Speaker 1: Often for what's developing. This is just developing out of
Speaker 1: the Middle East now right now, it's developing.
Speaker 2: Fifty five KRC the talk station AATO six fifty five
Speaker 2: k r c D talk station. Happy Monday always made happier,
Speaker 2: at least from my perspective. Money Money with Brian James
Speaker 2: from Allwar with Financial Joints. The program. We talk about
Speaker 2: well investments and strategies and thinking about retirement and talking
Speaker 2: to financial planners about that and thinking about how much
Speaker 2: money you do here? Is that what we do, That's
Speaker 2: what we're supposed to do. Get people incentivized to sit
Speaker 2: down and give some thoughtful planning for their future.
Speaker 1: That's a good idea. Let's talk about that.
Speaker 2: I like that, Amen, get yourself a fee based financial
Speaker 2: planner because that means they have a fiduciary obligation to
Speaker 2: work for you and maximize the return on your investments.
Speaker 2: With that speaking, you're going to have to start from
Speaker 2: the very beginning in little tiny points that a fourth
Speaker 2: grader can understand. Because all I have is a headline
Speaker 2: from Bloomberg subscription only service. Bloomberg Blackrock puts private equity
Speaker 2: and credit into four oh one K funds. What does
Speaker 2: this mean for your average investor? Does it impact us?
Speaker 2: What is this all about? Brian James?
Speaker 3: Yeah, so I sort of anticipated that the questions might
Speaker 3: come up that way, and so that's the research that
Speaker 3: I did this morning in wonderful addition to that. So, yeah,
Speaker 3: when we normally think of our four to oh one
Speaker 3: K as our investments and things, we are thinking of stocks, bonds,
Speaker 3: mutual funds, those kinds of things. Those are what are
Speaker 3: referred to as publicly traded, meaning pretty much anybody can
Speaker 3: buy and sell all the time. You can log in online.
Speaker 3: Back in the day we looked it up in the
Speaker 3: newspaper whatever. But the closing prices and the daily the minute,
Speaker 3: the minute changes, all that stuff is publicly available, ready.
Speaker 1: At your fingertips.
Speaker 3: And so now the change is Blackrock is going to
Speaker 3: be integrating private equity and private credit investments into four
Speaker 3: oh one K target date funds by mid twenty twenty six.
Speaker 3: So obviously the differing word there is private versus public.
Speaker 3: So what does that actually mean. A private equity or
Speaker 3: private credit is literally that it's a private arrangement set
Speaker 3: up by you know, a small group of people to
Speaker 3: either support a business. Right, you might see you might
Speaker 3: see some business that's developing out there, a new restaurant
Speaker 3: or just something that you know, a small industrial company
Speaker 3: or something like that. A lot of times those are
Speaker 3: owned by private equity organizations. The difference is there's there's
Speaker 3: a little there's a little more risk involved. There can
Speaker 3: be there's a reason that they need they want to
Speaker 3: keep it private. Oftentimes they're not big enough or they're
Speaker 3: just not stable ready to deal with larger financial institutions
Speaker 3: and it's just not an option. But they can be
Speaker 3: really lucrative too, given the fact that these are small companies,
Speaker 3: and they can shoot for the moon and go ten
Speaker 3: x or they can go negative ten x. That's just
Speaker 3: kind of the difference in the in the risk there
Speaker 3: that we need to be mindful of in terms of
Speaker 3: private versus public.
Speaker 2: Okay, so in a real world context, there was an
Speaker 2: article in the Wall Street Journal about this company that
Speaker 2: is manufacturing from wood waste, this new ultra light wood
Speaker 2: which is as strong as steel, and it's got all
Speaker 2: these different potential applications. One, it's wood waste, so that's
Speaker 2: readily available and unlimited supply basically, but that it's lighter,
Speaker 2: it's you can use thinner amounts. You could put it
Speaker 2: like carbon fiber, pretty much turn it into anything. And
Speaker 2: it's sounded like this is just guaranteed to make millions
Speaker 2: and millions of dollars and it's a private company right now.
Speaker 2: So to the extent I could get a slice of that,
Speaker 2: that would be private equity.
Speaker 3: Correct, Yeah, because you're simply you know, if you know
Speaker 3: the organizers of this, you're somehow connected to the group
Speaker 3: that's putting it together, and then yeah, that's how you
Speaker 3: get invited into the fold to be a part of this.
