Ancelotti worked with Thiago at Bayern and admits he is a big fan of the Spain midfielder.
He smiled: "He has broken my heart. Thiago is a friend. He is a fantastic player, a fantastic midfielder. I was lucky in my career to coach the best players, and Thiago is one of them. The only good thing about this signing is that from now on he is my neighbor and that's it.
"I think he chose the wrong team. He should have chosen the blue team, not the red team. I'm joking.
"He is a fantastic player and my friend, Jurgen (Klopp, Liverpool manager), will be happy."