Elliott Management’s Pollock on Crypto, China, Markets

Yeah, Scott, thanks for having me. I'm—we're actually in the Greenwich office. It's our new office in Greenwich, but as you know, we did move to West Palm, but we still have a substantial presence here in the Northeast.

Do you know—I don't really know much about the culture of Wall Street. We're kind of in it but not of it. Look, I think that technology today allows us to be connected in ways that we haven't been in the past. I don't think it's really central to be located in a specific place. So, yeah, I don't think that it has any big impact.

Well, you're right, we're not just an activist fund; we're a multi-strategy fund engaged in a variety of things. Look, we were busy during the pandemic lows, as everybody was. We probably didn't put enough money to work at the lows, but fortunately we do have all these businesses and it's a relative value game for us. So in the activist space, we're both long and short, and we're still, even at these levels which are up dramatically from the pandemic lows, finding things to do. We've also been lucky to put money to work in the private equity space. We're looking for companies that have sustainable cash flows that we can own with confidence through the cycle, so that's been an area of deployment that's been fairly satisfying for us. But also we're in the direct real estate space and we have been active throughout Europe, mostly, but we've done some things in the states as well. So we've been pretty busy.

You know, we screen companies globally and each situation is unique. So we've 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 happened to with these companies in Europe, but we've been active in the US as well. So we manage to do a lot of work. Each situation is unique. You have to go through and take your time, really pick your spots, and that's what we try to do. We try to populate the portfolio kind of situation by situation, brick by brick, and that's how we build it.

Well, you know, I think we've all enjoyed the benefits of low rates for a long time and ultra-accommodative monetary policy globally. Anybody that's managed to put risk on the page in the last 13 years, but more specifically the last 18 months, has been well rewarded. I'm not sure it's all genius; I think those tailwinds have made us all look good. But now I think the cycle is evolving. So what does that mean? If you think about just taking a step back, I don't know if you've seen these numbers: household wealth has increased by about five trillion dollars for the last five quarters. Five trillion dollars. So I think we're at all-time highs for household wealth to nominal GDP, which is like at six and a quarter times. At the same time, we have household wealth at like almost a 50% allocation to equities. So you start to think about: is there real sensitivity to rates? Is that wealth imperiled? Bank of America recently did some work on the S&P, 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-year duration for equities. Well, if you start fooling around with the numbers, a 100-basis-point move for a 22-duration zero-coupon is a big move. It's down 20%. And I'm not saying that the market's going to go down 20 tomorrow, but I am saying that there is sensitivity. Where that attachment point is, it's a whole other question.

Okay. I think it's really difficult to know right now. It feels like we're in this Goldilocks moment, with the delta variant behind us, people coming back to value, rates rising. I mean, just in August, rates were—well, the 10-year at 110, we're up 40 basis points or so. And you haven't seen any real move in equity. So it's really hard to know when that comes. But right now with earnings growing, and again with the recent past that it only has paid you to buy the dips, I think that mentality is kind of still in full swing. Hard to call it top.

Well, you know, times used to be that in the cycle there would be plenty of 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 has changed to the point where they're better placed to own credits, distress credits, stress credits through the entire cycle. So if there's a process, these players — the Blackstones, the Ares, the Apollos — they're better placed to hold on to it. So I don't know exactly what that means for the next cycle, but it could mean that opportunities are less plentiful. It's important for us to think about how to configure ourselves to play, and so we're busy thinking about what that means to us, just to ensure that we'll be there for those opportunities that do arise.

Well, look, as we saw in energy, and I think as you've written about, there have been opportunities in the energy space for alternative players like ourselves. And I think that the whole energy space is in transition; there will be opportunities. It's important to have the depth of industry coverage, but it's important also to have some platform companies of your own to originate your own volumes, so you'll be able to put money to work throughout the cycle.

