♪ >> welcome to "bloomberg markets. stocks moved higher decidedly with traders awaiting key inflation dates and a slew of federal reserve speakers. we will get a quick check on the markets. s&p 500 hitting an all-time high today after breaking past 5000 yesterday, traders looking for direction on a new catalyst. that catalyst is technology. semi conductors flying up more

than 1.3%. two-year yields staying steady. bitcoin also on a tear, breaking to the 50,000 level once again. some midday movers on the equity side. it is a developer of experimental liver disease drug treatments. it is a 27% premium to friday's close. diamondback energy is said to by endeavor. we will discuss this further with the citigroup head of investment banking. when you saw this deal come through the pipeline, were you thinking this is just another thing to open the energy industry even more or was this as good as it's going to get? >> i think it's the beginning of

a pretty clear trend. m&a focused on synergies. whether it is cost or energy synergies is what the market is looking for. sonali: one piece of the deal that caught my eye was the $8 billion in cash. how many companies are sitting on that much cash and how does it help them move the needle? john: corporate america has done a terrific job of managing their liquidity. also really keeping cost in line and having productivity in the future. when you think of the costs of the deal, this is a blended deal that gives them the advantage of having both. the structure and mande are very likely to have pieces of both. sonali: when we are thinking about deals, we are thinking about turning season and the way companies are using their cash. a lot of investors are clambering over buybacks as well.

if you are sitting there as a merger advisor, how does it play into the bigger picture when you are talking to corporate executives about the use of cash? john: some companies have done acquisitions that are in a deleveraging mode. they need to continue to do that. there are others when you look at the opportunity, the sort that we are talking about don't really exist. this is a great example where there is real, organic growth embedded in these assets. in organically they combined. revenue and cost synergies will help drive returns. sonali: the cost of borrowing, it is still quite high. what does that mean in terms of acquirers that don't have $8 billion of cash lying around? john: you look at the 10 year,

it is significantly below where the fed funds are. we expect 125 basis point moves between the end of the year. that will translate to what the 10-year to be. it will not be linear. our debt capital markets are really quite strong. whether it is on the investment grid side or on the leverage side of the business. that part of our business has opened strong. sonali: do you think private equity has a real shot to compete? john: that time will come. the issue is one of synergy. with valuations, in some cases a little bit unexpectedly taking off from the fourth quarter into early this year. you really have to have synergies to be able to complete some of these transactions. i think private equity has been a tremendous acquirer of assets. there may be divisions of public

companies or things like that where we will see some really interesting transactions. sonali: some people say synergy is a fancy word for cost cutting. a lot of people talking about operational efficiencies. when you see the synergy rationale, what more often is being used as a reason for deals? is it locations? john: so much has been done already, corporate america has done a terrific job over the last 18 months focusing on costs. when you think about doubling the size of a business, all of the expense does not need to double. the market generally views those as being very low execution risk . these transactions tend to create their values. the market might be a little bit less willing to underwrite them right out of the chute, when you look at where it has been well structured, they're almost always is a sense that on the revenue side they are doing things they would not have been

able to do. sonali: we started this conversation about the energy industry coming out with another megadeal, what about what is next? if you had to tell the market what types of deals you will see over the next six months, what are they? john: is this a valuation i could underwrite for the future? having said that, if you look at the technology industry and the health care industry, the ability for outsized growth, i think it will be when we look all in at the end of the year, two of the most active areas will be technology and health care. in the meantime, the opportunities that exist because some of the other areas have had strong performances, they have not run the way those sectors have run. sonali: valuations have been

flying away when it comes to anything in technology that has a sniff of ai, how do you do a deal in a sector like that right now? john: when you think about ai it will be less about which ai platform is the better platform, it will be about which company implements it in a better way? when you think about data, what companies could get control of data, they will create new data that doesn't exist and make it available to get better insights in the future. i think it will be those other areas where we will see acquisitions create a data pipeline, data leaks for companies that might be near term for better opportunities rather than which ai platform is going to win? sonali: tmt is your stomping ground, we have seen some deals not work out because of regulatory concerns. will that continue to be an

issue? john: regulators will be focused in all areas. what we will need to do as bankers, advisors, companies is to be mindful of the concerns that they have and build as much protection into transactions as we possibly can. in the cases where some of these deals have been taken down, the real question is are both companies better off for having not merged? the jury will remain out. this will be a wave that we ride for a while up and down. i do think buyers and sellers will continue to look for opportunities. sonali: who has more teeth in terms of killing a deal? john: both are strong. it depends on the actual transaction. what is more likely to be the impediment is what we talked about earlier, what is the

organic growth long-term and one of my writing from a valuation perspective. we are seeing more and more, today's deal was one and there will be others underway. i think we could have a good march and april. sonali: the head of investment banking at citigroup and the advisor on the diamondback deal. nikki haley is pushing back on donald trump's recent trade policy proposal. the former president a tariff on all chinese imports. that would shrink a $570 billion trade pipeline to practically nothing. bloomberg economics analysis shows nikki haley showed the move would hurt american families. >> all that does is raise taxes on the american families and our small businesses we need to be taking care of. it is ludicrous he wants to go raise those tariffs to

