Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferroll and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.
Speaker 2: We are at Apollo HQs and am please to say
Speaker 2: that joining us now is Mark Rowan, the c e
Speaker 2: O Market.
Speaker 3: Morning's here, Good morning all, great to thank you for coming.
Speaker 4: Great to be here and great to have you with us.
Speaker 2: So let's just go straight to the top of this conversation,
Speaker 2: private markets versus public markets and why you believe the
Speaker 2: big opportunity.
Speaker 4: Right now is in the former and not the latter.
Speaker 5: Look, we've had a sea change, not just over a year,
Speaker 5: We've had it over fifteen years. So much of our
Speaker 5: public markets are index and corel related eighty percent of
Speaker 5: volume s and P five hundred sixty percent of the
Speaker 5: market ETFs one hundred percent of our returns this year
Speaker 5: are from ten stocks, which constitute thirty five percent of
Speaker 5: the S and P that traded an average PE of
Speaker 5: fifty How many of us come in every day looking
Speaker 5: to buy fifty PE stocks?
Speaker 3: Not many?
Speaker 5: And I guess what I'm suggesting to you is that
Speaker 5: if you public markets, they are so correlated an index
Speaker 5: to interest rates and to money flows that if you
Speaker 5: actually want alpha outperformance, you need to step away from
Speaker 5: public markets. And I think that's happening because we're also
Speaker 5: revisiting the notion of public being safe and private being risky.
Speaker 5: This is the framework we used to be in. Private
Speaker 5: meant venture capital, hedge funds, private equity. Now it just
Speaker 5: means less.
Speaker 4: Liquid Is that not inherently a risk? In your mind? Liquiditsy.
Speaker 5: Liquidity is a risk to everyone, but in different degrees.
Speaker 5: So if you are a retirement plan or a retirement system,
Speaker 5: you know your liquidity requirements for the next ten years.
Speaker 5: So if you can get paid for illiquidity, why not
Speaker 5: get paid for ill liquidity.
Speaker 3: If you're a wealthy.
Speaker 5: Individual, how many of them need one hundred percent of
Speaker 5: their money on Tuesday? If they don't, they should get
Speaker 5: paid for illiquidity. And we're seeing that in the performance data.
Speaker 5: If you look at the active management, active management has
Speaker 5: failed to beat the index eighty five percent of the
Speaker 5: time for twenty years, and I think it's going to
Speaker 5: get harder, not easier, to beat the index. As more
Speaker 5: and more of the market is indexed. Very little money
Speaker 5: is left to actually make up what needs to be
Speaker 5: done in active management?
Speaker 1: What is the single operational distinction between Drexel, Burnham Lambert
Speaker 1: and your Apollo? What is the micro idea you can
Speaker 1: give us of them versus now.
Speaker 5: Not just I'll give you Drexel, I'll give you Lehman Brothers,
Speaker 5: I'll give you bear Stearns, I'll give you SVB, I'll
Speaker 5: give you First Republic. The financial institutions tend to die
Speaker 5: of one of two causes, heart attack or cancer. Heart
Speaker 5: Attack is funding risk. They borrow short and they lend long.
Speaker 5: Cancer is the slow addition of poor quality assets, which.
Speaker 3: Over time undermine the system.
Speaker 5: So you look at all of those firms, All of
Speaker 5: those had an element of both heart attack and cancer
Speaker 5: funding risk as well as asset risk.
Speaker 3: You look at what we're doing.
Speaker 5: We are borrow borrowed long, and lent long. Everything is matched,
Speaker 5: everything is in a fund. There is no daily liquid,
Speaker 5: quarterly liquid money.
Speaker 3: At Apollo.
Speaker 5: We are ideally situated to take advantage of less liquid assets.
Speaker 5: We've structured ourselves that way. And then you look at
Speaker 5: the totality of what we do. Equity is a risk business.
Speaker 5: Equities go up and down every day. You can lose
Speaker 5: money in public equity. You can lose money in private equity.
Speaker 5: In the credit business. The vast, vast majority of what
Speaker 5: we do is private investment grade.
Speaker 1: When I look at the risks out there and A
Speaker 1: translated into Nazim teleban all the work you did in
Speaker 1: quant with black Swan, what are the tail risks you
Speaker 1: see right now for private equity? I mean, are you
Speaker 1: hedged perfectly? Is there next to no delta where you
Speaker 1: feel so comfortable? Are there actual tail risks in apollo?
Speaker 5: I don't think there are tail risks, and I don't
Speaker 5: think there are tail risks in private equity. I think
Speaker 5: private equity is a risk taking activity. But each of
Speaker 5: the companies, each of the situations is idiosyncratic onto itself,
Speaker 5: and over time, private equity has proven to be a
Speaker 5: very good asset class. Recognizing that in certain markets you
Speaker 5: will lose money, just like in certain public markets you
Speaker 5: will lose money.
Speaker 1: You had a test here with the way interest rates went,
Speaker 1: you had a four or five six standard deviation shock.
Speaker 1: How did your risks perform given the shock of higher
Speaker 1: rates the glide path of that? How is it along
Speaker 1: the way?
Speaker 3: Single best year in Apollo's.
Speaker 5: History, earnings, asset performance, our platform. As you think about it,
Speaker 5: we are around six hundred and fifty billion of assets
Speaker 5: under management in our asset management business. Five hundred billion
Speaker 5: of that is credit. We generally benefit from rising rates. Yes,
Speaker 5: on the equity side, some equity will be worth less
Speaker 5: than it was, but as a general rule for Apollo,
Speaker 5: credit rates going off is very strong on the retirement
Speaker 5: services side of our business, which is the Athene business
Speaker 5: just gone through the roof. Athene is up thirty percent
Speaker 5: year over year.
Speaker 6: So I'm going to steal a page from this guy
Speaker 6: because he's been talking about a zepic a lot, and honestly,
Speaker 6: I think that it's important for us to talk about it.
Speaker 5: Are you telling me something that's absolutely not And I.