Speaker 3: So what Blackrock is doing, and several others as well,
Speaker 3: it's just black Rocks in the headline. What they're doing
Speaker 3: is making it available, making it possible for people to
Speaker 3: participate in these markets, just by putting it inside mutual funds.
Speaker 3: So the catchphrase is they're democratizing private equity. So hopefully
Speaker 3: there's not a ton of detail yet about how they're
Speaker 3: going to do this, but hopefully there's somebody out there
Speaker 3: vetting these opportunities the one you just described, Yeah, that
Speaker 3: sounds great. The risks there is what if some big
Speaker 3: company decides, you know what, that's a great idea, and
Speaker 3: with our scale, we can do it a heck of
Speaker 3: a lot cheaper. Well, and there's there are ample stories
Speaker 3: out there of some little company came up with a
Speaker 3: great idea and got blown out of the water by
Speaker 3: a big company. Look we're bought out, Yes, exactly which
Speaker 3: and and honestly, that can be.
Speaker 1: That's a great point. That's a good thing. That can be.
Speaker 3: That's a good thing, and it can be the ultimate goal.
Speaker 3: I want to build something that some other company goes,
Speaker 3: you know what, we could build from scratch, or we
Speaker 3: could just buy these things.
Speaker 1: That can be the exit strategy. But it can go
Speaker 1: the other direction too, all right.
Speaker 2: So in my hypothetical scenario, I've actually got access to
Speaker 2: invest in this they let's say they do sell out.
Speaker 2: They sell it for a billion dollars or something, and
Speaker 2: that allocation that purchase price is divided amongst the various
Speaker 2: initial investors. I presume that's how the scenario would play out.
Speaker 2: So whatever pile of cash I got from that would
Speaker 2: go into my four oh one K. Would that be
Speaker 2: considered pre tax like four to one k contributions are
Speaker 2: now under a non roth product or how would that
Speaker 2: be treated? And does this happen?
Speaker 1: Yeah?
Speaker 3: Right, now you're getting to the fund stuff, right, this
Speaker 3: is what makes everything complication.
Speaker 1: Yeah.
Speaker 3: So not not only that, but but the other thing
Speaker 3: you didn't mention in there is this is happening inside
Speaker 3: of a mutual fund, inside your four oh one K.
Speaker 3: So all that's really happening now is they're kind of
Speaker 3: throwing the doors open. But how is this actually going
Speaker 3: to work with regard to reporting. So one of the
Speaker 3: big things that we didn't touch on yet was if
Speaker 3: I'm a small company and I'm a private equity funded organization,
Speaker 3: then that means I don't have daily pricing, So how
Speaker 3: do I know what this thing is worth? So Blackrock
Speaker 3: says they're gonna they're gonna put maybe maybe twenty percent,
Speaker 3: and then more aggressive funds twenty percent could go into
Speaker 3: private markets. So that's twenty percent of your fund where
Speaker 3: there isn't a daily valuation. Yeah, So it's not going
Speaker 3: to be a conglomeration of a little businesses up and
Speaker 3: down the street that you drive by on the way
Speaker 3: back and forth to work. These You're gonna have to
Speaker 3: be places that have some ability to price their value regularly. Otherwise,
Speaker 3: how do you have any idea what you're mutual foot
Speaker 3: inside your four oh one.
Speaker 1: K is worth.
Speaker 3: Now to mention required minimum distributions, that's a whole other animal.
Speaker 2: Well, and I have to assume or presume that these
Speaker 2: would be limited to some entities that actually do put
Speaker 2: these financial projections together, so you would know the value.
Speaker 2: Otherwise you, as a financial planner, would have to go
Speaker 2: out into the world and acquire that information in order
Speaker 2: to provide guidance to your client or whether or not
Speaker 2: they're making money.
Speaker 1: Right, that's the exact point. So hopefully there's a go between.
Speaker 3: But as we know, in four oh one k situations,
Speaker 3: which again that's the whole point of this article, that's
Speaker 3: where they're talking about putting these things, there's very rarely
Speaker 3: an advisor in the middle. A matter of fact, the
Speaker 3: company itself. A lot of people don't know this. The
Speaker 3: employer itself is a fiduciary.
Speaker 2: Right.
Speaker 3: You could be a company that makes widgets, you make
Speaker 3: do hickeys, and you sell them to other do hickey
Speaker 3: making companies. You have nothing to do with financial advice.
