# Marc Rowan - CEO of Apollo | Podcast | In Good Company | Norges Bank Investment Management

https://www.youtube.com/watch?v=yOoJd58jERw

[00:01] Hi everyone, I'm Nicola Tangin, the CEO of Noris Bank Investment Management, the Norwegian Sovereign Wealth Fund.
[00:07] And today we are joined by a true visionary in the world of finance, Mark Rowan, who co-founded Apollo Global Management, which is one of the most influential alternative asset management firms in the world.
[00:17] Now we are the lucky owner of just under 2% of Apollo, which works out at just under one and a half billion dollars.
[00:24] Mark, thrill to be here.
[00:27] Great, thanks.
[00:28] Thanks for coming, and hopefully you're a happy shareholder.
[00:32] Mark, in 1984 you said, 'God, I'm just too late, all the money has been made.'
[00:40] You came out of business school.
[00:42] Now a few years later, you have assets under management at Apollo of 680 billion and the market cap is more than 80 billion.
[00:47] So I think we can say that was not a very accurate statement.
[00:51] Well, I think it was accurate because it reflected the business at the time.
[00:56] Cuz not only did I say it in '84, I said it in '90 and I said it again in
[01:02] 2001 and the point being in some ways I was too late for the business that had been done but the interesting thing part of the interesting part of the job is it keeps changing.
[01:11] I mean you've 2008 we were 40 billion of AUM in fact almost every other large firm in our industry today was roughly the same size and then 13 14 years later we're now up to over 700 billion of AUM something changed.
[01:25] It's clearly not as a result of our skill and talent we had to be in the mainstream.
[01:32] Well skill and talent helps right.
[01:35] Well look the skill and talent is to make sure we're positioned with Tailwinds behind us by positioning the business the right way but fundamental change is ultimately what powered our business.
[01:44] But if you go back to uh your first job Drexel um Drexel went bust in 1990 and then you decided to found Apollo how what was the thinking.
[01:56] Well it's uh founding a new company the a great motivator is to be unemployed so think of 1990 as 2008.
[02:04] to be an unemployed investment banker in the middle of a recession a financial markets collapse New York banking crisis Texas banking crisis a fundamental change of the financial system was not a great thing.
[02:16] fortunately it was early in my career and it was a great time to just do something entrepreneurial.
[02:23] what does it take to start the firm it it takes a little bit of luck.
[02:28] look I had spent the prior six years from 84 until 90 mastering my craft so clearly I knew something about the business but one has to be humble and actually accept that there's a fair degree of luck because I was actually quite happy doing what I was doing at Drexel burum.
[02:47] in some ways the single best thing that ever happened to me was to be forced to make a change.
[02:51] do you think he would take the same type of skill to setup today or is it a different skill set required.
[02:54] I think it's well it depends on the scale of your ambition today um if you look at what's required today I I think it is much much more difficult to set up a new
[03:05] Financial Services firm in fact I think the structure of the market today will result in firms that are very small and firms that are very large.
[03:13] I think it is going to be a very tough place to be in the middle.
[03:17] In a few sentences what do you actually do at a PO?
[03:19] If you look at them the best way to describe what we do is to think about uh how we employ people.
[03:26] So if you look at the asset management business we are 3,000 people in Asset Management.
[03:30] Then you look at the Retirement Services business where 1500 people in Retirement services.
[03:35] And then there are 4,000 other people at Apollo who do not carry an Apollo business card but instead originate credit.
[03:43] What does that mean?
[03:45] Well think about what the old GE Capital was 15 or 20 years ago.
[03:50] Certainly as I was coming up GE Capital was thought of as the single best originator of senior secured private credit.
[03:57] They used their expertise in and medical devices and aircraft to become a really good lender.
[04:02] That's essentially what we've done.
[04:05] We have a fleet Finance.
[04:07] business we have an aircraft Finance business.
[04:09] we have a securitization Finance business.
[04:10] it is all about the origination of credit because origination is the lifeblood of our business.
[04:16] so you say what is Apollo today?
[04:19] Apollo is two businesses on the one hand the business that is not as well known is the Retirement Services business aen 2008 would would use that up with Partners yes.
[04:30] but in 2008 we had an idea to set up a new financial institution and this financial institution was an insurance company.
[04:37] and the insurance company did not ensure people's life, People's Health, people's property.
[04:43] it only ensured their retirement.
[04:45] that business which was initially capitalized with $16 million is now with its European affiliate now $400 billion growing 70 billion a year organically and is by far the largest Retirement services company in the world world.
[05:01] and it turns out what we did in that business because if you think about what retirement is, it's essentially a fixed income business people want guaranteed.
[05:09] lifetime income or guaranteed income for a period of time or they're saving for retirement or their pension needs to be guaranteed to be in that business.
[05:15] you have to be very highly rated because you're dealing with people's retirement and therefore you have to have very safe assets.
[05:23] what we needed to be successful in that business was investment grade fixed income but with a spread and we start with a baseline view that public markets particularly public fixed income Market markets offer no Alpha.
[05:37] so if your entire business model is dependent on fixed income Alpha and there is none what do you do.
[05:42] well you build the origination capability to service initially yourself and that's what got us into credit origination.
[05:50] and then you realize that you want to be Diversified you don't want 100% of any risk you originate.
[05:56] you want 25% of everything and 100% of nothing so we built a client business side by side initially other other insurance companies endowments Pension funds individuals and a traditional client base the capacity to originate.
[06:10] investment grade credit is at the heart of what Apollo is.
[06:12] so what are we.
[06:15] we're a Retirement Services insurance company.
[06:17] and then we're an asset manager.
[06:19] the asset management business though reflects pretty much what I've just said of the call.
[06:24] it 700 billion 550 billion is credit most of which is investment grade and 150 billion is equity in two flavors.
[06:34] one a traditional private Equity business which is about hundred billion.
[06:39] and the other a hybrid Equity business.
[06:42] hybrid not in the sense of Bank hybrids but hybrid being the midpoint of risk between debt and Equity.
[06:46] Mark there's been a lot of focus on how you are replacing Banks through direct deals with uh with companies.
[06:51] now what kind of um business are you uh in a way taking away from the or uh doing instead of them.
[07:01] well I think it's actually a bit of a misnomer.
[07:03] the Press likes to report on this notion of Banks and investors fighting over private credit but I think
[07:10] we have to start with a definition what is private credit.