Speaker 6: Just think I'm not saying that anyone is onozepic. We're
Speaker 6: talking about this as a game. Estentially, no one here
Speaker 6: is on o zepic, and we're not making any not
Speaker 6: that there's anything wrong with it.
Speaker 3: Whatever, let's move on.
Speaker 6: Here's this question about how much that transforms life expectancy,
Speaker 6: how much that transforms some of the investment thesis from
Speaker 6: your perspective and for retirement look.
Speaker 5: Over time, you would expect improvements in healthcare, improvements in
Speaker 5: health technology to improve life expectancy, but not by all
Speaker 5: that much. We tend to find other things that are
Speaker 5: bad for the human body. As one thing does not
Speaker 5: kill us, another thing does so. But I would expect
Speaker 5: the trend to continue. We are just to be clear,
Speaker 5: we are not in the insurance business.
Speaker 3: We are in We are.
Speaker 5: An insurance company that is in the retirement services business.
Speaker 5: We make money by guaranteeing people's retirement, and we earn
Speaker 5: money by earning more on our assets than we payd
Speaker 5: on our liabilities, very little exposure to longevity or any
Speaker 5: other what you would consider biometric or typical insurance risk.
Speaker 6: There's a real question here and real focus on income.
Speaker 6: And you've been talking about that. How there is risk
Speaker 6: and equity but not necessarily the same type of thing
Speaker 6: that you see in credit. And we just saw credit
Speaker 6: outperform private credit outperform private equity pretty meaningfully. Are you
Speaker 6: going to shift away from private equity more and more
Speaker 6: and just focus purely on the more credit business.
Speaker 5: No, this is the answer, but we have to step
Speaker 5: back and go back to what our business is. Our
Speaker 5: business at Apollo and for most people in the alternative
Speaker 5: asset management industry, we're not in the asset management business.
Speaker 5: We're in the excess return period at risk business. And
Speaker 5: then I ask myself where can we get access return? Well, inequity,
Speaker 5: we've gotten to one hundred and fifty billion.
Speaker 3: Is it going to grow?
Speaker 5: I think it will grow, really grow multiples. I don't
Speaker 5: think so. I think the nature of the business, if
Speaker 5: we're true to ourselves of just focusing on excess return,
Speaker 5: is slower growth. I look at the credit business. The
Speaker 5: credit business is nearly five hundred billion today. We're not
Speaker 5: relevant in the scheme and the scale of these markets.
Speaker 5: Five hundred billion is not a relevant sentiment. I assure you,
Speaker 5: when you speak to all the big bank CEOs today,
Speaker 5: they don't wake up every day wondering what the mighty
Speaker 5: Apollo is doing.
Speaker 2: There's a phrase I've used twice already this morning, in
Speaker 2: the last forty minutes one hour de Bankking, and every
Speaker 2: time I've used it I've had pushback around this table.
Speaker 4: Why don't we like that price the bankking.
Speaker 5: I personally like that phrase, Jim Zelter. It will cost
Speaker 5: me twenty dollars for just saying the word de banking,
Speaker 5: but I'm happy to pay it. I think the world
Speaker 5: is debanking, and I say it this way. Every economy,
Speaker 5: every regulatory scheme, credit is tied to GDP, and regulators
Speaker 5: have only two choices as to where credit comes from.
Speaker 5: It can come from the banking system, or it can
Speaker 5: come from the investment marketplace. There's no third choice, and
Speaker 5: everyone around the globe has made a different decision. But
Speaker 5: if you look at the trend, with the exception of China,
Speaker 5: everywhere in the world regulators are favoring investors over banks.
Speaker 5: That does not mean we're going to see us on shift.
Speaker 5: That does not mean the banking business is going out
Speaker 5: of business. On the margin, though, the growth is going
Speaker 5: to take place in the investor marketplace rather than in
Speaker 5: the banking system for good and valid reasons and for
Speaker 5: regulatory choice, not because the banking system is unsafe.
Speaker 6: So, given that you said, you don't see a lot
Speaker 6: of upside in terms of growth, tremendous amount of growth
Speaker 6: and the equity side, you said, you're irrelevant with five
Speaker 6: hundred billion dollars. How big, how relevant could you become?
Speaker 7: Well?
Speaker 5: I sat next to a senior executive from Blackrock last
Speaker 5: night at dinner and they had food in front of them,
Speaker 5: and I had no food, and I.
Speaker 3: Said, how big do you have to be to get
Speaker 3: food in front of you? And he said trillion.
Speaker 6: So that's what you're aiming forten dollars is what you're saying.
Speaker 3: Look for us.
Speaker 5: For us, this is about excess return per unit of risk.
Speaker 5: Our business plan calls for a doubling of our business
Speaker 5: and at the end of the doubling, liking who we
Speaker 5: are as a culture. Our limitter is not capital raising.
Speaker 5: Our limitter is not size of aum. Our limitter is
Speaker 5: making sure we get excess return per unit of risk,
Speaker 5: so finding assets and making sure we like our culture
Speaker 5: at the end of the day.
Speaker 1: And we all bring to this our childhoods. My childhood
Speaker 1: was a white Anglo Saxon Protestant grandmother John after her
Speaker 1: third Scotch, who would talk about how Jews couldn't go
Speaker 1: to a certain school in Massachusetts. Most of them ended
Speaker 1: up at Lisa's University of Chicago. That was a different battle.
Speaker 1: Now there is a new battle, and we address this
Speaker 1: with Mark Rowan. I am stunned at what I see
Speaker 1: at these schools, and particularly at your University of Pennsylvania.
Speaker 1: You've been vocal. What is the dialogue you have right
Speaker 1: now with the leadership of the University of Pennsylvania is
Speaker 1: they deal with this new anti Semitism?
Speaker 5: There's no dialogue with leadership at the moment. Leadership is
Speaker 5: on their way or in DC for a series of
Speaker 5: congressional hearings. But the underlying culture that permitted this to
Speaker 5: happen is just so strong and until there is a
Speaker 5: moment of self reflection where we're not dealing with just
Speaker 5: anti Semitism, we're dealing with the culture that allowed this
Speaker 5: to happen, there really is going to be no progress,
Speaker 5: and to date there's been no progress.