Speaker 3: But if you offer your employees of four oh one k,
Speaker 3: you are indeed a fiduciary, just like me here at
Speaker 3: all worth, where I sit here and do financial plans
Speaker 3: all day, every day. So you have a duty to
Speaker 3: make sure you're your employees have what they need and
Speaker 3: have some level of advice. But there is very rarely
Speaker 3: an individual person that's going to sit in between the
Speaker 3: employee participant and that four one okay to say you
Speaker 3: should do this, you should not do that.
Speaker 1: Right, all right?
Speaker 2: Well, if the risk of going over a little bit
Speaker 2: in this segment. The other article, and I'm not sure
Speaker 2: if it's a corollary to this Blackrock and private equity,
Speaker 2: but headline from Bloomberg again, and I don't have any
Speaker 2: details on it, Congress will open private markets to everyone
Speaker 2: next year. What's this one all about, Brian James?
Speaker 1: Well, it is very similar.
Speaker 3: So the whole point of this, so where we started
Speaker 3: was just blackrocks a little corner of the world there, right.
Speaker 3: The reason where this is coming from is by the
Speaker 3: end of twenty six Congress is expected to relax the
Speaker 3: rules for private market access, which is the exact same
Speaker 3: thing we're talking about. What this means is that non
Speaker 3: accredited investors could be allowed to invest in private equity.
Speaker 3: So that's a big fuzzy word. Let's talk about what
Speaker 3: that actually means. An accredited investor is somebody who, if
Speaker 3: you're an individual, you have earned two hundred thousand dollars.
Speaker 1: For each of the past two years.
Speaker 3: Where if there's a spouse or spousal equivalent is whether
Speaker 3: the words work in the mix that it's three hundred
Speaker 3: thousand or you're worth over a million dollars. That's the
Speaker 3: definition of an accredited investor. It doesn't say that you
Speaker 3: know anything about money. You know anyth about investments, is
Speaker 3: just how much income and what's your networth? So those
Speaker 3: are the rules where they're starting to say that private
Speaker 3: equity may no longer require that to happen. And again,
Speaker 3: this is all being spun in a manner of democratizing
Speaker 3: investment opportunities.
Speaker 1: Okay, and I find no problem with that.
Speaker 2: I mean, if I have money and I want to
Speaker 2: invest it in private market, I should be allowed to
Speaker 2: do it regardless of what my annual salary is sort
Speaker 2: of demands asking the question why is the current rule
Speaker 2: in place? Why is it limited to people with worth
Speaker 2: of a million dollars or making salary of two hundred
Speaker 2: or three fifty depending upon marital status.
Speaker 3: Those rules have been in place for decades upon decades.
Speaker 3: I'm going to go ahead, I'm going to take a
Speaker 3: stab here. Somebody might know the history better than me,
Speaker 3: but I'm going to go ahead and say that a
Speaker 3: lot of this was wald off years ago because it
Speaker 3: was just a kept for the people who could truly
Speaker 3: you get into it, of course, And I will also
Speaker 3: say technology plays a rule a role here. So in
Speaker 3: other words, thirty forty years ago, if I am a
Speaker 3: you know, a company that wants to woo private equity
Speaker 3: and bring dollars in, I don't want to have to
Speaker 3: spread it across hundreds of thousands or millions of people
Speaker 3: with a couple thousand dollars inside of a mutual fund,
Speaker 3: because I have to track and deal with all that
Speaker 3: and report to them all and follow all those rules. Well,
Speaker 3: technology has made a lot of that a lot, a lot,
Speaker 3: a lot easier. It's not unsimilar to where exchange traded
Speaker 3: funds came evolved out of mutual funds. So I think
Speaker 3: that the technology the ability to track the different shareholders
Speaker 3: and report to everybody, since this is again not publicly
Speaker 3: traded stuff. This is stuff where you just have to
Speaker 3: wait for an accounting for them to say here's what
Speaker 3: it's worth. And sometimes that's only once a year. The
Speaker 3: need is to get that information out to each every
Speaker 3: tiny little shareholder. So I think those hurdles have been cleared,
Speaker 3: and now it gets a little easier.
Speaker 2: Okay, I guess it's a complicated thing investing in private market,
Speaker 2: some for the reasons you've obviously stated. But then again,
Speaker 2: let's say the company has improved and it's you know,
Speaker 2: it's worth more in your slice however it's expressed. I
Speaker 2: guess is are are they considered shares in this type
Speaker 2: of arrangement or is it depend on the arrangement.
Speaker 1: Well, it very much depends on the arrangement. Right.
