WHEN: Today, Thursday, June 14, 2018
WHERE: CNBC's "Power Lunch" – Live from the Wharton Global Forum in New York City
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with York Capital Management Founder Jamie Dinan and CNBC's Leslie Picker on CNBC's "Power Lunch" (M-F 1-3PM) today, Thursday, June 14. The following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2018/06/14/att-deal-york-capital-management-co-ceo-time-warner.html.
All references must be sourced to CNBC.
MELISSA LEE: THE WHARTON SCHOOL AT THE UNIVERSITY OF PENNSYLVANIA IS HOLDING ONE OF ITS WHARTON GLOBAL FORUMS HERE IN NEW YORK CITY – NOT HERE, I'M IN NEW JERSEY. OVER IN THE NEW YORK CITY, OUR OWN LESLIE PICKER IS IN NEW YORK WITH YORK MANAGEMENT FOUNDER AND CO-CEO, JAMIE DINAN. LESLIE, TAKE IT AWAY.
LESLIE PICKER: HEY MELISSA, THANKS SO MUCH AND THANK YOU, JAMIE, FOR JOINING ME.
JAMIE DINAN: GREAT TO BE HERE.
PICKER: NOW, YOU -- ABOUT HALF OF YOUR ASSETS ARE AN EVENT-DRIVEN STRATEGIES NAMELY MERGER ARBITRAGE AND WE'VE SEEN A HUGE NEWS STORY THIS WEEK WITH THE JUDGE APPROVING AT&T'S PURCHASE OF TIME WARNER AND SUBSEQUENT M&A OPPORTUNITIES STEMMING FROM THAT. AS AN ARBITRAGER, HOW DO YOU PLAY THAT?
DINAN: THIS IS BIG NEWS. I MEAN, THE ARBITRAGE COMMUNITY AS WELL AS THE ENTIRE M&A COMMUNITY HAS REALLY BEEN WAITING FOR THIS AT&T-TIME WARNER DECISION, BECAUSE IT HAS TO DO WITH SOMETHING CALLED VERTICAL MERGERS. NOT BUYING YOUR COMPETITOR BUT BUYING SOMEONE WHO DOES A BUSINESS DIFFERENT THAN YOU, USUALLY SORT OF IN THE FOOD CHAIN. AND THERE'S LOTS OF HEALTH CARE DEALS, FOR EXAMPLE, AS WELL AS MEDIA DEALS THAT WERE BASICALLY THE ON-HOLD, UP IN THE AIR, PEOPLE WERE VERY NERVOUS MAYBE THEY WOULD GET CHALLENGED. WE HAVE NOT HAD A SUCCESSFUL CHALLENGE OF A VERTICAL MERGER IN ABOUT 35 YEARS. THE DECISION THAT JUST CAME OUT THE OTHER DAY WAS AN EXCELLENT DECISION, VERY WELL THOUGHT OUT, AND BASICALLY IT REBUKED THE DEPARTMENT OF JUSTICE TRYING TO ALMOST LIKE REINVENT OR RECREATE WHAT THEY THINK IS ANTI-TRUST LAW. AND MY PREDICTION IS IN ADDITION TO A NUMBER OF ANNOUNCED DEALS LIKE CVS BUYING AETNA, CIGNA BUYING EXPRESS SCRIPTS, COMCAST NOW JUMPING INTO THE FRAY TO BUY THE FOX MEDIA ASSETS IN COMPETITION TO DISNEY, THE GATES ARE WIDE OPEN. THE GATES ARE WIDE OPEN FOR MORE DEALS, FOR THE CLOSURE OF EXISTING DEALS. YOU MIGHT HAVE SEEN YESTERDAY, THERE WAS A COMPLETE COLLAPSE OF THE SPREAD. IN OTHER WORDS, RISK REDUCTION IN ALL THESE AFOREMENTIONED DEALS. COMCAST CAME AFTER THE CLOSE ON WEDNESDAY. AND WHAT WE ARE IS WE'RE BACK TO THE RULES THAT WE THOUGHT WE HAD, YOU KNOW. AND THAT'S GOOD. UNCERTAINTY IS NOT GOOD. CERTAINTY IS GOOD.
PICKER: SO THE DECISION ACTUALLY PROVIDED OPPORTUNITY FOR MERGER ARB THEN?