Speaker 6: So what is progress right? Because there's a real question
Speaker 6: around free speech versus something else? What is this something
Speaker 6: else that you're looking for some of these universities to target.
Speaker 5: There's really not a question of free speech. This is
Speaker 5: a question of favored speech and disfavored speech, and an
Speaker 5: institutional psychology and an institutional culture. So there are places
Speaker 5: where this is modeled and they're getting it right. For instance,
Speaker 5: University of Chicago. University of Chicago is getting it right.
Speaker 5: They are kicking pens butt to be candid, and it's
Speaker 5: not that hard. The institution has decided that it is
Speaker 5: institutionally neutral and that the students and professors and other
Speaker 5: actors on campus are allowed to have opinions and to
Speaker 5: speak their opinions within respectful ways. Say what you will,
Speaker 5: say what you want, allow the other side to speak.
Speaker 5: That is a culture of free speech. A culture where
Speaker 5: you shout people down, where you have ninety five percent
Speaker 5: of the professor or academia speaking in one way, where
Speaker 5: you permit violent protests, where students are unable to go
Speaker 5: to class because there's boycotts or there's pressure or other things,
Speaker 5: is not a culture of free speech.
Speaker 6: How do you understand the increase in anti semitism on
Speaker 6: the left, which is really polarized frankly the Democratic Party
Speaker 6: and created a lot of sort of soul searching.
Speaker 5: Look, this is a long time coming, but I'll start
Speaker 5: with history. The definition of antisemitism, the modern definition, the
Speaker 5: IRA definition includes anti Zionism as a form of anti semitism.
Speaker 5: This got through the Senate with many of the current
Speaker 5: senators still there are nine to zero, including most of
Speaker 5: the most progressive Democratic centers. So what we've seen is
Speaker 5: we've seen a shift in the mood of the populace,
Speaker 5: particularly on university campuses. We live in a culture on
Speaker 5: these university campuses of simplicity. You are oppressed or you
Speaker 5: are an oppressor. If you are oppressed, it does not
Speaker 5: matter what you do.
Speaker 3: You can do no wrong.
Speaker 5: If you are an oppressor, facts be damned, it does
Speaker 5: not matter what you do, you can do no right.
Speaker 5: In that kind of mindset, it does not surprise me
Speaker 5: that anti Semitism, anti Zionism has taken hold. And if
Speaker 5: you give historical context, go to the Holocaust, you have dehumanization,
Speaker 5: you have delegitimization, and then you ultimately have genocide. Now
Speaker 5: you apply that to anti Zionism, you have dehumanizing of
Speaker 5: Israelis and Jews. You have delegitimizing of Israelian Jews, and
Speaker 5: now with Hamas's attack, you have the beginnings of killings.
Speaker 5: It's not that hard to see where we are.
Speaker 3: The only thing that's hard is for the left recognize it.
Speaker 2: I have been surprised that people have been so surprised
Speaker 2: by where some of these campuses are at. And I
Speaker 2: think about the amount of tremendous philanthropy that have come
Speaker 2: from people like you, Saith over the years on these campuses,
Speaker 2: I do wonder why we allowed it to come to
Speaker 2: this mark, why it got this far when we've seen
Speaker 2: this been building for years and years and years through.
Speaker 4: A whole generation.
Speaker 5: The answer, I believe is a slow build. And it
Speaker 5: ultimately comes back to governance and leadership. If I speak
Speaker 5: just about University of Pennsylvania, the governance has actually divided
Speaker 5: between the faculty and the trustees. Except for the last
Speaker 5: twenty five years, only one of those two groups has
Speaker 5: been doing their job. And I put myself in the
Speaker 5: camp that did not do their job. I was a
Speaker 5: trustee for a long period of time. The trustees have
Speaker 5: a very important role to play in setting in the
Speaker 5: strategic direction of the university permissible and impermissible where we
Speaker 5: want to go, except it's not a governing body. Forty
Speaker 5: seven trustees really can't agree on anything. It's not set
Speaker 5: up to govern, and there's no histy of govern and
Speaker 5: so in the absence of any leadership, faculty or administration
Speaker 5: has taken these universities in direction that the.
Speaker 3: Alumni do not recognize.
Speaker 5: When you have a John Huntsman, Ronald lauder A Cliff Asnaes,
Speaker 5: and seven thousand other alumni who for their own reasons,
Speaker 5: their own political persuasions, their own belief system, all don't
Speaker 5: recognize the university that they loved.
Speaker 3: You have a problem.
Speaker 2: So first move is to stop donating. I guess we
Speaker 2: could disengage, walk away. You seem to be more constructive
Speaker 2: about the prospect of change. Shit you think there is
Speaker 2: a better path ahead.
Speaker 5: I think the worst thing that can happen to these
Speaker 5: universities is apathy. Right now, there's not apathy. Donors are engaged,
Speaker 5: they want change, they love the place. This goes on
Speaker 5: much longer, I think we will get to apathy. And
Speaker 5: once we get to apathy, I don't think the universities
Speaker 5: can recover from this. And unfortunately, all university presidents that
Speaker 5: I'm aware of, particularly at the University of Pennsylvania, they
Speaker 5: seek to wait this out. Maybe this will go away,
Speaker 5: I won't have to deal with this. That is actually
Speaker 5: a loss. They haven't internalized that that's a loss, but
Speaker 5: that is a loss.
Speaker 1: There's an understanding there's a woke adjustment going on right now.
Speaker 1: We see it in Hollywood, to collapse of many Disney
Speaker 1: movies and others that have certain messages that aren't selling
Speaker 1: to the public. The Ft has an article on your
Speaker 1: colleagues at Blackrock on ESG and how there's a woke
Speaker 1: adjustment in the ESG. How's this going to adjust the
Speaker 1: wokeness of these universities? How will it adjust?
