Apollo CEO Rowan on Future of Global Markets

Introduction

In this section, Mark Rowan talks about his experience of coming back to the office after the pandemic and how Apollo is doing.

Coming Back to the Office

• Mark Rowan shares that they are not mandatory back in the office until September but have hit 65 voluntary.

• The firm has renovated its entirety, so people are coming back to a new workspace.

• Everyone is having a pretty good experience.

Positive Momentum at Apollo

• There is a palpable sense of momentum and forward progress at Apollo.

• The company has announced new deals with Figure, Motive, and Victory Park recently.

Reviewing Last Year

• Despite the noise of last year, assets under management went up by $146 billion, record profits were $92 billion, and deployment was $300 million.

• They hired 300 people remotely and turnover went down.

Generational Shift at Apollo

In this section, Mark Rowan talks about the generational shift happening at Apollo.

Industry Perspective on Generational Shift

• The alternatives industry started with private equity firms that diversified over time.

• Every firm in their industry will go through this same generational shift.

Accomplishing Generational Shift at Apollo

• Governance now means one share one vote.

• Leon stepped down from the firm at the beginning of the year and Josh stepped back upon closing of Athene deal.

Elimination of Obstacles

In this section, Mark Rowan talks about how he feels post-Leon world and how it affects Apollo tonally internally and externally.

Positive Forces Driving Business Forward

• Their business is driven by positive forces such as demographics, generational transfer of wealth, indexification of markets or just need for return.

• Fascinating things are taking place in the fintech revolution, democratization of finance as well as changes in the investment marketplace.

Tonally Internally and Externally

• The elimination of obstacles has created a positive effect tonally internally and externally.

• Mark Rowan feels fortunate to be running and guiding a firm in the alternative asset industry.

Blackstone's Business Model

In this section, the speaker talks about how Blackstone is run on a day-to-day basis and how he has chosen specific areas to focus on.

The Day-to-Day Running of Blackstone

• Jim Zelter and Scott Kleinman run the firm on a day-to-day basis.

• Each business within Blackstone is run by a long tenured professional.

• The speaker focuses on strategy, culture, compensation, urgent strategic initiatives, and communication.

Senior Appointments at Blackstone

In this section, the speaker discusses recent senior appointments at Blackstone and how he is putting his mark on the higher ranks of the company.

Putting His Mark on the Company

• Recent senior appointments show that the speaker is putting his mark culturally and structurally on the higher ranks of the company.

• The speaker recognizes where their business is going and chooses places where he can move the needle.

Building a Different Firm

In this section, the speaker talks about building a different kind of firm than traditional private equity firms.

A Radically Different Firm

• The industry has not been updated in terms of its image.

• Traditional private equity firms are important sources of profits and intellectual capital but are not inherently growth businesses.

• Blackstone's growth engine has been yield and hybrid rather than maximizing returns through private equity.

Yield Business Growth Engine

In this section, the speaker explains why yield is an important part of their business model.

Importance of Yield Business

• Yield business is growing because there is an absence of spread in public markets which makes it challenging for financial institutions.

• Building origination allows them to control documentation, diligence, structure and ultimately economics.

• They build origination through platforms.

Fixed Income Replacement Business

In this section, the speaker talks about how Blackstone is in the fixed income replacement business.

Fixed Income Replacement Business

• The biggest trend in the yield business is the absence of spread in public markets.

• Blackstone's solution to this is building origination which allows them to earn more at a safe near investment grade level.

• Yield business is growing and will be twice its size in five years.

Private Equity Business

In this section, the speaker compares private equity with other growth engines.

Private Equity Business

• Private equity is not inherently a growth business but rather focuses on maximizing returns.

• Blackstone's private equity business has amazing returns and a great track record but it will not be much bigger because that business is responding to its own market forces of maximizing return versus seeking to grow it just for the sake of growing it.

Athene's Business Model

In this section, the speaker explains that Athene is a spread lender and how they make money based on spread. He also talks about the growth of Athene and its European counterpart, Athora.

Athene as a Spread Lender

• Athene is a spread lender that borrows from policyholders in the form of annuities and invests primarily in investment-grade credit.

• The business model of Athene is limited by assets because it only makes sense to grow if they can earn spread.

