#792: Insurance Companies Are The Next Contagion with Nick Nemeth

SPEAKER_1 (0:07)

You've had a dynamic where money has become freer than free.

When you talk about a Fed just going nuts, all the central banks going nuts. So it's all acting like safe haven.

SPEAKER_2 (0:18)

I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor.

SPEAKER_1 (0:29)

I mean, that's part of the bold case for Bitcoin.

SPEAKER_2 (0:31)

If you're not paying attention, you probably should be.

Marty Bent (0:36)

Nick, welcome back to the show.

Nick Nemeth (0:38)

Sorry. Good to be back, Marty.

Marty Bent (0:41)

This is the third recording in five months. And this is the third different place that I've been in. We met in person last, but in the new studio now. And excited to catch up because a lot has happened since we met in June. At Pubkey, particularly around Mark Walter and the fiasco he's found himself in. And I think we'll get into it. You wrote a piece called The Guggenheim Universe that really dives deep into that and the related parties. But before we get into that, I think just setting the stage for any of the audience who may not be familiar with our previous work together.

I think really starting with the end user of a lot of these products. So let's put ourselves in the shoes of someone who bought an annuity because they were done taking risk, buying premium life insurance policy. What is actually standing between them, that retirement check and the loss right now?

Nick Nemeth (1:43)

So people typically don't understand they have credit risk.

At a RAA, they'll say that they do, but they don't understand the risk part as that two-word phrase. So, yeah, they're looking for security. Social security isn't enough, cost of living is high. A lot of boomers have homes and mortgages. They want to make sure it's secure so they can pass them off to their kids. Typically, this is not something you can pass off. It's really just for the retirement, but it comes into an equation of retirement and ultimately security.

Marty Bent (2:21)

Yeah. So they completely misunderstand this, number one.

And then number two, the people that they think they can trust are misallocating their retirement funds. And I think, again, going back to Mark Walters, what's going on, he sold the Lakers overnight to Josh Kushner and Bob Iger. There's rumors that he's got to offload the Dodgers as well. I think he's got a big stake in Chelsea across the pond. And I guess let's just walk to that story from your perspective, because I won't rehash it because I think you've done much deeper research than I have. How insane is this? And was there any smoke around Mark Walters before this became obvious?

Nick Nemeth (3:08)

Yeah, I would just say that it's not their fault. They're supposed to be a system in place to make sure that people are following rules.

My view is that the regulators are asleep and the rules are done. And the framework is awful. And since we last spoke, Granado and Prenjal, two graduated from Yale. I think they both went different directions. I think Prenjal is still at Yale. Granado is at UT Austin. They wrote this amazing piece that just absolutely lit up the world really of insurance. And all of a sudden I'm like, I write in my own way. I think it's good. I think it travels. You know, people tell me it does.

But they did it in a really concise academic way, talking about how the framework, the incentives, it's all bad. It's all bad in the industry. And if you're thinking about why asset managers want to buy these insurers or make their own, it's because they get fees, right? And in this particular case of Guggenheim, they're using it as a piggy bank. When I was on last, I was critical of the theme. I'm still a critical of the theme, but just to be honest, you don't see Mark Rowan using it as a personal piggy bank.

Athene is Apollo's firm piggy bank and profit center. And there's a huge difference when it comes to circular transactions and ultimately the law.

Marty Bent (4:35)

Well, let's get into that. How was Mark using it as a personal piggy bank?

Nick Nemeth (4:39)

Well, I mean, he originally used one to two billion dollars of policyholder funds to buy the Lakers. And the Lakers are worth apparently 10, 13 billion now. But at the time, he bought it for two, maybe a little bit more. So he funded the Dodgers' purchase with the Lakers in large part. You're only allowed to use 30% debt according to league rules. You're only allowed to use 30% of private equity money because they don't really want that money creeping into the game. Instead, he put up $100 million. So less than you would if you were mortgaging a house and he got the rest of the money from policyholders. And he's done this through F1. He's done this through the Dodgers TV deal, which he negotiated on the side of Guggenheim. And it seems like, allegedly, that it was a precondition for the purchase of the team, which was in distress because our former owner went bankrupt.