Speaker 5: Look, this is a question ultimately a balance. This is
Speaker 5: not a question of a pendulum swing all the way back.
Speaker 5: But right now these universities are out of balance. And
Speaker 5: I believe that the trustees, the alumni, and by the way,
Speaker 5: many of the faculty. If we read Bill Ackman's letter yesterday,
Speaker 5: and the experience I'm having at the University of Pennsylvania
Speaker 5: is word for word the experience that Bill Ackman is
Speaker 5: having at Harvard. Professors don't want to be muzzled anymore.
Speaker 5: They feel that they can't speak out unless they are
Speaker 5: conforming to the narrative of the university, and the resentment
Speaker 5: is building. All we've done, all I've done, all Bill
Speaker 5: has done, is given people an opportunity to speak their
Speaker 5: minds and guess what they have a lot to say.
Speaker 2: Big election next year, let's finish on that. Is this
Speaker 2: going to change how you approach us politics? Who you
Speaker 2: would enduce for twenty twenty four?
Speaker 3: No, it's not going to change.
Speaker 4: Do you have a favorite candidate?
Speaker 5: No, it's hard to believe with three hundred and fifty
Speaker 5: million people in this country that we're down to two.
Speaker 4: You disappointed with these two personally?
Speaker 3: I'm disappointed.
Speaker 4: What is it about these two that you find so disappointing?
Speaker 5: Thing, Look, we are we have the single best hand
Speaker 5: of cards anywhere in the world.
Speaker 3: We have it all. We just play this hand poorly.
Speaker 4: What does that mean?
Speaker 3: Think about it? People want to come here.
Speaker 5: We have an incredible knowledge base, We have abundant energy,
Speaker 5: we're leaders in technology. We have a massive domestic market
Speaker 5: with the strongest military power. And yet we have challenges
Speaker 5: that we have not been able to as a result
Speaker 5: of lack of leadership, as a result of political consensus
Speaker 5: to address. We have a retirement crisis, we have a
Speaker 5: healthcare crisis, we have a budgetary crisis. We are inconsistent
Speaker 5: to our allies around the world. We have important decisions
Speaker 5: to make without weighing in as to what's going on
Speaker 5: in Ukraine and what's going on in the Middle East,
Speaker 5: all of which seems to be caught in a little
Speaker 5: bit of a morass.
Speaker 1: Is United Nations experience important for a presidential.
Speaker 3: Candidate United Nations know, Okay, it's.
Speaker 4: Trying to give them good That was delicate. This is delicate.
Speaker 1: That that was a sensitive sight.
Speaker 3: I thought, I responded, delicate.
Speaker 4: Thank you, thanks for having us. It's going to catch up.
Speaker 3: Total pleasure.
Speaker 4: Thank you very much. Mak Robin at the CEO of Apollo.
Speaker 2: Jim's out that joins us now the co president of
Speaker 2: Apollo Global Management, Jim Gimmonisia.
Speaker 7: Good morning and welcome to Apollo.
Speaker 4: Thank you for having us. Thank you for having us.
Speaker 7: I said, the coffee is good and the price is
Speaker 7: even better.
Speaker 4: Right, the coffee is good and the price is free
Speaker 4: and we like that.
Speaker 7: Yeah, to see it right to David Tip jerk believe money.
Speaker 8: Oh, this is called this is the you're making the
Speaker 8: show today from our Contrarian cafes.
Speaker 7: So we welcome you nice and you have a great
Speaker 7: line up this morning.
Speaker 8: So we're excited to have you here and tell you
Speaker 8: more about our story.
Speaker 2: That great lineup begins with you. I mentioned a little
Speaker 2: bit earlier. There is a call on the cycle that
Speaker 2: we can talk about. There's also a call on the industry.
Speaker 2: Let's start with the industry. That phrase I mentioned moments ago,
Speaker 2: D banking perfect place to start. What is D banking
Speaker 2: and what does it mean for you in the same well,
Speaker 2: you know, I.
Speaker 8: Don't use that term. I really use the evolution of finance.
Speaker 8: The reality is that we the last forty years, we
Speaker 8: had amazing tail wins with globalization and technology and lower rates.
Speaker 8: Banks became they were advisors for decades. In the nineties
Speaker 8: and the two thousands, they became large global institutions. Oh
Speaker 8: eight or nine happens, and there's a tremendous amount of
Speaker 8: Legg dot frank to change their business model. But at
Speaker 8: the same time rates were lower, and in the last
Speaker 8: fifteen years, CEOs, the CEOs you're going to have on
Speaker 8: today from Wells and from other places, they're focused on
Speaker 8: ROE and their shareholder return. And as they're focused on
Speaker 8: ROE and shareholder return, there's a massive gap where companies
Speaker 8: need to find capital, and firms like Apollo we've been
Speaker 8: at the front of the front of the parade in
Speaker 8: terms of providing capital across our business and when you
Speaker 8: put that together with our funding model of LP capital
Speaker 8: from around the globe plus our retirement services, we're just
Speaker 8: a very unique player in that's going on.
Speaker 2: We've got to get into how big the addressable market
Speaker 2: is and what are private markets. Typically we think of leverage, finance,
Speaker 2: macro and your colleague and we'll catch up with a
Speaker 2: little bit later this morning talks about basically everything that's
Speaker 2: on a bank balance sheet.
Speaker 4: How big is this going to be?
Speaker 8: You know, when most people talk about and you did
Speaker 8: a great job, right, they're talking about private capital and
Speaker 8: private markets. Most people when they talk about private credit today,
Speaker 8: they talk about direct origination, which is about a trillion
Speaker 8: five it's about a third of the high yield and
Speaker 8: loan markets.
Speaker 7: We think the definition.
Speaker 8: Of private capital and private credit is around a forty
Speaker 8: trillion number, and that would consist of you know, solar finance,
Speaker 8: inventory finance, trade finance, franchise finance, along with a lot
Speaker 8: of this corporate lending and investment grade privates that a
Speaker 8: lot of banks used to hold large chunks on their
Speaker 8: balance sheet. But again, in their search for roe and
Speaker 8: appropriate returns, they're not the right place to hold that.