DINAN: SO IT PROVIDES OPPORTUNITY FOR THE SUCCESSFUL CLOSURE OF EXISTING DEALS, BUT IT'S ALSO BRINGING IN NEW DEALS. SO, WE SAW COMCAST WHO TOOK 24 HOURS LATER, SHOW UP NOW WE HAVE A BIDDING WAR FOR THESE FOX ASSETS. BUT I'M PREDICTING OVER THE NEXT COUPLE OF MONTHS WE'RE GOING TO SEE A LOT OF THESE TYPES OF DEALS COME THAT HAVE BEEN ON THE BACK BURNER, BASICALLY ON THE SIDELINES WAITING TO SEE HOW IS THE JUDGE GOING TO RULE. IS ANTI-TRUST WHAT WE THOUGHT IT WAS OR IS THERE A WHOLE NEW PARADIGM? THE GOOD NEWS IS, IT'S BACK TO WHAT WE THOUGHT IT WAS.
PICKER: NOW, THE OTHER SIDE OF YOUR FUND AND YOUR FIRM IS CREDIT OPPORTUNITIES.
DINAN: THAT IS CORRECT.
PICKER: AND WE'VE SEEN A LOT OF ACTIVITY YESTERDAY WITH THE FED AND TODAY WITH THE DECISION OUT OF THE ECB IN TERMS OF ROLLING BACK THEIR BOND PURCHASE PROGRAM. AS YOU START TO SEE MORE STIMULUS TAKEN OUT OF THIS SYSTEM, WHAT DOES THAT MEAN FOR YOUR CREDIT OPPORTUNITIES? IS THAT GOOD? IS THAT SOMETHING WHERE YOU CAN START TO SEE MORE HEDGE FUNDS OUTPERFORMING AS A RESULT OF THIS? OR IS IT SOMETHING THAT IS CAUSING YOU TO DO SOME PORTFOLIO REBALANCING?
DINAN: SO IT'S A VERY GOOD QUESTION. AND KEEP IN MIND, SO WE DO A LOT OF THESE, YOU MENTION VENTURE AND INVESTING AND SORT OF THE OFFSHOOT TO THAT IN THE CREDIT TENDS TO BE MORE DISTRESSED OR DISTRESSED CREDIT INVESTING AS OPPOSED TO BUYING GOVERNMENT BONDS. BUT EVERYTHING'S CONNECTED IN ALL THE MARKETS AND PARTICULARLY THE FIXED INCOME MARKETS. WITH THE FED TIGHTENING, THE ECB ANNOUNCING BY YEAR-END, "WE'RE DONE WITH BUYING BONDS,: ALTHOUGH THEY WERE SLIGHTLY DOVISH – HE TALKED ABOUT RATES STAYING THE SAME, TERMINAL THROUGH 2019, WHAT THAT MEANS IS RATES ARE KIND OF GOING BACK TO WHERE THEY USED TO BE. THE NORMALCY OF RATES. IS THAT GOOD OR BAD? THE FED PUT WAS GREAT, IN OTHER WORDS, YOU KNOW, THE FED BEING ON YOUR SIDE -- IF SOMETHING GOT CHOPPY, THEY WOULD INJECT RESERVES OR LIQUIDITY INTO THE SYSTEM, LIKE AFTER BREXIT SO THEY DIDN'T REALLY LOSE THAT MUCH MONEY, THAT'S OVER. SO THERE'S MORE RISK TO THE DOWNSIDE IF THINGS SYSTEMICALLY GET CHOPPY. BUT WE LIKE IT BECAUSE IT'S RAISED RISK AWARENESS. AND BY RAISING RISK AWARENESS, YOU MAKE INVESTORS BASICALLY PRICE RISK BETTER. ONE OF THE THINGS THAT'S BEEN FRUSTRATING SO MANY INVESTORS, PARTICULARLY ACTIVE INVESTORS WHO BOTH EQUITIES AS WELL AS FIXED INCOME OVER THIS WHOLE QUANTITATIVE EASING CYCLE IS THERE WAS A MUCH LOWER LEVEL OF RISK AWARENESS AMONG INVESTORS. – MASSIVE PASSIVE MOVEMENT, FOR EXAMPLE, BECAUSE THE FED WAS YOUR FRIEND. FED'S NOT YOUR FRIEND ANYMORE. THE FED'S ACTUALLY DOING THE PROVERBIAL TAKING THE PUNCH BOWL AWAY, YOU KNOW, THE PARTY'S OVER. IT'S BACK TO ALMOST LIKE THE OLD WAYS OF MAKING MONEY WHERE STOCKS GO UP, STOCKS GO DOWN, BONDS GO UP, BONDS GO DOWN. AND IF YOU CAN PICK THEM RIGHT, YOU CAN MAKE MONEY. AND IF YOU DON'T PICK THEM RIGHT, YOU'RE GOING TO LOSE MONEY.
