WEBVTT - Apollo Global Management CEO Marc Rowan Talks AI, Private Markets 0:00:02.480 --> 0:00:09.480 Bloomberg Audio Studios, podcasts, radio news. Mark, thank you for 0:00:09.560 --> 0:00:11.320 doing this. Always a pleasure. 0:00:11.360 --> 0:00:13.880 I'm just saying outside that when I just looked back 0:00:13.920 --> 0:00:17.640 in twenty ten, you had around seventy billion in assets. Now, 0:00:18.120 --> 0:00:21.240 as we said, closing in on a trillion. Just should 0:00:21.239 --> 0:00:23.079 we start with kind of current affairs. You've got the 0:00:23.120 --> 0:00:27.680 conflict in Iran. I suppose we talk about the geopolitics, 0:00:27.680 --> 0:00:29.920 but on the basic question about what it's doing to 0:00:30.000 --> 0:00:32.080 the markets and the economy, how do you look at that? 0:00:33.200 --> 0:00:34.000 It's disruptive. 0:00:34.479 --> 0:00:37.199 I mean we've had this, you know, our refrain on 0:00:37.240 --> 0:00:40.720 this has been if you look at the numbers, things 0:00:40.720 --> 0:00:44.879 are great. Everyone has a job. The capital spending is 0:00:45.040 --> 0:00:48.720 off the charts and very conducive to future employment. Government 0:00:48.760 --> 0:00:51.560 policy is very accommodati. If capital markets are wide open, 0:00:52.240 --> 0:00:55.320 that's normally ninety five percent of what you need to 0:00:55.320 --> 0:00:59.680 worry about. But now, as we've been saying, it's only 0:00:59.760 --> 0:01:01.360 seven twy percent of what you need to worry about. 0:01:01.400 --> 0:01:06.440 The other thirty percent is geopolitics, it's government borrowing its 0:01:06.840 --> 0:01:10.360 excesses in capital markets, and it's technological change. 0:01:10.720 --> 0:01:13.640 None of this is unexpected. It's just here. 0:01:14.160 --> 0:01:15.720 How do you rate those I mean, do you worry 0:01:15.720 --> 0:01:18.640 about the Iraan things say more than that all the 0:01:18.680 --> 0:01:20.039 trade disruption. 0:01:21.400 --> 0:01:23.680 Personally not really mean. 0:01:25.280 --> 0:01:28.759 We always have an overreaction to the confrontation of problems. 0:01:29.400 --> 0:01:32.600 But this is a problem that needed to be dealt with, 0:01:32.640 --> 0:01:35.000 and if it were dealt with in other years, it 0:01:35.000 --> 0:01:38.320 would have been more difficult, and so the notion that 0:01:38.520 --> 0:01:41.760 it's being dealt with today in some ways is reassuring, 0:01:41.800 --> 0:01:43.920 notwithstanding the current instability. 0:01:44.319 --> 0:01:46.399 Just getting to that list of things you had, you 0:01:46.440 --> 0:01:50.680 had government borrowing. Is that something that worries you particular 0:01:50.720 --> 0:01:51.480 at the moment. 0:01:51.520 --> 0:01:53.919 It's not something to worry about, but it is something 0:01:53.920 --> 0:01:58.600 to watch. We have seen points in time when investors 0:01:58.720 --> 0:02:04.480 have called countries to account for their fiscal picture. We 0:02:04.520 --> 0:02:07.480 saw it most recently in the UK. It is trust, 0:02:07.640 --> 0:02:11.480 the departure of Liz Trust. And we have pretty much 0:02:11.560 --> 0:02:15.400 every government in the West spending more money than they 0:02:15.400 --> 0:02:18.359 are bringing in with no sign that they are letting up, 0:02:18.840 --> 0:02:21.760 and so there is nothing that says this will end soon. 0:02:21.960 --> 0:02:26.320 Japan did it for nearly three decades, and so it's 0:02:26.320 --> 0:02:31.840 just something to watch. Normally, that kind of borrowing is inflationary. Normally, 0:02:31.960 --> 0:02:34.959 the restriction of the free flow of goods is inflationary. 0:02:35.360 --> 0:02:39.240 Normally the restriction of the free flow of labor is inflationary, 0:02:39.280 --> 0:02:42.519 but we just haven't seen it. Having said that, if 0:02:42.520 --> 0:02:46.840 you're a credit investor wearing your credit hat, you don't 0:02:46.840 --> 0:02:50.600 get paid other than your coupon and your principle, you 0:02:51.280 --> 0:02:53.240 look at the surrounding facts. 0:02:52.880 --> 0:02:54.680 And you say, this has been a good time for 0:02:54.840 --> 0:02:55.320 risk off. 0:02:57.280 --> 0:03:00.560 Yesterday Jamie Dimond talked about inflation being the skunk at 0:03:00.560 --> 0:03:01.000 the party. 0:03:01.240 --> 0:03:03.640 Is that the way that you look at it, not 0:03:03.680 --> 0:03:04.160 so much as. 0:03:04.080 --> 0:03:04.960 The skunk at the party. 