Speaker 8: They may be the right place to originate it, but
Speaker 8: they're certainly not the right place to hold it long term.
Speaker 1: In our three hours with you, I think I want
Speaker 1: to get out of the way right away. The stereotype,
Speaker 1: it's high flute and fancy derivatives, fancy structures, mezzaning.
Speaker 7: Everybody walks around says.
Speaker 1: Mezzaning that we have mezzoning coffee, we have mezzoning Danish.
Speaker 1: But the reality is a shocking and conservative. On your
Speaker 1: website you lead with retirement service, How conservative, how measured,
Speaker 1: how prudent?
Speaker 8: Is Apollo well and the end of the day, we
Speaker 8: do not like to lose money, and that even means
Speaker 8: a penny. The reality is, if you look at our
Speaker 8: firm today, six hundred and thirty billion, about one hundred
Speaker 8: billion in private equity, about one hundred billion in real
Speaker 8: estate and infrastructure, four hundred plus billion in credit, a
Speaker 8: vast mass majority of that is investment grade. And in
Speaker 8: this year alone, whether it's Air France, Venovia, AT and T,
Speaker 8: we're loaning money to great companies that are a lot
Speaker 8: of them are investment grade. And it's interesting, you know,
Speaker 8: you talk around the globe right now, in the last
Speaker 8: six seven weeks, you know, buying investment grade debt of
Speaker 8: companies like Merk and Meta and many, many others. You've
Speaker 8: been making a double digit return between the compression of
Speaker 8: spreads and otherwise. Now that's in the public markets. But
Speaker 8: back to the private credit. To your point, we lend
Speaker 8: to large companies, mostly investment grade, and for our perspective,
Speaker 8: back to Jonathan's question, it's not a one and a
Speaker 8: half trillion opportunity.
Speaker 7: It's really a forty trillion opportunity.
Speaker 6: So let's talk about where we are. You don't like
Speaker 6: to lose a petty and yet you've been focused on
Speaker 6: investment grade, which is underperformed. High yield risk has done
Speaker 6: a lot better than lower risk securities. Where are we
Speaker 6: in terms of where you can make the most money.
Speaker 6: Is it's still an investment grade despite where we are
Speaker 6: right now, Well, it's.
Speaker 7: In higher quality credit. The reality is there's still this debate.
Speaker 8: You'll have it with Torston later on soft landing hard landing,
Speaker 8: your friend mister Slock.
Speaker 7: But the reality is the economy.
Speaker 8: Is we're sort of a little bit in this interesting
Speaker 8: goldilocks period right now. Concern about a slowdown has been
Speaker 8: on everybody's mind the last six seven months. Fed's actually
Speaker 8: done a really nice job of maintaining higher rates. So
Speaker 8: I would argue that the FED put is back in the.
Speaker 7: Market right now.
Speaker 8: And the reality is you can make is people are
Speaker 8: worrying about soft and hard landing in credit. You've been
Speaker 8: making double digit returns in the last six and nine months.
Speaker 6: So the FED put is back. We can't let that go.
Speaker 6: What exactly does that mean? Does that mean that we're
Speaker 6: not going to have the same kind of credit cycle
Speaker 6: that now you are a believer no on' soft landing.
Speaker 8: I think what you're going to see is you're going
Speaker 8: to see an economy that there's going to be winners
Speaker 8: and losers, certainly like an inflation. You're seeing it right
Speaker 8: now in the goods section, goods area where goods prices
Speaker 8: are lower but services are a bit higher. And I'm
Speaker 8: just saying is that the economy is navigating what's going
Speaker 8: on right now. The FED is maintained at fairly high rates.
Speaker 8: The market's gotten ahead of it, if you will, and
Speaker 8: if there were any kind of challenging economic backdrop, the
Speaker 8: FED does have a loaded gun that they can use
Speaker 8: as needed and as appropriate. I'm not assuming it's going
Speaker 8: to happen. I think you're going to see what we're
Speaker 8: all expecting. You know, we're students of history. We expect
Speaker 8: to happen in a way to happen. Again, I don't
Speaker 8: think you're going to see that happen right now. I
Speaker 8: think the actually reality is the banking system in the US,
Speaker 8: the envy of the world, is actually quite robust. There
Speaker 8: are signs of the economy that are a bit more challenging.
Speaker 8: There are a lot of bios that have been done
Speaker 8: that will have a challenging time, but you're just going
Speaker 8: to have to navigate it with a really broad toolbox.
Speaker 1: I mean, in the history on an almost cultural basis,
Speaker 1: one of my themes is we had seventy three seventy
Speaker 1: four Pittsburgh role you and I lived it in western
Speaker 1: New York. And the bottom line is then we had
Speaker 1: seventy seven a second leg of a great bullmarket starting
Speaker 1: into the eighty two expansion. Is that the analog right
Speaker 1: now that after the gloom of the pandemic and the churney,
Speaker 1: that there's something new here, constructive.
Speaker 8: Well, there's no doubt in the you know, if you
Speaker 8: talk about those four tailwinds that I talked about globalization,
Speaker 8: lower rates, deregulation. The fourth is technology, and there are
Speaker 8: those who know a lot more about it than I do,
Speaker 8: but they would argue that we are on the precipice
Speaker 8: with what's going on with AI, cost structure, education and
Speaker 8: the breadth of that that that could have a huge impact.
Speaker 8: But the reality is the cost of capital is going
Speaker 8: to be higher for the next five or seven years.
Speaker 7: We are in a higher cost of capital environment.
Speaker 8: And it's how you navigating back to your original question, Like,
Speaker 8: the reality is the bank the banking system around the
Speaker 8: globe is evolving. The US is in the front of that.
Speaker 8: And as you'll hear about this morning, we think we're
Speaker 8: we are the player as that industry contain used to evolve.