[07:13] well for most people it means levered lending or direct lending which is a below investment grade activity.
[07:15] and yes it is true that the vast majority of levered loans used to be originated in the banking system and now they are split between being originated in the banking system and being originated in the investment marketplace.
[07:31] and yes we are engaged in that business but it is a very small part of our business.
[07:36] I think generally financial pundits and other market participants are M missing the bigger Trend.
[07:42] to me private credit encompasses almost every asset on a bank balance sheet.
[07:47] a loan to a customer private a loan to a company private a loan to a project private and so on and so on.
[07:54] and the vast vast majority of private credit is investment grade.
[07:56] so we look and now say are we replacing the banks.
[07:58] generally not.
[08:02] you're also working with the banks right.
[08:03] you just said a big deal with City Bank.
[08:05] this is the this is the point and again it will mix and match the a bank is actually really really good at doing
[08:12] some things think of it a bank is funded short and lent long.
[08:14] a bank is not a great source of really long-term capital.
[08:21] and think about what we're borrowing money for today.
[08:22] we're borrowing money for infrastructure for energy transition for Next Generation data and power.
[08:27] all really long-term assets.
[08:29] these are not the ideal assets for a bank balance sheet.
[08:32] typically they would go to the investment grade bond market.
[08:33] but they happen not to be great assets for the investment grade bond market either.
[08:37] because they are generally complex projects or structured in some way.
[08:41] what we are doing is we are matching really long-term Insurance liabilities with really long-term investment grade counterparties in credit and becoming a provider of capital.
[08:57] because in almost every Financial system there are only two sources of credit.
[08:59] it comes from the banking system or from the investment Marketplace.
[09:03] there's no third choice around the world.
[09:07] for whatever reason Regulators have decided that Banks should do less and investors should do
[09:14] more and of that piece that investors do.
[09:16] more the investment grade piece.
[09:19] particularly the piece that is not well suited to the IG Public Market is what we have really come to do very very well.
[09:25] what do banks do well?
[09:25] banks are operationally intensive shorter term.
[09:30] anything that is really operational or client Centric the better picking credit.
[09:35] do you think I wouldn't think so.
[09:35] our credit record stands up uh to I'd say any Bank out there but you would have thought that during hundred years of experience they would have learned something.
[09:46] that is not that easy to learn in a 10year period or my guess is the same people who were there 100 years ago are no longer here Nikolai and these are all ultimately about people.
[09:56] yeah and if I think again I think about the partnership that is evolving between asset managers and investors excuse me and Banks.
[10:06] thing I say to Banks we do not want what the bank wants.
[10:09] we don't want the bank's client because if you think.
[10:14] about the structure of an asset manager.
[10:16] we want the asset we are incapable of providing the client m&a advice.
[10:19] Equity advice.
[10:22] Capital markets advice.
[10:24] hedging derivatives foreign exchange payments.
[10:27] custody credit cards this whole bundle of services is not something that we can provide nor is it something we want to provide.
[10:33] so the bank wants the client if they lose a client to another bank they lose all the services.
[10:40] if a bank loses an asset they just lose the asset and in the new capital regimes in many instances the banks no longer want the asset.
[10:49] when do you think you'll be fully regulated?
[10:51] why would we be fully regulated?
[10:53] why would Black Rock not be fully regulated?
[10:54] why would noris not be fully regulated?
[10:56] what is it we're we're doing that gives rise to regulation and I'll come back.
[11:02] do we take deposits?
[11:05] no.
[11:05] do we do maturity transformation?
[11:08] no.
[11:08] do we have access to the treasury?
[11:10] no.
[11:10] but don't you think at some stage um you need to do you know for close on uh a big
[11:16] company and uh The Regulators will be quite upset and they would over regulate.
[11:20] like they do in many cases foreclose on a big company I I don't really know what that means.
[11:24] so again think about what we do we're at the investment grade end of the marketplace.
[11:28] if we're foreclosing in the investment great end of the marketplace I assure you there is absolute chaos everywhere in the world.
[11:35] yeah foreclosing is something that Pimco does that black rock does that Fidelity does that everyone else does it is not unique to Apollo's business model or what we do an investment grade you would expect it to be different.
[11:47] I meet with lots of regulators around the world and I come back to this broader theme credit can come from investors or Banks.
[11:57] y in the US Bank Landing is down to less than 30% of the overall Market in Europe it's still 65% in Europe.
[12:02] they are squeezing the banks harder than in the US bosel 3 endgame and so on but at the same time they have not liberalized on the investor side.
[12:11] it does not surprise me that Europe suffers from a capital deficit.
[12:13] the US is by far this the
[12:18] luckiest place in the world from a capital markets point of view.
[12:21] 50% of the world's capital is raised here.
[12:23] the diversity of sources so again think about an investor.
[12:28] every dollar that moves out of the banking system increases the resiliency of the system and reduces The Leverage.
[12:32] a bank is levered 12 to 14 times an investor is generally not levered at all.
[12:37] reduction in leverage and diversity.
[12:41] a bank borrows short and lends long.
[12:44] investors General borrow short borrow long and lend long.
[12:48] there is no maturity transformation.
[12:51] there is no guarantee from treasury.
[12:53] there is no deposit but the thing that always gets Regulators what percentage of A bank's balance sheet in the US and Europe for that matter is investment grade.
[13:02] 60 plus minus for us our balance sheet better than 90% plus investment grade.
[13:08] what about the uh business you take from the public fixed income Market.
[13:14] uh I think I've heard you say that uh in a little while we there will basically
[13:18] be no difference between public and private investment gr credit I I think that is true I think that's where we're heading um it does not but you have to remember where we're starting from so let's start with a General calibration we used to have 8,000 public companies in the US we now have 4,000 public companies yeah we have more companies going private than going public I don't think this is a short-term phenomenon this is a long-term phenomenon 80% of companies over 100 million of Revenue are private what percentage of capital should be private a vast vast majority of it so we're actually supporting the whole private company ecosystem do I think we're going to displace the public investment grade Market no I don't think we're going to I think it's important to put all of these things in size perspective you have black rock at 11 or 12 trillion you have the mighty Apollo at 700 billion if we're really really successful we will be twice our size five years from now my guess is you will have a series of asset managers in the US that are 20 trillion
[14:19] at that point in size we serve an important but relatively small role in the economy and it's kind of what I like the notion that our industry is not an asset management industry an asset manager you can give any amount of money and they will invest it we can only invest it if we can produce excess return Alpha we're in the alpha generation business
[14:43] absolutely now we are only in the public market right it's not you know a mandate to be in the private Market what are we losing out on you're losing out on 80% of the investable market and if you think about it public markets do not work the way we think they work in fact nothing works the way we think it works so I look at public markets today and I ask really fundamental questions like in the US which is the most developed of the capital markets do we have price Discovery in the short term I don't think so think about what's happened in US markets 80% of volume S&P 500 60 plus perc of the
[15:20] market passive 10 stocks 39% of the S&P.