Well, China's been a difficult market. For us, we're deeply involved in every position that we run. And it's often the case that we need to lean against the rule of law, rule of law that's consistently applied. But I think in China it's been one of those places that made that more difficult for us. So traditionally we haven't been big players in China. I do think that there will be opportunities as this kind of policy-generated slowdown occurs, but it's harder for us to think about big deployments in that geography.

Look, Scott, we're naturally skeptical about everything. Crypto — it's done a lot for the world. I think blockchain technology is going to be rolled out through a variety of industries, and it's a really important technology. Whether bitcoin and Ethereum survive at the end of the day, I'm not sure. But we just saw China ban the use of bitcoin for transactions. When you think about it, the whole space kind of impinges on the domain that's traditionally been that of the sovereign. So 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 crypto? I'm not sure that it's a positive. I do think that it's likely at some stage we can see an electronic dollar that's controlled by the Fed. I think that has various elements that will appeal to the policy makers. Whether that can coexist with bitcoin and Ethereum, I don't know. But I don't think it's necessarily a positive for the value of bitcoin and Ethereum when it does happen. But when it happens and at what level bitcoin and Ethereum will be at, it's hard to know.

Or yeah, look, I think the whole value of bitcoin and Ethereum would be challenged if that were to occur. I mean, it's hard for us to invest in something that could be effectively regulated out of existence with the stroke of a pen.

Look, as you pointed out, we raised some money in this. I can't talk too much about our specific situation, but I will say that the incentives that relate to the SPAC run directly to our investors, and I think that alignment is important. Look, we think that there's a lot of optionality in having this money and marrying that with a full Elliott platform to find interesting investments. Whether we'll 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.

I think most people know that Paul is deeply involved in every aspect of the business. It's only been six years that I've been co-CEO, but we've kind of been together in some form for 32 years. A bit like a marriage: you can kind of complete the other person's sentences, but at the same time you're able to constructively disagree. And so we view ourselves as the ultimate risk managers at the firm. What we're trying to ensure is that the right kind of risk is onboarded at the firm and that we're there at the moments that key decisions need to be made. I think we've been effective in doing that. We're also lucky to have a deep team. We have six partners and a number of employees that have been with us for 10 to 20 years. We've recently augmented the ranks: we hired Zeon Showhead from Citi, who's our CEO, Rich Zabel, who's now our Chief Legal Officer, joined us about five years ago. So we managed to deepen the team. We're pretty fortunate to have that kind of experience to draw on in a big, big size.

Well, I think we have this natural give and take. I think he knows when I feel strongly about something, and he's able to run with my decision, and I'm the same way with him. In this kind of partnership, it's really important to never say 'I told you so.' We've been doing this a long time and we know that risks don't always turn out the way we contemplated from the onset. So it's just kind of natural: I yield, he yields, and we're both focused on getting to the right place, which is what we try to do in all instances.

Yeah, Scott, we were very fortunate to have the infrastructure in place to almost seamlessly move to a remote setting, and it's worked actually better than I had anticipated. Having said that, it's been two years now, and I think that there's a desire for people to maintain flexibility. I think people enjoy the flexibility of remote work but also to convene with regularity. So we're planning on going back to the office in January. I think, barring unforeseen circumstances, we'll stick with that. Look, I think COVID 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.

Yeah, it's a hybrid model. We'll be working three days a week from the office. I think people, as I said, enjoy that flexibility but also miss the back and forth of convening in person. So we're going to do a little bit of both. Look, these things are always hard to know how they're going to play out, so it's a giant experiment. I'm sure things will go not according to plan and we'll have to alter it, but that's the way we're going to start, and we'll just get into it and see what works and what doesn't.

No, we're still remote, and so we haven't really tested the full hybrid model. I mean, it will be a test and it will launch in January, and we'll see how it goes. I don't really anticipate that much in the way of problems. We've been connected remotely for so long that I don't think working in other locations is going to be problematic. Plus, we'll be convening regularly together, having more kind of on-sites with the teams. So I think there'll be a combination of ways that we satisfy having disparate locations.