Speaker 2: We've got to set it up for the rest of
Speaker 2: this morning. There will be people at home asking this
Speaker 2: following question, So how to answer it. Are we not
Speaker 2: just transferring the risk from banks and the risk they
Speaker 2: post the economy to places like this, Well.
Speaker 8: We're actually taking the risk that was consolidated on a
Speaker 8: bunch of financial institutions and bringing it to a much
Speaker 8: much broader system where we're diversifying that risk because our
Speaker 8: investors at the end of the day are either sovereign
Speaker 8: or other pension funds that don't own these assets on leverage,
Speaker 8: or there are other retirement services. So we're going higher
Speaker 8: quality assets and we're diversifying the risk of the system.
Speaker 8: It's actually making the system less risky.
Speaker 4: Jim, this was awesome, Thanks for having us.
Speaker 7: Thank you here, well, welcome today and we look forward
Speaker 7: to a great morning.
Speaker 2: It's going to be fantastic. Jim's down to the of
Speaker 2: Apollo Global Management.
Speaker 1: Joining usself. Someone you are very familiar with, Torsten Slock,
Speaker 1: of course holding court at Deutsche Bank for years, dragged
Speaker 1: over to Apollo to provide economic wisdom, and we're thrilled
Speaker 1: that he would host us here today. Nice coffee, We're
Speaker 1: coming next week. You have one single sentence in your
Speaker 1: report this time around. It's not the Friday jobs report,
Speaker 1: it's the Thursday Friday jobs report. Because the optimists are
Speaker 1: hanging on claims. How important are claims?
Speaker 9: Well, that's really a critical question when it comes to
Speaker 9: this employment report on Friday for November. Jobless claims has
Speaker 9: been surprisingly resilient for a very long period. No, it's
Speaker 9: beginning to look more not like a soa if Daniel
Speaker 9: Hard landing bore more like a long term landing. We're
Speaker 9: waiting more and more and more for any evidence of
Speaker 9: either shop ors lowdown or acceleration, and what we do
Speaker 9: have on the label market on the slowdown side is
Speaker 9: as we'll get today. The jold Stata has been showing
Speaker 9: the quits rate has been coming down, meaning the number
Speaker 9: of people who voluntarily quits their jobs has been declining.
Speaker 9: The number of job openings has been coming down, the
Speaker 9: work week has been coming down. Wages for job switches
Speaker 9: relatives to job stay us has been converging. In other words,
Speaker 9: you no longer have as much bargaining power if you
Speaker 9: change jobs, combined with a number of people who are
Speaker 9: changing jobs for permanent reasons has also been changing. So
Speaker 9: the concrusion is we still have more and more evidence
Speaker 9: pointing the direction of the labor markets, oftening one indicator
Speaker 9: job this claims yes, still good, but basically everything else
Speaker 9: is pointing a direction of what you would expect, namely
Speaker 9: a week of lab.
Speaker 1: Okay, I want a single point nine farm payils estimate,
Speaker 1: but they won't serve me the bacon John was talking about,
Speaker 1: So let me go to this is the whisper number
Speaker 1: finally turning towards it. So looked down a set. There
Speaker 1: was a John one hundred and eight eight thousand word.
Speaker 4: That's consensus, maybe an estimate. Yeah we wait w which
Speaker 4: is a fact a whisper.
Speaker 1: Number coming down instead of going up this time.
Speaker 9: Well, if you readly back up and think about what's
Speaker 9: going on. The FED high rates in March of twenty
Speaker 9: twenty two, and your textbook would tell you when you
Speaker 9: raise interest rates, you should expect to see consumption begin
Speaker 9: to slow down, cap ex spending begins to slow down,
Speaker 9: credit growth on the banking sector begins to slow down,
Speaker 9: and all those things are happening, and all those things
Speaker 9: should also be expected to hit in particular lower rated credits,
Speaker 9: smaller companies, middle market companies. And that's exactly where you're
Speaker 9: beginning to these signs of weaker labor demand. So you
Speaker 9: should expect to see non farm payrolls over the next
Speaker 9: several months do what the FED is expecting it to do.
Speaker 9: Let me gradually be soft and softer.
Speaker 4: Is this labor market right now?
Speaker 2: And this is a no doubts a question if for
Speaker 2: a ram Mack, is this labor market right now less
Speaker 2: of a reason to be hawkish at the Federal reserve,
Speaker 2: even if we are printing two hundred k on payrolls.
Speaker 9: Well, as Jim was saying earlier, if it put is back,
Speaker 9: because think about it, we have now a situation where
Speaker 9: the market is spending so much time on the Fed's
Speaker 9: ministerial small changes in their communication, and if the Fed
Speaker 9: is now beginning to say, well, we still don't think
Speaker 9: that we are there yet, the market says, well, okay,
Speaker 9: we are there yet, and you come to that conclusion.
Speaker 9: But we've had that pivot so many times, and it
Speaker 9: remains to be seen whether that pivot this time is right.
Speaker 9: But the way I think we should be looking at
Speaker 9: it is in the deal mandate. Should we be focusing
Speaker 9: on inflation or employment. Inflation is moving in the right direction.
Speaker 9: Employment is moving gradually in the right direction. But if
Speaker 9: the labor market does start to have more than a
Speaker 9: soft landing, then we will certainly have a sentiment change
Speaker 9: in markets.
Speaker 6: So I never thought that i'd get to the place
Speaker 6: for Torston Slock and Ben Ladler would agree. I think
Speaker 6: of you as a perennial pessimist. I always open your
Speaker 6: uh your emails that I.
Speaker 8: Kind of enjoy.
Speaker 3: No, I actually risk exactly.
Speaker 6: So you're worrying about risks and you're pointing to all.
Speaker 4: These risks you're responsible. And then you.
Speaker 6: Say, you know there's a FED put So does that
Speaker 6: mean that Goldilocks is back on the table.