[15:23] four stocks have determined basically profitability for the last four years.
[15:28] yeah one stock is larger than every public market other than Japan.
[15:33] that's the universe you're going into so you saying that um the public market is very risky.
[15:37] I'm not saying it's risky I'm saying it's indexed and correlated and it is about Capital flows now.
[15:43] it is not about price discovery of an individual security in the short term.
[15:45] think about people who are supposed to be able to outperform the index active managers.
[15:50] how have active managers done well basically 90 plus% of the time for the past 20 years they have failed to beat the index.
[16:01] did they get stupider no the structure of our Market has changed.
[16:04] it doesn't mean bad it just means indexed and correlated and so an investor particularly an international investor who wants to express an opinion in the US no longer comes in and buys a basket of Securities they buy the index now.
[16:20] are also in the private Equity industry.
[16:22] or business and um done really really well now um what are the trends you are seeing here.
[16:27] the Trends so this is about reinvention as this is the business I was referring to where in ' 84 uh it was done in 90 and so on and so on the business continues to reinvest itself.
[16:39] but I I think we have to level set the decade that has just passed I think is going to turn out to be very unusual and I don't think will be great for investors.
[16:50] I have forecast and I've said publicly I think returns in traditional private markets on existing vintages of funds over done over the past decade will be low.
[16:59] why people invested generally in the midst of the US printing $8 trillion following the financial crisis and then following covid and you had interest rates near zero and so we have a very Pro cyclical approach to private markets investing.
[17:17] 60% of quote private Equity was actually
[17:20] growth and many of the companies that were purchased even if they were good companies were purchased at relatively high prices with capital structures priced at very low prices that are now going to be refinanced at much higher rates given that holding periods will be extended all of that tells me that returns will go down.
[17:37] so why should we then go into private Equity this is well let's let's go back the same is true for public markets public markets have had exactly the same but private Equity is not the same for everyone.
[17:51] you will find a core group of firms that over the past 10 years did not succumb to the the benefits of lowc cost leverage and reflect that impr price and I think we're going to have a bit of a ShakeOut in our industry.
[18:03] people who are giving you in my term private markets beta I think are going to be smaller going forward they will be less successful and people who really stuck to what they do well giving you private markets Alpha I think will continue to be very very successful.
[18:18] I believe that we will see a ShakeOut and again my forecast for the
[18:23] industry is that you will end up with the large and the small.
[18:24] I think the middle is going to be a very very tough place to be for a variety of reasons.
[18:32] what do you think would happen to transparency ESG and fees in the private Equity industry?
[18:38] so fees have been remarkably stable over a very very long period of time and I expect fees to be remarkably stable over a very very long period of time.
[18:46] I have said about the industry in its traditional form that I do not think it is a growth industry because our job after all is to produce Alpha in private markets.
[18:56] is very we are take Apollo for instance.
[18:58] we're a hundred billion do plus franchise with a 35-year history in this marketplace with exceptional returns.
[19:05] we could we can't double the size of our business nor do we even think about it.
[19:11] this business is run for rate of return it is not run for growth.
[19:16] I think the vast majority of our competitors see the business similarly.
[19:18] that doesn't mean exactly the same and I
[19:23] think the business will be roughly its size in a traditional private Equity format.
[19:26] but I also think we're going to have increased demand for private assets.
[19:32] I think that demand is going to come from family offices.
[19:35] it's coming from individuals and it may in fact come from Retirement Systems and it may in fact come from 401k.
[19:43] it will depend on how the regulatory situation here evolves.
[19:46] my own view is a relatively positive view of private markets without regard to the product for a period of time and I think about the industry's history.
[19:56] we basically grew the private asset industry the private markets industry side by side with institutions.
[20:04] but those institutions funded it out of the smallest part of their portfolio a little office down the hall called Alternatives.
[20:10] all of a sudden you have another source of demand.
[20:15] you have individuals who have almost no exposure to private assets who are roughly the same size of Institutions who I believe will also participate in that.