Speaker 3: So when we were talking about black Rock a little
Speaker 3: bit ago, that whole point was you inside their target
Speaker 3: date funds. Those target date funds, those are the set
Speaker 3: it and forget it options inside your four oh one
Speaker 3: K and that was specifically that announcement. That's where it's
Speaker 3: going to be available. So in that case, you would
Speaker 3: simply own shares of a mutual fund that in turn
Speaker 3: owns shares of some private equity firms. The more broader
Speaker 3: range here, Yes, you still own shares. You'll still own
Speaker 3: a certain number of shares of a private equity type arrangement.
Speaker 3: You might be a limited partner and you are subject
Speaker 3: to whatever the general partner, who's kind of the boss
Speaker 3: of the whole thing, does, But there are still shares
Speaker 3: that are divided out by however much you put into
Speaker 3: the arrangement.
Speaker 2: So and that's how you end up getting the money out.
Speaker 2: Let's say, okay, I want to sell I need that money,
Speaker 2: or I'm retiring, I want that money. Those have to
Speaker 2: be sold, but they are sold on a private market,
Speaker 2: as opposed to being posted on the or just being
Speaker 2: easily dumped on a stock exchange.
Speaker 3: That's correct, and a private market basically means again it's
Speaker 3: not out there, it's posted for sale to the entire
Speaker 3: world like the overall stock market is. It basically means
Speaker 3: that all the other partners are informed that one of
Speaker 3: the partners wants to sell out and they can either
Speaker 3: buy it that they can pick up those shares and
Speaker 3: get you out at that time, or you might be
Speaker 3: stuck with them. A lot of times there's a lock
Speaker 3: up here where you can only get out once a
Speaker 3: year's and sometimes they actually have the opposite where they
Speaker 3: can come back and do a capital call where they
Speaker 3: require you to put more money.
Speaker 2: In okay, And that's actually where I thought the rule
Speaker 2: came from. Having a certain amount of financial ability. The
Speaker 2: million dollar a worth because that could happen, and if
Speaker 2: people invest and they don't have the resources to pay
Speaker 2: that kind of price, they're going to find themselves in
Speaker 2: a financial world of hurt, like a protectionism type measure
Speaker 2: to save.
Speaker 3: It, and you could wind up if you don't have
Speaker 3: the ability to put more in. The fund itself might
Speaker 3: be okay with that, but that means your shares are
Speaker 3: going to be deluded. If everybody has doubled their investment
Speaker 3: after that capital call, now you have half as much
Speaker 3: as you did, proportionally fair enough.
Speaker 2: I think you. Thank you very much for walking me
Speaker 2: through that no idea about what we started, and I
Speaker 2: feel a lot more smarter. I spill smarter now. Brian
Speaker 2: James will continue to find out some new crypto rules
Speaker 2: that're unveiled by some Republican senators. That's going to be next.
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Speaker 1: Com fifty five KRC.
Speaker 2: Iheartly thinking about parcit talk station Brian Tummas with all
Speaker 2: Worth Financials, Brian James H. I've always view crypto is
Speaker 2: like the peace of God. It passes my human understanding
Speaker 2: and so I don't understand it. But what is this legislation,
Speaker 2: this bill which apparently is going to define when crypto
Speaker 2: is a commodity or a security? I guess it could
Speaker 2: be either. What does this mean generally speaking?
Speaker 1: Brian?
Speaker 3: Yeah, So, so the first and most important thing that
Speaker 3: means is that we are finally going to have some
Speaker 3: kind of definition as to what this stuff really is
Speaker 3: and really what this is. It's kind of a fight
Speaker 3: between what regulatory body is going to sit on top
Speaker 3: of it and govern it. So the interesting thing though,
Speaker 3: is it it's coming in a bipartisan manner, so there
Speaker 3: are there are people on both sides who are actually
Speaker 3: starting to agree on something for once. So the big
Speaker 3: debate is is a is crypto a security? Which basically
Speaker 3: means that it's a for profit venture that you that
Speaker 3: you enjoined with a few groups onto and again in
Speaker 3: the hopes of profit and from the efforts of others.
Speaker 3: That's the definite definition of a security, right. That's the
Speaker 3: difference between if I own a business and I run
Speaker 3: it for a profit, that's different.
Speaker 1: That's not a security.
Speaker 3: But if I buy a stock that is a business
Speaker 3: and I'm waiting for other people to make money for me,
Speaker 3: that becomes a security.
Speaker 1: Okay.
Speaker 3: Uh, And so that's the big debate. If if it's
Speaker 3: a security, then the SEC controls it. The opposite would
Speaker 3: be is it a commodity, which means a group called
Speaker 3: the CFTC would control it. Democrats prefer the SEC because
Speaker 3: there's more oversight, a little more a little more strict.