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sonali: is bloomberg. ♪ sonali: this is "bloomberg markets" it is time for the stock of the hour. diamondback energy agreed to by endeavor in a $26 billion cash and stock deal. it will create the largest operator focused on the premium basis. alix steel knows more about energy than anybody i know. we will ask her why people are rewarding this deal so much. alix: one part is everybody was waiting for something to happen

with diamondback and endeavor. the other is just the amount of synergies they will get is humongous. by 2025 they will lower their cost in oil equivalent. they will have all of these nice synergies. their headquarters are across the street from each other. literally the endeavor acreage is in the middle of where diamondback is. when you are drooling -- drilling long wells, you need that space. sonali: what about the future for energy deals? whether you could keep seeing these $26 billion deals after we have seen $150 billion worth of deals in the sector? alix: six of the 20 private guys have already been acquired. the private guys have been the ones responsible for the massive

growth output over the last few years. they don't have to report to shareholders. there are definitely buyers. if you are in the permian you cannot compete with exxon and chevron. at some point the ftc will not like that. they are looking at all of these deals for sure. how many of them could actually come out is the question. it is coming in nicely because a lot of buyers think oil prices will be higher than they are now. they are not being granted the kind of risk and demand we see coming. on the flipside it is in the 20's. it is kind of teaming up there. sonali: you did see recent years where energy was a large outperformer. in the last six months, in the time we have seen these deals happen, we have seen energy fall behind the pack. it has been in the red, even with those deals.

what is that disconnect you are talking about? alix: when you have geopolitical risk and you are not getting that premium, a big part of that is because these guys are working so hard. they are allowed to get a lot more oil to ground. they are bigger oil producer than saudi arabia. they are a weird victim of their own success. investors are really scared of the last 15 years where they eroded free cash flow and through a ton of money into the ground. slowly with some of these big mergers they are throwing out, some of that is changing a bit. sonali: how much pressure is there to be the biggest? how many people could be in that club? alix: the easy answer is i have no idea. the whole success in shale is scaled. if you cannot scale it, you won't be as relevant. how much could you scale what

was there? there is a great piece about their acreage is in norma's. the oil in the ground. at some point you run out of that. it is like b plus, maybe b minus. you have a decline rate in oil. you need to compensate for that. they have all the other stuff to help them when you kind of run out of the really good acreage. when you are a total permian player and you don't have that. sonali: bloomberg's alix steel, thank you very much. how the multi-strategy fronts are keeping it, big question for investors. we will talk about that next. this is bloomberg. ♪

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sonali: this is "bloomberg markets." it is time for the wall street be. hedge funds are managing to keep most of the profits they generate as clients are taking the brunt of the cost. clients take $.41 out of every dollar passed on their cost last year. that is according to bnp paribas . we will discuss this dynamic with bloomberg hedge fund manager. >> if you see them charging fees , if you are only keeping on average $.41 of every dollar, why? >> fees are the things they complain about the most when it comes to multi-strategy funds. these are incredibly expensive. the reason some funds still pay is if they are in the highest

performing they are like fine, we will pay these expensive fees and we will take a smaller amount of the profit. if the net return is beneficial, they are willing to put up with it. the report, the multi-strategy funds that have the full fees, the most expensive, they produce the worst net return of the groups of varying degrees of fees. these clients paying the highest amount of fees are the ones getting only a 6% return, down from let's say 7%. sonali: if you think about the very large funds that have been putting this into place in recent years, how many of them will be able to sustain this model knowing that this is really the prime way to get key talent these days. >> these fees are getting more

and more expensive, the costs are growing. compensation is pass-through, bonuses are passed through. some of the big firms, they are closing in capital. many of them have locked up their investors. a few things coming together to make it harder to free those funds. the smaller funds or multi-funds have only produced a couple presenters points last year. they are following in favor. sonali: what does this mean for the broader hedge fund model? there was the two in 20. you have reported high-profile names giving discounts, what comes of the model next? >> it is size dependent. if you are a fun starting up and not offering a discount, it will be harder to raise money. you do see the smaller funds or

the emerging funds offer a lot of discounts. the two in 20 model has been coming down for a number of years. while it is not traditionally anymore, you do see a little bit more of those fees. sometimes 30 or 40, the numbers could be pretty wild. sonali: thank you for keeping such close track of the industry. we will switch gears to the latest edition of bloomberg markets magazine. in an exclusive conversation, the u.s. attorney for the southern district of new york says he is welcome to criticism. here is what he is looking at now. take a listen. >> anybody would suggest my office when i was there was acting less than very aggressive. we still get that criticism today. there is proof beyond a reasonable doubt that you could

provide to a unanimous jury who decides in favor of guilt. probably the financial crisis were at the top of the agenda because of how much damage has been done. people could not make the case. forget about the criminal standard. i'm not aware of a civil agency that has a lower bearing of proof bringing a case against a principal financial institution. i understand. i remain frustrated about that. sonali: what would be your biggest mistake throughout your career? is it a case you have lost? >> it is the latter. i'm back in private practice the last 1.5 years. i like to think i have an open mind. you could persist in a policy without realizing it is not a great policy.

i was talking publicly about it. i published an op-ed in the new york times about it. i think it is a problem. as a general matter, there is a policy of not telling you when we close the case. lots of people are in limbo and paralysis because the government is looking at them. quietly the case goes away but they are never informed. they can't make decisions about life, job, property, where they want to live. i see that in a more direct way because i represent under visuals -- individuals under scrutiny. i can't figure out why there's not a better policy in favor of letting targets know when they are no longer targets. sonali: that was part of my conversation with the former u.s. attorney for the southern district. that's get a quick check on the

markets. the market is still on a tear. s&p 500 up 3/10 of 1% on the day. the ai boom still alive and well. the two year yield around one basis point on the day. we have cpi data as well as other economic data coming out through the week. traders really on hold without a bigger picture of where inflation is heading. bitcoin up more than 3.7% on the day. bitcoin earlier hitting the $50,000 mark for the first time since 2021. the love of that bitcoin etf fueling a lot of love here. you do see it wavering right now. every single day into the top two has really created excitement around the nontraditional asset class. more earning still this week. a lot of questions about the consumer.

that does it for bloomberg markets. ♪

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