Speaker 9: Well, but the issue here is that the market has
Speaker 9: been interpreting the FED in so many different ways for
Speaker 9: the last year, and the FED pivot has come I
Speaker 9: mean seven out of the last nine times, as you will,
Speaker 9: so a variant of the old joga of how many
Speaker 9: times can you come with the same story that now
Speaker 9: is the time, Now is the time for the Feds
Speaker 9: or turn dubbish. But they haven't turned dubbish, and I
Speaker 9: think that's why we will have rates higher for longa
Speaker 9: This is good for fixed income. This means that the
Speaker 9: front end of the curve should be still cutting coupons.
Speaker 9: In terms of thinking about what is the overall outlook.
Speaker 9: It goes to take time before we get inflation under control,
Speaker 9: and I think that process, meaning into next year, still
Speaker 9: means that the downside risks, so the outlook continues to.
Speaker 7: Get a course. First.
Speaker 1: Ronal Jim from Rochester, thanks so much for watching to
Speaker 1: the tourist, and I'm going to cut to the chase.
Speaker 1: There's non linearities out there along the curve. The chairman
Speaker 1: Powell looks at where's the biggest potential non linearity. Is
Speaker 1: it wicked short like Apollo short term paper? Is it
Speaker 1: ten to twenty year French paper, thirty or forties? At
Speaker 1: the Austrian piece, where's the stress?
Speaker 9: I would look at this from a macro perspective that
Speaker 9: the FED has high rates. We're seeing the language rates
Speaker 9: going up on credit cards, on auto loads if.
Speaker 1: There's no there's a slock brim all love, seeing.
Speaker 9: Revolt rates going up on higher the loans. It's been
Speaker 9: going up quite quickly in the last six months. You're
Speaker 9: also seeing the bank credit growth to slow down quite substantially.
Speaker 9: Taking those things together, all that so far looks like
Speaker 9: a soft landing. But again, as I said it, Moll
Speaker 9: been along landing here. But the bottom line still is
Speaker 9: to your question, the risk is if people wake up
Speaker 9: suddenly in the next few quarters and say, wow, maybe
Speaker 9: there's more downside rich to consumption. Because the hit is
Speaker 9: not only from interest rates going up. If people also
Speaker 9: start losing their jobs and the lego markets often, which
Speaker 9: is what the FIT has been talking about, we get
Speaker 9: the doubleemy of both high interust rates hanging in there
Speaker 9: at the same time while the label market finally softens,
Speaker 9: which is what the has been waiting for.
Speaker 7: For so long.
Speaker 2: Okay, pause because in the last week we've just had
Speaker 2: records spending Black Friday online Cimber month that was online
Speaker 2: busiest day on recording US airports, and then buy now
Speaker 2: Pay Later underpinning is bad news.
Speaker 4: That's why I want to ask.
Speaker 9: Okay, roughly half of the population has used by now
Speaker 9: pay Later, and that number had just continued to go
Speaker 9: up in the last several months. So you begin to
Speaker 9: think about, well, is that a sign that they can't
Speaker 9: get credited elsewhere, even on their credit cards, so rangers
Speaker 9: tickets would find now pay Later. I know, well that's
Speaker 9: You're probably part of that that has used it. But
Speaker 9: I'm just saying the confusion is that we're getting to
Speaker 9: the to the bottom line here that people are getting
Speaker 9: stressed more on the household side, savings are mainly with
Speaker 9: the middle and high income households. Low income houses are
Speaker 9: getting more and more pressure, in particular when it comes
Speaker 9: to the linkage rates. So that's of course implying that
Speaker 9: we will see more downside pressure on consumers over the
Speaker 9: next one.
Speaker 2: Maybe this might be just the beginning of the can
Speaker 2: seema leffing gun. Why isn't it that.
Speaker 9: Well, because the backdrop here is that the FED is
Speaker 9: not going to cut race anytime soon. So if the
Speaker 9: cost of financing states or in FED language, you will
Speaker 9: appreciate this. We will be above us star, which is
Speaker 9: two and a half for a very extended very soon.
Speaker 7: Do our start?
Speaker 1: Come on? Well, we got twelve.
Speaker 4: Seconds, We've got about a minute left.
Speaker 10: Williams said, Love, I would say they have ado to
Speaker 10: get that. We'll I'll go with the FED line here
Speaker 10: and say two and a half percent, and if you
Speaker 10: add five and a half, we will have restricted monetary posts.
Speaker 9: For at least a few more years. So to Jonathan's question,
Speaker 9: that means that consumers will be under pressure potentially for
Speaker 9: a few more years.
Speaker 1: A guy yesterday said he is some German bank. He said,
Speaker 1: ECB is gonna go first. What's a bundes Bank gonna
Speaker 1: tell the guard when she decides to cut.
Speaker 9: That's a real wrestle inside the ECB at the moment.
Speaker 7: But the ECB will go first.
Speaker 9: But it's very clear that different ECB government Concile members
Speaker 9: are showing up at the meeting and have probably having
Speaker 9: different wish lists.
Speaker 2: Yeah, the Federal reserves on the same page, maybe right now.
Speaker 2: Council for the ECB tossed slock there of Apollo Toaston Fankan.
Speaker 1: Olivia Wassner joins us now head of Sustainable Investing for
Speaker 1: Apollo again from COP twenty eight, Olivia, thank you so
Speaker 1: much for joining us. A big splash in the ft
Speaker 1: is they really go after ESG and say is this
Speaker 1: all going to work out? And part of it and
Speaker 1: this goes to the investment of Apollo in sustainable investing.
Speaker 1: It's you can make money at ESG. You can make
Speaker 1: money and profit with sustainable investing. Is that what Apollos
Speaker 1: witnessed with your investments? Have you seen money being made
Speaker 1: by being sustainable, by doing the things Cop twenty eight's
Speaker 1: talking about.
Speaker 11: Absolutely? Well, first of all, thank you for having me.
Speaker 11: Thank you for having me in from Duvine from COP
Speaker 11: twenty eighth. I'm thrilled to be here and also be
Speaker 11: able to beam into Apollo this morning. Absolutely, that is
Speaker 11: what we are seeing with our investments. So if we
Speaker 11: look at the capital we have put to work over
Speaker 11: the last five years into sustainable investing seams, the firm
Speaker 11: on a whole has put about thirty one billion dollars
Speaker 11: to work, and that was really across the entire platform.