[20:24] Marketplace you then have Retirement
[20:27] Systems and retirement plans looking to
[20:30] provide retirement income who already
[20:33] have been big buyers of private assets
[20:35] primarily fixed income assets who are
[20:37] expanding what they do as the population
[20:40] ages and finally I think you have public
[20:44] markets and private markets convergence
[20:46] it's happening first in the debt Market
[20:48] but I think it will eventually happen to
[20:50] some extent in the equity market so
[20:53] institutions who historically have
[20:54] limited their participation in private
[20:56] assets to their alternative
[20:59] bucket that was done out of a mistaken
[21:01] belief that private was risky and public
[21:03] was safe what if that basic conception
[21:06] is just wrong what if private is safe
[21:09] and risky and public is safe and
[21:11] risky why does the asset allocation of
[21:14] private only and Alternatives make any
[21:16] sense well it doesn't I think we will
[21:19] rethink the whole notion of asset
[21:21] allocation and I can see it happening in
[21:23] real time in fixed income fixed income
[21:26] historically for institutional clients
[21:28] has been 100% investment grade and 100%
[21:30] public I see institutions now dividing
[21:33] that that same fixed income allocation
[21:37] between beta Public Market IG and Alpha
[21:41] private Market IG and it's happening in
[21:44] family office it's happening in Pension
[21:45] funds it's happening endowments it's
[21:47] happening in Sovereign wealth funds and
[21:49] the reason it's happening in fixed
[21:50] income first is you have external
[21:52] Gatekeepers rating agencies they can
[21:55] actually tell a portfolio manager your
[21:57] portfolio is in a this is an a they are
[22:00] of the same risk now you're just making
[22:03] a a determination as to liquidity and
[22:06] how much rate of return you want for a
[22:07] little less liquidity oh and by the way
[22:10] there is no liquidity in public fixed
[22:12] income markets and um given that a lot
[22:16] of capital is moving over to the private
[22:18] Market what what are the implications
[22:19] for the liquidity and how will that pan
[22:21] out also investment banks are using less
[22:25] uh capital for Market making uh you have
[22:27] different types of rules for banks etc
[22:29] etc so the answer is the change has
[22:31] already happened in 2008 but we haven't
[22:33] seen the application we haven't seen it
[22:35] really stress tested oh we have we've
[22:36] seen it twice we've seen it we saw it in
[22:38] covid where ETFs in fixed income almost
[22:40] broke and we saw it in the UK and ldi
[22:43] yeah we should expect so here's the
[22:46] setup 2008 part of the regulatory reform
[22:49] was to penalize those who made markets
[22:51] and held Market making Capital within
[22:53] the banking system particularly for
[22:54] fixed income there is roughly 10% of the
[22:58] amount of capital for fixed income
[23:00] Market making today as there was in 2008
[23:02] and the market is three times its size
[23:04] and so what will so when will we see
[23:05] that so let's say we have some type of
[23:07] Crash yeah but I mean in in a bigger
[23:09] scale the the next time we get a
[23:11] significant riskof event my own view is
[23:14] we should expect little to no liquidity
[23:16] in publicly traded fixed income today in
[23:19] the best of times in the most liquid
[23:20] Market takes 5 days to sell an
[23:23] investment grade corporate bond what can
[23:25] we expect when it goes in the other
[23:27] direction
[23:29] and so private markets today in
[23:31] investment grade don't trade okay you're
[23:35] going to see liquidity come into private
[23:37] markets that will mean for private
[23:40] markets everyday liquidity everyday
[23:42] pricing everyday price Discovery if you
[23:45] think about investment grade at least
[23:48] you will have the same issuers the same
[23:50] ratings the same size and you will have
[23:53] similar liquidity over time my gut tells
[23:56] me over the next 18 months investors
[23:59] will really coal us around this idea of
[24:01] fixed income and dividing it between
[24:03] Alpha and beta eventually I don't think
[24:06] change is going to stop at fixed income
[24:08] I think it's coming for Equity as well
[24:11] as I said when I was in Oslo I think
[24:14] investors including institutions like
[24:16] yours you may not own private Equity but
[24:19] you will own Equity that is private you
[24:22] you may or and many do already they own
[24:25] Spotify they own open AI they own any
[24:28] number of tech companies that have
[24:29] remained private well why should it stop
[24:32] there I think there'll be 50 or 100
[24:35] companies that are private for which
[24:37] Equity can be raised maybe that is the
[24:39] new form of active management active
[24:41] ownership of companies or PE without the
[24:44] leverage and without the fund that's
[24:46] that's a ways out still the next five
[24:48] years is going to be about fixed income
[24:49] replacement now you're um uh listed
[24:52] company and uh but your uh your target
[24:55] is a to generate returns for your
[24:57] investors so how do you how do you um
[25:00] look at that kind of uh well trade-off
[25:03] or not tradeoff between generating
[25:05] assets which is what the public market
[25:08] listing wants you to do or generating
[25:11] returns so I think if you follow the
[25:14] generation of assets and that is your
[25:16] only goal you'll destroy the business I
[25:18] come back to the basis on which we run
[25:20] this business uh we run it at least at
[25:22] Apollo on three fundamental principles
[25:25] the first is everything is one strategy
[25:27] at Apollo it's all purchase price
[25:28] matters in equity we think of that as
[25:30] value in fixed income we think of that
[25:33] as protection of principle and getting
[25:35] return not necessarily through credit
[25:37] selection or reaching down the capital
[25:38] structure but through structure and
[25:40] origination um the second is we are not
[25:43] an asset manager we are a source of
[25:46] alpha excess return per unit of risk I'm
[25:48] sorry wouldn't all asset managers say
[25:50] that I I wouldn't think so someone who
[25:52] is a passive asset manager who has
[25:54] scaled massively in the ETF business
[25:56] their job is to give you beta really
[25:58] efficient we really well-run really
[26:01] lowcost well reported beta that is the
[26:04] vast Mass majority of public markets
[26:06] today our job is to give you Alpha we
[26:09] are therefore limited in our growth by
[26:11] our capacity to generate Alpha if we
[26:14] take in too much in the way of assets we
[26:16] will dilute our returns and ultimately
[26:19] create negative impact for our business
[26:21] let's spend some time on the alpha
[26:23] side so is there such a thing as an
[26:27] Apollo investment philosophy
[26:28] there is it's and I I've said it it's
[26:31] purchase price matters so what does it
[26:32] mean this is so there are lots of
[26:35] strategies that one can employ there's
[26:37] someone who's a great internationalist
[26:38] there's someone who's a great macr
[26:40] Trader there's someone who's great at
[26:41] chasing growth we are great at finding
[26:44] value sometimes that value comes from