Speaker 3: The CFTC is preferred by Republicans because they think there'll
Speaker 3: be a wider playing field, a little more flexibility.
Speaker 1: Hmm, Well, what what is the dollar? The dollar? Dollar
Speaker 1: is just pure currency.
Speaker 3: A dollar is the definition, and we are currently the
Speaker 3: currency of the entire world.
Speaker 2: But I mean there's there's investment opportunities. People invest in
Speaker 2: currencies all the time, don't they.
Speaker 3: Correct, It's a little different from the standpoint of the
Speaker 3: dollar is used as a medium of exchange. Crypto generally
Speaker 3: is true. This is why there's a big debate. It
Speaker 3: acts like a commodity. It's where a commodity is just
Speaker 3: something where it's worth what everybody says it's worth.
Speaker 1: Correct. Yeah, Oil pulled out.
Speaker 3: Of the ground in one part of the world is
Speaker 3: not much different from oil pulled out of the ground
Speaker 3: another part of the world. Same with wheat and any
Speaker 3: other type of copper, those kinds of things. That's why
Speaker 3: they're all commodity commodity based, and they will go with
Speaker 3: whatever the market thinks that those particular things are worth
Speaker 3: at any given time, versus a security where somebody will say, Hey,
Speaker 3: we're going to invent this new product, we're going to
Speaker 3: find this new market, here's how we're going to make money,
Speaker 3: and so forth.
Speaker 1: That's the big difference between the two.
Speaker 2: Well, it's kind of like the wild wild West out there.
Speaker 2: I get the impression of with regard to crypto, there's
Speaker 2: some kind of new cryptocurrency coming out every five minutes,
Speaker 2: and I don't know what the regulation is going to
Speaker 2: do to change that reality, other than to provide some
Speaker 2: sort of oversight monitoring of it so they can collect
Speaker 2: tax dollars so they can prevent money laundering. I mean,
Speaker 2: I guess I have more questions now than I had
Speaker 2: before we started.
Speaker 3: Yeah, I think all of the things really, so there
Speaker 3: are no answers right now currently, which is literally why
Speaker 3: they're calling this the Crypto Rules of the Road Bill,
Speaker 3: because they're just starting to define this thing. So generally speaking,
Speaker 3: when Republicans look at this and you have Cynthia Loomis
Speaker 3: and Tim Scott. They're looking for clear guidelines that limit
Speaker 3: SEC authority the things that they're after. They want to
Speaker 3: support the exchanges like Cornbased Kraken Gemini, who have long
Speaker 3: pushed for clarity between the SEC and the CFTC, crypto
Speaker 3: ad advocacy groups like the Blockchain Association, and they're they're
Speaker 3: all supporting the idea that there should be government but
Speaker 3: not too much. But on the other hand, those who disagree.
Speaker 3: SEC chair Gary Gensler go figure he strongly opposes any
Speaker 3: framework that's going to weaken his authority to govern these things.
Speaker 3: And he's saying that most digital assets are securities and
Speaker 3: they already fall under existing securities laws. We don't need
Speaker 3: to set up anything new. And he's supported by people
Speaker 3: like Elizabeth Warren and Brad Sherman, and they feel that
Speaker 3: crypto poses systemic financial and national security risks because of
Speaker 3: the way that you can move money around quickly and
Speaker 3: kind of hide it, So there's money launderings concerns, tax
Speaker 3: evasion scams, and just a speculative nature of assets has
Speaker 3: some people kind of up in arms as to, you know,
Speaker 3: whether they want to support this or not.
Speaker 1: All right, Brian James.
Speaker 2: Always appreciate the information and you're helping me understand it.
Speaker 1: At least I can do.
Speaker 2: Good to have you on every Monday here for Monday
Speaker 2: Monday with Brian James, Mollworth Financial. Thanks all Worth for
Speaker 2: loaning out for a while, and I hope you have
Speaker 2: a great week. Brian, all right, you too, have a
Speaker 2: go one eight twenty seven right now if you have
Speaker 2: KCY the talk station. Interesting investigative story from the Ohio
Speaker 2: Press Network president and editor in chief is going to
Speaker 2: join us Jack Wins who joins the program talking about
Speaker 2: this Ohio family farm in a fight with the county,
Speaker 2: fighting for food freedom.
Speaker 1: That'll be next fifty five KRC. The Simply Money Minute
Speaker 1: is sponsored by Emory