PICKER: SO IN TERMS OF THAT RISK AWARENESS, WHAT'S THE BEST MEASURE OF RISK? IS AT THIS TIME TRADITIONAL VOLATILITY OR IS IT SOMETHING ELSE THAT YOU'RE LOOKING AT?
DINAN: THAT'S A REALLY GOOD QUESTION. I THINK WHEN YOU LOOK AT RISK, YOU'VE GOT TO LOOK -- VOLATILITY IS DEFINITELY A GOOD INDICATOR, YOU KNOW, IS IT A FORWARD INDICATOR? IS IT A BACKWARD LOOKING INDICATOR? IT'S PROBABLY MORE OF A BACKWARD/MEDIUM INDICATOR. I DON'T THINK IT'S A VERY GOOD FORWARD INDICATOR. WHEN WE LOOK AT RISK THOUGH, WE LOOK AT WHAT CAN GO WRONG. WHAT CAN GO WRONG, EITHER SYSTEMICALLY OR WHAT CAN GO WRONG EITHER SPECIFICALLY AND HOW MUCH ARE WE PAYING -- YOU KNOW, ABOVE WHERE THAT WOULD SETTLE OUT. SO IT'S A MATTER OF HOW MUCH WE CAN LOSE IF BAD THINGS HAPPEN, SPECIFICALLY OR SYSTEMICALLY. SPECIFICALLY, WE JUST LIMIT THE SIZE OF INDIVIDUAL POSITION, DEPENDING ON WHAT THAT DOWNSIDE COULD BE. SYSTEMICALLY, WHEN VOLATILITY IS LOW, YOU CAN HEDGE IT OUT PRETTY CHEAPLY. WHEN VOLATILITY IS HIGH, HEDGING -- BECOMES VERY EXPENSIVE AND YOU ALMOST HAVE TO REDUCE YOUR LONGBOOK.
PICKER: NOW, YOUR PANEL HERE AT THE WHARTON CONFERENCE CENTERS AROUND THE FUTURE OF FINANCE. AND I'M CURIOUS, WE TALKED A LOT ABOUT ALL OF THE ISSUES THAT HAVE PLAGUED THE HEDGE FUND INDUSTRY OVER THE LAST TEN YEARS OR SO, BUT WHAT DO YOU SEE IS THE FUTURE OF THE HEDGE FUND INDUSTRY? WHERE DOES IT GO FROM HERE?
DINAN: EVERYBODY ASKS THAT QUESTION. OKAY? AND WE -- NONE OF US HAVE A CLEAR CRYSTAL BALL. WE CAN ONLY GAZE INTO A FOGGY BALL. AND TODAY -- TODAY, NOT TO, YOU KNOW, AVOID YOUR QUESTION DIRECTLY, THINGS ARE CHANGING SO FAST. I'VE NEVER BEEN -- IN MY LIFE, EVER SEEN THE WORLD CHANGE SO FAST. AND THE RATE OF CHANGE IS ACTUALLY INCREASING, SO IT'S VERY DIFFICULT TO MAKE THESE PREDICTIONS. BUT I WILL SAY THE FOLLOWING: THERE'S ALWAYS GOING TO BE OPPORTUNITIES, YOU KNOW, IN THE FINANCIAL INDUSTRY. OKAY? EVERYBODY LOOKS BACK – SAYS, "IT WAS SO MUCH EASIER YEARS AGO THAN IT IS TODAY." I MEAN, I SAID THAT 20 YEARS AGO. I SAID THAT 15 YEARS AGO. I SAID THAT 10 YEARS. YOU CAN STILL MAKE MONEY. THERE ARE STILL OPPORTUNITIES.
PICKER: HEDGE FUNDS ARE GOING TO EXIST?
DINAN: SO HEDGE FUNDS WILL EXIST.
PICKER: FANTASTIC.
DINAN: AND I THINK IF YOU LOVE INVESTING AND LOVE FINANCE, IT'S AN AMAZING, YOU KNOW, PLACE TO MAKE YOUR CAREER.
PICKER: I GUESS I'LL STILL HAVE A JOB COVERING HEDGE FUNDS.
DINAN: YOU WILL DEFINITELY HAVE A JOB.
PICKER: THANK YOU SO MUCH, JAMIE DINAN OF YORK CAPITAL. BACK OVER TO YOU GUYS.
For more information contact:
Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com
Emma Martin
CNBC
t: 201.735.4713
m: 551.275.6221
e: emma.martin@nbcuni.com