• If you're an insurance company or bank who needs to earn spread, not having a good means of earning it will cause suffering.

Growth of Athene

• Started with $16 million investment in 2008, now has over $250 billion assets under management.

• Affiliation between Apollo and Athene was founded based on the ability to earn differentiated spread.

• Nearly $80-$100 billion client money side by side with Athena and Authoria.

Fixed Income Replacement Business

In this section, the speaker explains how their business differs from their peers. They are in the fixed income replacement business rather than traditional banking institutions or private equity firms.

Differentiation from Peers

• The business model is fundamentally different from any other peer group.

• They are in the fixed income replacement business which competes with traditional banking institutions like GE Capital but is not a risk business; it's an origination-focused business.

• Apollo offers excess return from double A down to private equity. They are not in every asset class or product, but they offer excess return on a sustainable basis.

Apollo's Business Model

In this section, the speaker explains how Apollo defines their business as a business of excess return and offers excess return from double A down to private equity.

Excess Return Business

• Apollo defines their business as a business of excess return.

• They offer excess return from double A down to private equity and it's up to clients to figure out where along that spectrum they want to seek out the Apollo platform.

Overview of Apollo's Business Plan

In this section, Josh Harris, the co-founder of Apollo Global Management, discusses the company's business plan and how it differs from its peers.

Differentiation in Product Offerings

• Apollo fills in other parts of their product set for clients.

• The company plans to double the size of its yield business and increase the size of its hybrid and opportunistic businesses by 50%.

• Strategic capital deployment is a differentiator for Apollo.

Comparison with Peers

• Blackstone has gone on another path by deriving spread through the management of public and private REITs.

• KKR has gone in a similar direction to Apollo but uses a full balance sheet light strategy.

Wall Street Perception

• Wall Street is starting to understand Apollo's story, but it is still early innings.

• The firm generates fre from its asset management business and sre spread-related earnings from its retirement services business.

The Growth of Alternative Asset Management

In this section, the speaker discusses the growth of alternative asset management from both a product and regulatory perspective. They note that while institutional business is still important, there has been a significant increase in high net worth individuals and the development of more sophisticated products to serve them.

Migration to High Net Worth Channel

• There has been an unbelievable creation of wealth in the past decade, resulting in high net worth individuals becoming really high net worth.

• Product development and sophistication is now moving to a par with institutional, with much of it taking place in the so-called qp channel.

• The democratization of these products will first take place in the high net worth channel before moving to mass affluent.

Institutional Business Growth

• While institutional business will continue to grow, the high net worth channel is too big to ignore and is maturing in its sophistication.

• Apollo and other firms are reaching out to serve this market through tools designed for mass affluent clients.

Private Equity as a Source of Profits

In this section, the speaker discusses private equity as a source of profits for Apollo and their clients. They note that while it is not on the same growth trajectory as some other businesses, it remains hugely important.

Importance of Private Equity

• Private equity is a massive source of profits for Apollo and their clients.

• It is also an important source of intellectual capital for every part of the firm.

Nature of Private Equity Business

• Private equity is a little bit like the farming business, with ups and downs in returns depending on market conditions.

• Despite concerns about too much money chasing too few deals, private equity has consistently delivered strong returns over time.

Growth Trajectory

• The growth trajectory of private equity may not be as high as some other businesses, but it remains an important part of Apollo's overall strategy.

• Returns have remained strong over time, with recent funds delivering gross returns of 44% and net returns in the high 20s.

English Investing in Media and Assessing Opportunities

In this section, the speaker talks about investing in media and assessing opportunities. He discusses how purchase price matters, the trend of too much money chasing too few deals, and how valuations are affected by market performance. The speaker also talks about his company's history in the media business and why he believes that media will continue to be a source of interesting opportunities.

Investing in Media

• The speaker's company has a long history in the media business.

• They historically invest in media's past and future because media's present is always too expensive.

• Recent investments have been made in TV station businesses like Cox and Yahoo.

• The speaker believes that media will continue to be a source of interesting opportunities due to its fast-evolving nature.

Assessing Opportunities

• The speaker looks at three businesses: yield, hybrid, and opportunistic.

• Only one business as a whole is short capital - the hybrid business.

• There is an immense amount of money tracing yield, so proprietary origination controlling your own capacity to generate yield is key.