[26:48] Trading hard work for purchase price as
[26:51] in our private Equity portfolio and
[26:53] asset management but if you translate it
[26:55] over to fixed income it's finding exess
[26:58] return per unit of risk so how do we get
[27:01] paid more for a single a rated company
[27:04] from a single a rated company than they
[27:06] could otherwise get in the public
[27:08] Marketplace has the investment
[27:09] philosophy changed since you started the
[27:11] firm it has not changed in a very very
[27:13] long you think it will do you think it
[27:14] will change I do
[27:15] not has it ever been difficult to stay
[27:18] true to the philosophy oh it's been very
[27:21] difficult uh especially when the US is
[27:23] printing 8 trillion dollar over a period
[27:25] of time and random companies have
[27:27] multibillion valuations overnight so
[27:29] what do you do now then uh what do you
[27:31] do then you you try to manage a lot of
[27:34] type A personalities and convince them
[27:36] that doing nothing is the best thing and
[27:38] how do you do that so you have so you
[27:41] have some Ambitions you've been to the
[27:42] circus where they have the lion tamer uh
[27:45] so you so you you hire this person like
[27:47] straight out of uh you know Wharton
[27:48] where we actually both went to school uh
[27:51] they're very keen on kind of Conquering
[27:52] the world and there you are Mar Mark
[27:55] Rowan holding the backc yes and how easy
[27:58] is that it's actually quite easy because
[28:00] it's not it's not just Mark Rowan it's
[28:02] the whole firm we've all grown up in
[28:04] this culture we've grown up this way
[28:06] it's not me against the firm it actually
[28:09] everyone has been around long enough to
[28:11] understand what our job is and we accept
[28:13] that there are periods of time when we
[28:15] will not grow as fast and there are
[28:17] periods of time that we will grow very
[28:19] very fast but fundamentally this is
[28:22] about making your own luck I'll come
[28:24] back to a a a different way of thinking
[28:26] about our business which
[28:28] it'll be challenging for a second how
[28:30] important is investment Talent versus
[28:32] culture and system giving this it it's
[28:34] it's all part of something there there's
[28:36] lots of talented people but retaining
[28:39] let's go to the a more fundamental
[28:41] because you're getting a a more
[28:42] fundamental what do we offer people what
[28:44] do we offer a client we offer them
[28:46] judgment there's no secret sauce there's
[28:49] no you know algorithm in the back room
[28:51] it's judgment how do you get judgment I
[28:54] think you get it over a long period of
[28:56] time seeing what we do and don't do a
[28:58] variety of challenging and not so
[28:59] challenging circumstances that implies
[29:02] that I need you to spend your career at
[29:04] Apollo how do I do that well I need to
[29:07] make this place the single best place to
[29:09] be a partner in financial services and
[29:13] that is my North Star because if I do
[29:14] that I will retain you for your whole
[29:17] career there are 200 Partners at Apollo
[29:19] and I wish all 200 wanted the same thing
[29:22] Unfortunately they want 200 things some
[29:24] mix of Merit compensation culture
[29:28] environment purpose and 20 other
[29:31] intangibles so so you off you offer
[29:33] clients and your people judge judgment
[29:36] right people offer the Judgment our
[29:38] clients are the beneficiaries of our
[29:40] judment you offer your clients's
[29:41] judgment now how is that judgment
[29:44] different from the Blackstone judgment
[29:46] eqt judgment KKR judgment everyone has a
[29:50] a slight difference or more than a
[29:51] slight difference in the way they do
[29:53] they do business the firms although
[29:55] they're all in the quote alternative
[29:57] asset manag industry are actually quite
[29:59] different in terms of the deals they
[30:00] pursue how they're structured and over
[30:03] time we've become more different rather
[30:05] than more similar our business today is
[30:08] one of one no one actually looks like we
[30:11] do today I'll describe the setup yeah
[30:13] what is an Apollo deal what does it well
[30:15] let's start with a let's start with a
[30:17] more basic if we're 700 billion of AUM
[30:19] which is approximately where we were at
[30:21] year end 350 billion of that was our own
[30:23] balance sheet 350 billion of that was
[30:26] client money we are generally the
[30:29] largest buyer of everything the person
[30:32] that is most impacted by growing too
[30:34] fast is us it is a wonderful way to be
[30:38] aligned with your clients from a from a
[30:40] growth point of view and from an
[30:41] investment point of view and that is the
[30:44] third precept if the first is purchase
[30:46] price matters and the second is excess
[30:47] return per unit of risk the third is
[30:49] alignment no one looks the way we look
[30:52] today that implies other things we also
[30:55] manage a disproportionate amount of
[30:57] fixed income 550 billion of fixed income
[31:00] versus 150 billion of equity our
[31:02] business is set up
[31:04] differently what's been interesting
[31:06] about this is people this industry
[31:08] Started With Private Equity almost for
[31:10] every firm you've mentioned private
[31:12] Equity is a very expensive cost of
[31:14] capital think of it as a 20% plus rate
[31:16] of return that is required how many
[31:19] companies in the world with leverage can
[31:22] are appropriate for that high cost of
[31:24] capital the answer is a few but maybe
[31:27] the pile is about this High over time
[31:30] what we've done is we've taken our skill
[31:32] set our ability to originate our ability
[31:35] to analyze our ability to Source our
[31:37] ability to discern and we've extended it
[31:39] from investment grade to lever Equity
[31:42] we've actually lowered our cost of
[31:44] capital substantially over time if you
[31:46] look at the average investment Apollo
[31:48] makes today probably has a six or 7%
[31:51] cost of capital very heavily tilted to
[31:54] investment grade that's a reflection now
[31:56] you're going to talk about of where the
[31:57] world is so I start with questions back
[32:00] is the world cheap today no is risk
[32:03] being rewarded today no spreads are
[32:06] tight in a world with geopolitical risk
[32:08] where valuations are high and spreads
[32:10] are tight why would I want to take lots
[32:13] of risk today there'll be a time to take
[32:15] risk after financial markets correct at
[32:18] some point they always do that'll be a
[32:20] time when we want to take risk but if
[32:22] you're looking for the Apollo DNA and
[32:24] Apollo
[32:25] philosophy excess return per unit of
[32:28] risk so this is a time where you're
[32:29] holding back a bit we're definitely
[32:31] holding back in adjusting how we invest
[32:34] right now we want return so if I give
[32:36] you the credit Market return reaching
[32:38] down the capital structure and taking
[32:39] more subordinated risk feels like a bad
[32:42] bad idea today right using your people
[32:45] and your resources to get paid for
[32:47] origination and structure but being
[32:49] senior in the capital structure feels
[32:51] like a tremendously good use of time
