies need to provide us more information than the startup biotech does. what we are trying to do at the sec is say can we scale our disclosure requirements in a way that makes it accessible for those medium and small-size companies. david: if you were a publicly traded company, every quarter you provide information to the sec. what about doing it every six
months as opposed to every quarter? do you have a view on whether that is a good or bad idea? jay: well, the market's thirst for information. investors thirst for information. they want information on a regular basis. i don't expect quarterly reporting will go over anytime soon. if you borrow money from a bank at the same time you are selling stock, that bank will want quarterly information. i don't know many loan documents that have semiannual information. the real question is do you need to do something as extensive every quarter as we require today? you know what happens? people take this quarter report and say the one that will be filed in june and compare it to the march quarterly report here at they really want to know is what is in the press release, the earnings press release, and what are the changes. and yet we make people file a very large document. we might be able to do something
more streamlined on a quarterly basis. were a milieu, you had highly compensated partners working with you on behalf of the companies. the sec pays government salaries, which are modest to say the least. i wonder can you really get good people to stay there because you don't pay them that much? jay: yes, we have terrific people. we really do. david: they can keep up with the private sector and things like that that are filing information all the time with investment banks? jay: you tell me. i think of people have the respect of wall street. david: they are respected. if the sec is looking at anything i might be filing, they are terrific people and do a terrific job. they are so under compensated. i was trying to get them a raise. [laughter] jay: if you can help me get them a raise, let's do it. in thei'm sitting emergency room of a hospital and somebody wheels in the chairman of the federal reserve board, can i call my broker and say the
♪ david: let's go through insider trading. the supreme court has ruled against the sec, arguing you were too tough on in forcing law. is that a fair reading? the otherustwon one day, which felt pretty good. david: you haven't lost in the supreme court? jay: there are a few we have lost. david: the question is the courts have misinterpreted the law when you lose? jay: look, insider trading is actually a very delicate enforcement issue.
a rule that said any time you have information that everyone else doesn't come and you can trade. ,nytime you have information you can trade. well, that would discourage people from finding things out about companies. one of the policing mechanisms in our market is private investors looking at companies and whether they are telling the truth or not. thatnt to encourage behavior, people to investigate companies. david: the theory is everyone should have access to the same information. corporate ceo and you tell me you are about to buy a company at a big premium, i'm not supposed to buy stock because it is unfair to the market? jay: correct. david: let's suppose i'm sitting in the emergency room of a hospital waiting to have some looking at by an emergency room person and somebody wheels in the chairman of the federal reserve board and the person says this person has had a fatal heart attack or potentially
fatal heart attack, very serious , if i see the person being wheeled in, can i call my broker and say i think the markets are going to go down because he is a popular person? can i trade on that? jay: it is a great question. that shows the line. where do we draw the fairness line? if you are a doctor, we would say you have a duty to keep information about the fed person confidential and no one would expect you to trade on information you obtained by being a doctor, but if you happen to be standing there at the emergency room when he or she gets wheeled in, that information, you did not acquire in a nefarious way or confidence way, and you should be able to trade on that just like if you saw people loading bricks into computers in the back of a truck. david: somebody is a corporate ceo and they mentioned to me that he or she is a big company,
they are going to pull out of britain because of brexit and that will have a big effect on the british economy. is it ok to take that information and short the pound, is that a problem? it is not a security. you can buy and trade dollar bills of pounds. is that a prom for the sec if i did that? jay: no, we don't police nonsecurity transactions like that. it would be outside our jurisdiction. david: you would say that is ok? [laughter] jay: the answer is it depends. david: all right. jay: check with your lawyer. [laughter] david: ok. what about cryptocurrencies? you said they are not securities, is that right? like bitcoin? because you call something a cryptocurrency doesn't mean it is not a security. we have seen things people call
cryptocurrency that are securities. you referenced one, bitcoin, which we have looked at. it is not a security. david: for the average person, explain how many members of the sec are there? jay: 4500, 4600 employees. david: how many commissioners? jay: five commissioners. david: appointed by the president of the united states? jay: and confirmed by the senate. believe the way the rule reads is you cannot have more than three from the same party. david: let's talk about how you came to be chairman of the sec. you corrupt in pennsylvania, hershey, pennsylvania, initially? jay: initially. david: your father worked for hershey question mark jay: we were outside -- her she? jay: we were outside of hershey. david: did you get chocolate for free? jay: so much we got sick of it. david: you didn't like it after a while. jay: i like it now. david: you meant a lot lafayette college and played soccer.