Speaker 11: That was in real estate, that was in infrastructure, that
Speaker 11: was in credit, that was in private equity, and all
Speaker 11: of these deals were done in regular funds. These were
Speaker 11: done in funds that had return targets, and we saw
Speaker 11: great opportunities to make money for our investors to meet
Speaker 11: the return targets of the funds while also investing in
Speaker 11: businesses and in products and projects that are actually very
Speaker 11: much contributing to the clean transition, the energy transition. How
Speaker 11: we think about sustainable resource use.
Speaker 7: Going forward.
Speaker 1: Olivia. If you look at COP twenty eight, the twenty
Speaker 1: nine and thirty are the financial discussions of Apollo and
Speaker 1: other good and worthies, the great and the good if
Speaker 1: you will, are they being overwhelmed by major polluters the
Speaker 1: United States and also China for example on coal.
Speaker 11: Well, So, first of all, one of my biggest surprises
Speaker 11: of COP twenty eight so far has been that it
Speaker 11: is not all doom and gloom. There is a lot
Speaker 11: of really good news coming out of COP. You had
Speaker 11: one hundred and twenty company countries commit to tripling the
Speaker 11: amount of renewable generation by the end of the decade.
Speaker 11: That's massive if you think about it. We've had just
Speaker 11: so many positive announcements around capital going into the transition
Speaker 11: from all different areas of the world. So one of
Speaker 11: the things that has really struck me is just the
Speaker 11: amount of capital that's really being mobilized, the ambitious commitments
Speaker 11: that folks are really setting here, and how excited everyone is.
Speaker 11: You know, if you look at historical cops as we
Speaker 11: think about, you know, twenty eight, twenty nine, thirty, and
Speaker 11: the makeup of who is here has really changed. So
Speaker 11: when I was walking around yesterday, you know, instead of
Speaker 11: seeing just nonprofits and government officials, you see people from
Speaker 11: law firms, from investment banks, from asset allocators, asset managers,
Speaker 11: consulting firms. It really is amazing to me just how
Speaker 11: many people are here and how many people are really
Speaker 11: thinking about how does climate finance affect what they do,
Speaker 11: how does it affect their businesses, What are the opportunities
Speaker 11: that are coming out of this. You know, both for
Speaker 11: the financial institutions like Apollo as well as our corporate partners.
Speaker 6: Olivia, I've got to be honest, I was surprised also
Speaker 6: about just a degree of optimism, considering how much pessimism
Speaker 6: there is around the ability to reduce the increase in
Speaker 6: the climate by two degrees celsius. Given that, how much
Speaker 6: are you looking to invest things like carbon capture and
Speaker 6: other measures that go against just simply reducing emissions.
Speaker 11: Yeah, absolutely so. So listen, we have a big challenge
Speaker 11: ahead of us, and if you look at the amount
Speaker 11: of capital that needs to be spent over the next
Speaker 11: thirty years, it's massive, right, you know, we're looking at
Speaker 11: somewhere between five and six trillion dollars a year of
Speaker 11: capital that needs to be spent. Apollo is very much
Speaker 11: looking at what we want to do on our end
Speaker 11: and how we really want to lean into financing this transition.
Speaker 11: So we've set a couple targets for ourselves. We set
Speaker 11: a target of fifty billion by the end of twenty
Speaker 11: twenty seven, and we set a target of one hundred
Speaker 11: billion by the end of twenty thirty. So for us,
Speaker 11: we're really looking at big numbers into this space. And
Speaker 11: when you look at we've done historically again thirty one
Speaker 11: billion over the last five years. It has been a
Speaker 11: tremendous amount of capital. And I talked to my peers here,
Speaker 11: I talked to financial institutions, I talk to other folks
Speaker 11: who are here, and what you're really seeing is there's
Speaker 11: just so much capital being really being mobilized here at
Speaker 11: the corporate level as well. I think the world has
Speaker 11: realized we do need to decarbonize, and now we're looking
Speaker 11: at what is the best way to do it, and
Speaker 11: how do we get the right fools of capital into it.
Speaker 6: Do you feel that people are losing enthusiasm a little bit,
Speaker 6: seems to the backlash And Tom was just talking about
Speaker 6: how there is this rething. Have you seen any of
Speaker 6: that backlash in terms of just a halting in institutional enthusiasm.
Speaker 11: Yeah, you know, I haven't really certainly. You know, you
Speaker 11: read the papers, and there is certainly some backlash. But
Speaker 11: on a whole I just think, you know, if you
Speaker 11: look at the quantum of people are here, at the
Speaker 11: number of businesses, at the number of corporates, I mean,
Speaker 11: there's just so much really good energy around this event,
Speaker 11: and folks are really looking at, you know, what can
Speaker 11: they do, how can they do it, how can they
Speaker 11: best finance it? Where are the gaps? You know, we've
Speaker 11: had a lot of discussions over the last couple of
Speaker 11: days about the missing middle, right, how do we to
Speaker 11: this scaling up part. You know, there's been a ton
Speaker 11: of capital that has gone into the venture capital and
Speaker 11: growth equity part of the value chain, and we've the
Speaker 11: capital that's gone really into the infrastructure. So when you
Speaker 11: have fully de risked investments, But how do we found
Speaker 11: that part in the middle where you've got you know,
Speaker 11: you've got technologies and companies that are proven, that are working,
Speaker 11: but that just need a little bit of help to
Speaker 11: kind of get to the next level. We see that
Speaker 11: both in individual companies as well as you know, it
Speaker 11: might be corporate carbouts of much larger companies, it may
Speaker 11: be green financings for a larger company. There are so
Speaker 11: many opportunities here to really help fill that gap, and
Speaker 11: I'm excited about what Apollo's doing here. I'm also excited
Speaker 11: about what I'm seeing so many of my peers you hear.
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