[32:53] right and that's what we've been doing
[32:55] so you're playing it safe a bit like
[32:56] Warren Buffett who is racing cash last I
[32:59] looked he's lived a long time in a very
[33:01] happy
[33:02] way what are the main risks in these
[33:06] markets and what what could trigger
[33:09] something more more serious so I look at
[33:12] the risk today look the the risks in
[33:14] front of us in in some way are obvious
[33:16] we have geopolitics as one of the most
[33:18] overriding risks but not even
[33:20] geopolitics politics I mean we right now
[33:24] in the US I will tell you things feel
[33:27] great
[33:28] not only do we have growth and we have
[33:30] very low unemployment we have a backlog
[33:33] of fiscal stimulus that hasn't even hit
[33:35] yet three years ago we passed nearly 2
[33:37] trillion in infrastructure bill it's
[33:39] still being built nothing's built yet
[33:41] two years ago $52 billion for
[33:43] Semiconductor plants not a single plant
[33:45] has open yet a year ago inflation
[33:47] reduction act to encourage manufacturing
[33:49] of EVs and other things here not a
[33:51] single plant open last three years in a
[33:54] row we've been the largest recipient of
[33:55] foreign direct investment and we're r in
[33:58] defense production all of those things
[34:00] are fiscally stimulative against a
[34:02] backdrop of no legal immigration that is
[34:05] a pretty good setup we've raised rates
[34:08] 500 basis points what happened home
[34:11] prices went up stocks went up Capital
[34:13] markets are fully liquid this is a
[34:16] pretty good setup oh by the way we're
[34:18] we're have a$2 trillion deficit in peace
[34:21] time with a 4%
[34:24] unemployment that's a worry so one can
[34:26] look at geopolitics
[34:28] one can look at politics or governance
[34:31] as another and how how big a Warriors
[34:33] deficit to me um it doesn't it's not a
[34:36] short-term worry but it is ultimately a
[34:38] long-term worry how could it turn into a
[34:40] short-term worry um usually these things
[34:42] turn into a short-term worry about bond
[34:44] market reaction eventually the bond
[34:46] market tends to be the discipline
[34:48] disciplinarian for the world how do we
[34:51] know that it's not going to kick in soon
[34:53] we we don't these are that's why it's a
[34:56] it's a worry but let me come to another
[34:58] worry look these are things how do you
[35:00] protect yourself in these environments
[35:02] well you protect yourself by being top
[35:04] of the capital structure senior secur
[35:06] and credit markets and you protect
[35:08] yourself in equity markets by trying not
[35:11] to buy into Trends not to pay massive
[35:13] prices for things that may in fact be
[35:15] supported by a liquidity bubble but what
[35:18] else worries me indexation and
[35:20] correlation think about what's happened
[35:22] in the world everyone is now indexed to
[35:25] the same trade we saw the in UK ldi ldi
[35:29] was not some crazy thing UK institutions
[35:32] were doing it's just that everyone owned
[35:33] the same risk at the same time in the
[35:35] same way and thought they would be able
[35:37] to sell their AAA and double A Holdings
[35:40] to meet margin calls guess what they
[35:42] couldn't isn't that the setup of the
[35:45] whole world today the vast vast majority
[35:47] of public markets daily liquid daily
[35:49] liquid seems to me to be the biggest
[35:51] imbalance that we have anywhere in the
[35:54] world you're not daily liquid because
[35:56] you have a long-term point of view and
[35:57] what you do we're not daily liquid
[36:00] because we manage for generally
[36:01] long-term institutions but the vast
[36:04] majority of money that's out there is
[36:06] daily liquid think about what we've done
[36:09] with the largest pool of capital
[36:10] anywhere in the world in the US we have
[36:12] 12 to 13 trillion in
[36:14] 401K these are people who need
[36:16] retirement Money Retirement savings more
[36:18] than anyone else in the world Returns
[36:20] what do we have them invested in yeah
[36:23] daily liquid generally index funds for
[36:25] 50 years why well a belief that private
[36:29] is risky and public is safe a notion
[36:31] that you need daily liquidity in a
[36:33] 50-year asset class things we do just
[36:36] don't make sense and they don't make
[36:37] sense in the context of the financial
[36:40] Market the way it exists today versus
[36:42] the way it might have existed years ago
[36:44] as you know as a student of History
[36:46] public financial markets are a
[36:48] relatively new phenomenon in the history
[36:50] of mankind most markets were private
[36:53] over a very very long period of time I'm
[36:55] not saying one is better or worse and
[36:57] clearly private public markets have done
[36:59] awesome goodly good things for the world
[37:02] but indexation and
[37:04] correlation I do not think are our
[37:06] friend in periods of volatility Mark uh
[37:08] changing t a bit here uh let's talk
[37:10] about leadership if I asked your
[37:12] colleagues and uh and employees uh about
[37:15] your leadership style what would they
[37:16] say hopefully they would say nice things
[37:18] but I also I I get uh a an update on my
[37:22] leadership style every six months and
[37:24] how do you how do you get that uh I I
[37:26] get formal feedback and the nice thing
[37:28] about the group at Apollo is they are
[37:30] not shy they are very generous uh with
[37:32] their feedback what do they say uh they
[37:35] ackowledge my strengths and also my
[37:37] weaknesses what are your
[37:39] weaknesses it's a long list Nikolai I'm
[37:41] not sure look we what are you what are
[37:44] you working on I mean what are you
[37:45] trying to improve with your leadership
[37:46] style so let's let's start with what
[37:49] okay I'll go there instead what we have
[37:51] to do I Believe As Leaders I'm a servant
[37:54] leader you're a servant leader you gave
[37:55] up what you were doing to be servant
[37:57] leader I gave up what I was doing to be
[37:59] a servant leader I used to think doing
[38:02] anything I was actually quite good at
[38:04] doing things now I do nothing and that
[38:07] doesn't literally mean nothing but I
[38:09] know if I do something I have to do it
[38:11] again whereas if I create a culture of
[38:14] letting my team succeed they get to do
[38:16] it they paint my fence for me my job is
[38:19] to make their job easier and I've
[38:21] accepted that so I look at what I'm
[38:23] trying to do here half my day is
[38:26] managing the careers of two people
[38:28] because I can't run this firm by myself
[38:30] it is way too big a firm I need the 200
[38:32] partners of Apollo to run this firm if I
[38:35] have them focused in the right direction
[38:36] and I have their Buy in everything works
[38:39] because the people who are coming up in
[38:41] our firm and see 200 Partners who are
[38:43] here for their careers they realize it's
[38:46] worthwhile the Young Generation who are
[38:48] working really hard now have two amazing
[38:51] generations of mentors in front of them
[38:53] it all works if the 200 partners are not
[38:55] happy and we end up with turnover it's
[38:57] very hard to run a knowledge-based
[38:59] business where knowledge keeps leaving I
[39:01] think that's what we're seeing in lots