you transferred to the university of pennsylvania. did you play soccer anymore? jay: little bit. i was a marginal college soccer player. david: then you graduated summa cum laude, pretty good, but then you went to cambridge, and then you play basketball at cambridge? you can back and went to the university consuming law school. you did very well, knew the top of your class, clerk for federal judge. then he went to one of the most successful law firms in the united states. all of a sudden you become chairman of the sec. were you known to the president? did you know president trump? jay: no. a client of mine asked me to go to trump tower to breathe some people on the transition and how capital markets were function and areas for improvement. one thing led to another and we did somedays interviews, then i interviewed with the president. david: did he have any tough
questions? tougher than mine? jay: you are pretty good. [laughter] david: i'm told he was very impressed with you and said this person looks like he should be chairman of the sec. were you surprised he offered you the job? jay: we had a really good discussion. david: ok. jay: i think you are always surprised when offered a job like this. david: the president proposed you become chairman of sec. you had to sell your securities and give up your partnerships. jay: they didn't tell me that. david: does the congress father you on a day-to-day basis, go regulate this, do that? jay: every minute i spent up there is valuable, because it is really good to hear from members and senators from both parties what they think we should be doing. it is good to know how someone looks at you. they are my board of directors. ford: does the white house president call you with advice or suggestions are not that
much? jay: not so much. david: would you like them to call you more are not so much? jay: i like things the way you are. david: when you are relaxing, what are you doing? jay: i played soccer yesterday with my kids. i couldn't walk. david: not a golfer? jay: i was a golfer before i took this job. david: if you played now come you would find that people gave few putts more than before. have you ever thought about that? jay: i must be paying -- playing with the wrong people. david:
get into whether the economy's weakening and maybe they should be cautious on their investments? jay: advice, steady, long-term investing in america and our economy has proven to be a good thing. to want her markets to be a place where people invest steadily over time. the retirement will be a much more comfortable one. that is the number one question people ask me. will i have enough money in retirement? roundtables, these it is the number one were on people's minds. am i going to run out of money? the best way to do with that is to steadily invest to the extent you can over time. david: if you were the person helping to draft the original sec legislation and you could change what you know have, what we to do? would you change it in some way and have only one commissioner and chairman chris mark jay: at least -- chairman? jay: at least for the next period of time.
i like my commissioner. david: what would you do to change anything? jay: the people who wrote the laws did not expect we would have markets that were almost entirely electronic trading. even if you and i make a small into ander, it gets put algorithm and is executed electronically. to taketo update account of developments in technology. the bedrock principles, transparency, fair trading, those, we should not do anything to touch those. david: computerized trading where you have very fast trading, faster than anything anticipated wendy sec -- when the sec was set up, is that good or bad for markets? jay: it is good over time. adding technology to our trading markets has made trading more efficient, and as a retail investor, what you pay to trade
today is less than 20 years ago, but we have to recognize with that comes new risks. we talked about one of them, if you have a cyber problem, that is a much bigger risk today than if the telephones went out. david: how do you take out insider trading? giving awayithout your innermost secrets to catch her figure out whether there has been insider trading? jay: we use computer algorithms to analyze trading to see if there's trading that doesn't make sense. and we do catch people. david: so from your current position, what do you think is the biggest investment mistake that investors may? jay: they need to diversify. they need to keep costs low. and they need to not panic. one of the big mistakes people make is when they see their investments go down, they sell, which is often the best time to buy. any long-term plan. you need to keep your costs down
. and you need to stay diversified. david: sometimes people at the sec say fees being charged by investment managers are too high. is that a general view of years or the sec for you are not worried about that? jay: i believe in the power of shopping. i think that when fees are transparent and people get a chance to shop around, everyone benefits. david: today as you look at the job you have, are you glad you took the job?and what is the best thing about being chairman of the sec and serving your country in this way? and what is the worst thing about it, other than an interview like this? jay: i am very glad i took the job. i am very glad at the job. i believe in our markets. they are the best in the world. we need to keep updating them. we need to keep that competitive advantage for america. and our markets, the participation in our markets is incredible. 50 million households participate in our markets.
the best part about it is trying to make a difference for those 50 million households every day. david: now you have three children who are in school now in the new york area, where you are from. you can you down and go back on the weekends. i assume a lot of your friends are in the investment business or legal business. today come up to you and say do you have any good insights i can get from u.s. chairman of the sec? or you can't talk to your friends about anything you do anymore? jay: i used to not talk to my friends about what i did before. david: now that you have served in the government for a number of years, do you like it so much suppose thensider, president corrigan said you have done a great job and i would like you to do another job. is there another job or you are happy where you are? jay: i decided to do this job and i'm really not thinking about what is next. i got some good advice for my wife. she said do the job. is next,nk about what
because then you won't have your mind on the job. david: your wife was in the investment business. when you took this position she had to get out of that? jay: yes. she wasn't forced to. we thought it was the right thing to do. david: the biggest surprise in the job is what? the 4500much ground women and men at the sec governs. $72 trillion a year in transactions. one million people in our country work in the securities industry. they are counting on us to set the rules in the right way and enforce them, then they cover a lot of ground. david: when you are relaxing, what are you doing these days? golf, basketball, soccer? jay: i played soccer the other day with my kids and i could not walk, so we are going to slow down on that. david: not a call for? jay: i was more of a golfer
before i took this job. david: if you played now you would find that people give you the parts more than before -- pots more than before. have you thought about that? jay: i must be playing with the wrong people. david: thank you for an interesting conversation. jay: thank you. i really enjoyed it. ♪