• On the opportunity side, change is actually a really good driver for their business.

Overview of the Business

In this section, the speaker talks about two types of businesses in their industry: opportunistic and premium. They also discuss a third type of business called hybrid.

Types of Businesses

• The speaker describes two types of businesses in their industry: opportunistic and premium.

• The opportunistic business is about opportunity, and sometimes there's a lot of opportunity, while other times there's not so much.

• The premium business provides premiums over investment grade (triple b single a et cetera).

• There is also a third type of business called hybrid which is neither yield nor opportunistic.

Hybrid Business

• Hybrid is 30 billion dollars and is actually really interesting because it is neither yield nor opportunistic.

• It has mid-teens lower rate of return lower risk equity.

• It almost always minority stakes with some form of downside protection.

• In an environment with very low rates and very high multiples, it is simply the best risk reward.

Wall Street Landscape

In this section, the speaker discusses how the landscape on Wall Street has changed over time. They talk about how their own business will change more in the next five years than it has in the past five years.

Changes on Wall Street

• The speaker believes that their own business will change more in the next five years than it has in the past five years.

• There are two main changes happening on Wall Street: commoditization of financial markets and the maturation of the alternatives business.

• Commoditization is making public markets really efficient in the absence of spread in fixed income markets and the access absence of available returns in equity markets.

• The maturation of the alternatives business means that firms like Apollo are standing up for and underwriting investment grade deals.

• There is also a democratization of finance happening, with technology and fintech playing a big role.

Conclusion

In this section, the speaker concludes by reflecting on how millions of Americans sent their money to Robinhood to trade complex options and other products.

Final Thoughts

• The speaker reflects on how millions of Americans sent their money to Robinhood to trade complex options and other products.

• No further bullet points.

Democratization of Finance

In this section, the speaker discusses how non-bank lending firms will partner with companies like Apollo to provide balance sheets. He also talks about the democratization of finance and how credit formation is increasingly being done with investors who have matched capital.

Non-Bank Lending Sector

• Some firms will not have balance sheets and will partner with companies like Apollo to be their balance sheet.

• The financial crisis in 2008 pushed a lot of activities out of the banking sector and into the non-bank lending sector.

• Credit formation is increasingly being done with investors who have matched capital.

Financial Innovation

In this section, the speaker talks about financial innovation and how it has led to a thriving space market. He also discusses SPAC as another form of financial innovation that allows growth-oriented companies to access capital markets in a much faster way than traditional IPO processes.

Financial Innovation

• Financial innovation has led to a thriving space market that goes through cycles of plentiful and scarce capital.

• SPAC is another form of financial innovation that allows growth-oriented companies to access capital markets in a much faster way than traditional IPO processes.

• The SPAC ecosystem is here to stay, but maybe not at the same size and scale we have been beneficiaries of.

Infrastructure Business

In this section, the speaker talks about infrastructure as a massive opportunity for investment. However, he emphasizes that their job at Apollo is to earn excess return relative to risk in this asset class.

Infrastructure Business

• Infrastructure is a massive opportunity for investment.

• The most secure end of infrastructure has been arbitraged away, but there are still inefficiencies in every market. Apollo's job is to build an Apollo-esque approach to earn excess return relative to risk in this asset class.

The Importance of Adapting to Change

In this section, the speaker discusses the importance of adapting to change in the context of markets and transactions. He also highlights the significance of approaching infrastructure, back-to-office policies, and social issues in a way that is relevant to millennials.

Adapting to Change

• It is important to keep evolving our definition and looking at cash flows and transactions in the context of existing markets.

• There is massive change happening, particularly with regards to infrastructure, back-to-office policies, and social issues.

• The speaker believes he can add value by focusing on strategy and anticipating how markets will evolve.

• The speaker's leadership style involves managing change effectively and catalyzing it when necessary.

Culture and Communication

• The speaker is good at making complex things simple when speaking on topics he knows well.

• Communication is important for conveying ideas effectively.

• Focusing on culture is hugely important for creating a positive work environment where people want to stay long-term.

Judgement

• Apollo only offers one product: judgement informed by everything they do and know.

• To offer clients the best judgement possible, Apollo wants employees to stay for their entire career. This means creating an environment that is financially satisfying, enjoyable to work in, smartly managed, and free from stupidity.