[39:02] of financial institutions today so what
[39:04] am I working on I never really
[39:07] understood how important the cultural
[39:09] side of this the Judgment side of this
[39:11] the partnership side of it was but boy
[39:13] isn't important that's a big part of my
[39:16] day the second um I had
[39:19] spent most of my career trying to avoid
[39:22] speaking to the Press I just never saw
[39:24] the utility of it the notion of how you
[39:27] now we have gotten to a size in our
[39:29] industry where we need to communicate
[39:32] well we even need to do podcasts we even
[39:34] need to do podcast but by the way
[39:36] podcast is the single best form of doing
[39:38] this but which is why it's become
[39:39] increasingly popular right because you
[39:41] get time to explain you get time to
[39:42] explain and you also generally are
[39:44] talking to someone who is not pressed
[39:46] for time who has had the benefit of
[39:48] looking at what you do and has the
[39:49] history and is asking questions and
[39:51] engaged in the dialogue not just to
[39:52] flatter you no but it's it's interesting
[39:54] how it became very important in the US
[39:57] you know uh election compan yes but
[40:00] communicating with Regulators
[40:01] communicating with our peers
[40:03] communicating with competitors and most
[40:05] importantly communicating a clear
[40:07] strategy to our employees so that
[40:09] everyone knows what's expected of them
[40:11] we've just come through an investor day
[40:14] really important process for us everyone
[40:16] who will join Apollo from this point
[40:18] forward will see the three or four hours
[40:20] that we've put together and so the
[40:22] amount of time that we take to actually
[40:24] articulate our strategy look I I wish I
[40:27] could keep our strategy to ourselves and
[40:29] keep it a big secret but that just
[40:30] doesn't work anymore no now I'm not sure
[40:33] we really touched on your weaknesses but
[40:35] uh but hey uh what are your
[40:38] strengths um from a strength's point of
[40:41] view I think I have done a good job
[40:44] positioning the company in front of
[40:46] Tailwinds yeah and really stepping back
[40:49] and trying to challenge coming into the
[40:52] office each day and just doing the same
[40:54] thing something tells me and I tell the
[40:56] team what got us over the past 10 years
[40:58] is not going to be what gets us where we
[41:00] need to go going forward we are going to
[41:03] have to accept the markets have changed
[41:05] that our role in these markets have
[41:07] changed that the products that we
[41:10] currently think of as immutable are not
[41:12] immutable think about your career and my
[41:14] career I started no howo bonds no Leever
[41:17] loans no ETFs and minimal securitization
[41:20] we take for granted that those products
[41:22] are mainstream trust me we're going to
[41:24] have in 10 years from now new products
[41:26] that we never thought of the history of
[41:29] our financial services business are you
[41:31] going to invent them I hope we have a
[41:33] hand in them and boy are we trying hard
[41:35] to really anticipate where we think
[41:38] markets are going the terms that we've
[41:40] used origination fixed income
[41:43] replacement these are now terms in our
[41:46] industry that did not exist before
[41:48] Equity replacement Market making for
[41:50] private assets we try to be at the
[41:53] Forefront of everything that's going on
[41:55] and I hope we are talking about uh where
[41:57] working hard um what does a day look
[41:59] like when do you wake up uh I'm up at 5:
[42:02] almost every day right what do you do
[42:04] well if I don't exercise at 5:30 it
[42:06] doesn't happen right so generally I try
[42:08] to exercise 5:30 to 6:30 and to be in
[42:11] the office sometime just after 7 coffee
[42:14] before off the workout yes
[42:17] both and if I'm gym at home uh I do and
[42:21] if I'm in the New York office I like to
[42:23] sit on a a a bar top just out out side
[42:27] of our coffee bar and I get it's like
[42:30] doctor's hours uh it's demystified
[42:32] speaking to the CEO coffee bar has a
[42:34] cool name uh it does the contrarian Cafe
[42:38] when you go to bed uh might be a little
[42:40] boring there Nicolai I'm usually in bed
[42:42] by 10: like me energy what do you get
[42:45] your energy from you know the answer is
[42:47] I don't know I don't know really do you
[42:48] think energy do you think it's genetic
[42:50] or I don't know if it's genetic or
[42:52] otherwise because there's there's just
[42:53] no basis on which to know um but I will
[42:57] say that I wake up I think I'm one of
[42:59] the luckiest people in the world every
[43:00] single day and there's no shortage of
[43:02] things that interest me not just at
[43:04] Apollo but elsewhere there's so much
[43:06] going on in the world and each of us has
[43:10] a role to play now my day job is is at
[43:12] Apollo but as you know I've been very
[43:15] active in what's happening on American
[43:17] campuses in our
[43:18] universities and I probably should just
[43:20] flag here that we've been sitting at the
[43:22] warden board together which is where I
[43:24] got to know
[43:25] you um but you also do restaurants you
[43:28] have a a lobster you know restaurant
[43:31] well restaurants are easy because it's
[43:33] it's actually I don't know anything
[43:35] about running a restaurant but I have an
[43:37] amazing partner but if you look at we
[43:39] now talk about Hobbies which is not only
[43:42] are we interested in philanthropy we're
[43:45] interested but we also need time for
[43:47] ourselves one of my hobbies is building
[43:50] things I collect nothing no art no cars
[43:53] no wine no nothing but I like to build
[43:55] things one of the things I did was I
[43:57] renovated a historic building out in the
[43:59] Hamptons on the Main Street in Sag
[44:01] Harbor and I had as a tenant a
[44:04] restaurant well that restaurant went out
[44:06] of business and my space was dark for
[44:08] six months I then had a second tenant
[44:10] another restaurant who also went out of
[44:12] business took me a year to realize I was
[44:14] in the restaurant business I just didn't
[44:16] know it so I formed a management company
[44:19] I hired a terrific partner who actually
[44:21] know something about running a
[44:22] restaurant and I get to do the fun part
[44:25] I get to do design construction menu
[44:27] selection and concept but once it opens
[44:30] I'm a customer a very happy customer but
[44:32] a customer yeah when you make decisions
[44:35] are they um analytically based or are
[44:37] they gutfield based they're both um I'm
[44:41] an analytical person but not everything
[44:44] can be analyzed uh a lot of times we're
[44:46] making judgments on on people and
[44:49] judgments on the source of information
[44:51] that we're getting as you know we live
[44:52] in a world of
[44:54] uncertainty and so a little bit of each
[44:56] m how do you cope with stress I don't
[44:59] find the job tremendously stressful I
[45:01] know people find that weird but I just
[45:06] don't I don't feel the stress from this
[45:08] job I literally believe we are the
[45:10] luckiest people in the world to be able
[45:11] to do this this the slogan we have here
[45:14] is we get to do this anytime someone
[45:17] tells me in The Firm they don't like
[45:19] what they're doing it's time for them to
[45:21] have another job within the Apollo
[45:22] system or to find something else to do
[45:25] if you come in pretty often and you
[45:27] don't think I get to do this this is not
[45:30] the right job for you I get to do this
[45:32] so when you interview people for this
[45:34] firm what do you ask them what is key
[45:36] for you when you hire people look you
[45:38] you want you want some insight into who
[45:40] they are and how they think and what
[45:42] drives them so whatever questions help
[45:45] you get at that along with the basics of
[45:48] are they skilled to do their job if they
[45:50] get to me generally my team has already
[45:52] realized that they're qualified to do
[45:54] the job the question is are they going
[45:56] to fit we are a harder place to
[45:59] integrate into but I believe a better
[46:01] place to be as a career what do you mean
[46:03] hard to integrate into so I'd say the
[46:05] following we run a fully integrated
[46:07] platform that means you are the
[46:10] beneficiary of lots of other information
[46:13] lots of other resources that are not
[46:15] generally associated with your specific
[46:17] Department if we were the kind of firm
[46:20] where we were a series of silos you
[46:22] could join our firm and get to know your
[46:24] Silo really well and be very successful
[46:27] here because we are an integrated
[46:29] platform you don't just have to get to
[46:31] know your Silo you have to get to know
[46:33] who does what across the firm that makes
[46:35] it harder to integrate but once you
[46:38] master that the leverage you get in your
[46:41] job is unbelievable and so is that for
[46:44] everyone no it's not for everyone there
[46:46] are some people who just want to be left
[46:48] alone to do what they do and they do it
[46:49] really well they could be really
[46:51] successful but probably not really
[46:53] successful
[46:54] here on the other hand people who are
[46:57] curious who understand the mutual
[47:00] dependency of looking across the
[47:02] platform understanding how everything
[47:04] relates to everything else I think are
[47:06] ideally suited for here how do you
[47:08] Mentor your leaders this is it's an
[47:11] interesting thing so I'm I'm going to
[47:13] I'll tell you what we're working on and
[47:14] it'll give you some notion into into
[47:16] mentorship you take a firm like ours or
[47:18] anyone in our industry we've been more
[47:21] successful than any of us ever thought
[47:22] we would
[47:23] be most companies who are successful
[47:27] eventually revert to the
[47:29] mean people inside the firm leaders
[47:31] start playing not to lose rather than
[47:35] playing to win if you want to innovate
[47:38] you have to get the team to play to win
[47:40] how do you do that well in part you have
[47:44] to make it safe for them to make a
[47:45] decision and to fail y so how do we do
[47:48] that I am try to emulate it for them
[47:50] which is I let them know that I'm if I'm
[47:52] right 2third of the time that's a lot
[47:55] and I fail a lot at least a third of the
[47:57] time but I fail quickly I acknowledge it
[47:59] I fix it and I move on to the next
[48:02] that's that's different I'm not saying
[48:04] we do that with money or with
[48:05] Investments but in terms of how we run
[48:08] the business and who we hire how we
[48:10] position the business we are not going
[48:12] to be right every time we make a
[48:13] decision creating a place where people
[48:15] are not afraid to make a decision and
[48:17] are not afraid to fail and can openly
[48:20] say I screwed that up let's fix it and
[48:22] move on quickly is a big part of what it
[48:25] takes I believe to be able
[48:28] to play to win and not just play not to
[48:31] lose when did you lose last we lose all
[48:34] the time specifically look we uh I we
[48:37] have lots of people who have come and
[48:39] gone from Apollo where we made bad
[48:41] decisions where we made bad decisions on
[48:43] growth or something else if you were to
[48:46] try to
[48:47] abstract the type of mistakes you you've
[48:50] made is do they have anything in common
[48:53] their their people mistakes their
[48:55] difficulty of scaling mistakes
[48:58] or and a lot of times they're time frame
[49:00] mistakes and successes what do they have
[49:02] in common for you success is usually
[49:05] we've positioned ourselves the right
[49:07] way and the market came at the right
[49:10] time or we got there first we believ
[49:13] something that no one else believed and
[49:16] we just went went about and
[49:18] executed by for us the biggest thing
[49:21] that we've done has been Retirement
[49:23] Services yeah we literally started with
[49:26] $1 million to a business that is now 400
[49:30] billion of assets under management where
[49:32] we have a 100 firms who would like to
[49:34] emulate what we've done and you managed
[49:36] to acquire big portfolios when other
[49:39] people sold them right it's not only the
[49:41] answer is yes but we haven't acquired a
[49:43] portfolio for years at this point we now
[49:46] do 70 billion of organic business which
[49:48] is by far the largest amount of business
[49:50] versus established names in the
[49:52] marketplace it's incredible um what do
[49:54] you read I read mostly history um I like
[49:57] to read a lot about the Middle East I
[49:59] find it a just a fascinating place not
[50:02] only because of what's going on today
[50:04] but just because of how much change is
[50:05] taking place I'm just back from the
[50:07] Middle East last week and I come back
[50:11] incredibly hopeful you have most of the
[50:14] countries in the region who we thought
[50:16] of two decades ago as Meed in
[50:20] extremism focused on bettering the
[50:22] future for their people on Commerce on
[50:25] moving their their society s forward
[50:28] very little in the way of extremism I
[50:30] come away from a trip to the Middle East
[50:32] incredibly hopeful now um we have tens
[50:34] of thousands of young people listening
[50:36] to this what advice would you give them
[50:39] what advice would you have given to you
[50:41] know Mark Rowan in a
[50:44] 1984 look uh so I I spent a lot of time
[50:47] talking to young people it's it's part
[50:48] of the fun the fun part of this job and
[50:51] I tell them all the same thing master
[50:53] your craft like ultimately you get to do
[50:57] more when you become a master of your
[50:59] craft once you do that then you can pick
[51:02] your head up and you can look around and
[51:04] start to connect the dots the second is
[51:07] be honest with yourself all of these
[51:09] jobs are really hard we should make we
[51:13] should not be shy about this these are
[51:15] all really hard if you don't
[51:16] fundamentally love it you will not be
[51:19] successful long term in this business
[51:21] well Mark you have for sure mastered
[51:23] your craft you have positioned this firm
[51:25] uh to really benefit from from you know
[51:27] all the all the wins and uh
[51:31] congratulations it's been amazing thank
[51:33] you it's been a tremendous amount of fun
[51:34] and I'm fortunate to have 200 people who
[51:37] make me look good all right good thank
[51:39] you all right thank you n
[51:41] [Music]