0:03:05.000 --> 0:03:08.079 But let's face it, we've had very accommodative capital markets, 0:03:08.480 --> 0:03:11.360 notwithstanding the backdrop that I've mentioned of things that can 0:03:11.400 --> 0:03:14.200 be inflationary. We've seen rates go down. We've actually seen 0:03:14.280 --> 0:03:18.360 curve steepening to the extent we saw a tick up 0:03:18.400 --> 0:03:23.000 in inflation that would probably handicap the fed'sibility to further 0:03:23.160 --> 0:03:24.080 push rates down. 0:03:25.120 --> 0:03:26.840 We just go into credit. 0:03:27.000 --> 0:03:29.160 You know, these big arguments, and it strikes me there's 0:03:29.200 --> 0:03:30.160 kind of two levels of it. 0:03:30.320 --> 0:03:32.799 The first question is do we. 0:03:32.720 --> 0:03:35.920 Think that there is more kind of laxness in the 0:03:35.960 --> 0:03:40.920 overall credit markets. That's what people Diamond talk about, Lloyd 0:03:40.920 --> 0:03:43.400 blank Mine talking and then there's a particular question of 0:03:43.520 --> 0:03:46.440 private credit. But just to look at those two, if 0:03:46.440 --> 0:03:49.440 I first look at credit as a whole, how worried 0:03:49.480 --> 0:03:51.240 you about that? I've seen you say that, actually the 0:03:51.320 --> 0:03:53.520 numbers aren't too bad, But how do you look at it? 0:03:54.080 --> 0:03:56.840 So I don't spend a lot of time worrying about it. 0:03:57.360 --> 0:04:00.880 We are companies are in pretty good shape. Consumers are 0:04:00.880 --> 0:04:02.720 in pretty good shape. This is not just in US. 0:04:02.800 --> 0:04:05.680 This is pretty much around the world ironically right now, 0:04:05.720 --> 0:04:08.000 it's governments that are not in good shape. 0:04:08.680 --> 0:04:09.800 Having said that. 0:04:09.600 --> 0:04:14.200 We're at the end potentially of a very long accombinative 0:04:14.200 --> 0:04:18.039 cycleing credit. And in every cycle you have people who 0:04:18.080 --> 0:04:20.760 move out on the risk curve, who ignore things that 0:04:20.839 --> 0:04:24.720 are obvious, and it all feels good while it's happening, 0:04:24.720 --> 0:04:27.440 and then it doesn't feel so good once it arrives. Well, 0:04:27.680 --> 0:04:30.640 some of those changes have arrived, I mean low and behold, 0:04:31.240 --> 0:04:33.720 we think that AI might impact software? 0:04:35.560 --> 0:04:36.119 Is that news? 0:04:37.480 --> 0:04:41.000 Did we just discover that two weeks ago? But apparently 0:04:41.000 --> 0:04:43.599 two weeks ago we discovered that AI is going to 0:04:43.600 --> 0:04:46.479 impact software, And we've been in a massive risk off mode, 0:04:46.839 --> 0:04:51.880 and so software stocks are down almost seventy percent I 0:04:51.960 --> 0:04:55.320 remind people that software first lean is senior to HYO 0:04:55.360 --> 0:04:57.840 bonds and is senior to equity. So if you're going 0:04:57.839 --> 0:05:00.040 to have a problem in software lending, you're going to 0:05:00.080 --> 0:05:02.320 have a problem in equity, You're going to have a 0:05:02.360 --> 0:05:04.159 problem in high yield, you're going to have a problem 0:05:04.200 --> 0:05:07.400 in bank lending and broadly syndicated and everywhere else. Because 0:05:07.440 --> 0:05:10.320 to your second point, credit is just credit. There are 0:05:10.320 --> 0:05:13.120 good underwriters of credit and there are bad underwriters of credit. 0:05:13.320 --> 0:05:16.360 Just on that point about tech is, as I read 0:05:16.400 --> 0:05:18.720 it from what you've said, you are you You were 0:05:18.839 --> 0:05:23.000 nervous about software before two weeks ago, on hand on 0:05:23.080 --> 0:05:24.760 never hand in terms when it comes to kind of 0:05:24.800 --> 0:05:30.560 digital infrastructure there you're still fairly you're less cautious. 0:05:30.920 --> 0:05:33.240 So I'd say I'm going to give you a more 0:05:33.279 --> 0:05:36.360 specific answer, because it doesn't it requires more specific answer. 0:05:36.480 --> 0:05:39.240 In our private equity portfolio, which is not the subject 0:05:39.320 --> 0:05:43.479 of this, we have zero software in our credit book 0:05:43.720 --> 0:05:45.280 across the totality of the firm. 0:05:45.360 --> 0:05:47.039 It's a fraction of assets. 0:05:47.640 --> 0:05:50.800 We run a broadly diversified credit book that is not 0:05:51.240 --> 0:05:54.359 concentrated in software. The problem with software is that it 0:05:54.440 --> 0:05:56.960 was thirty percent of the levered buyout market. Therefore it 0:05:57.000 --> 0:05:59.839 was thirty percent of the levered lending market, and therefore 0:06:00.160 --> 0:06:06.080 is just overrepresented and subject to attack. But we should 0:06:06.080 --> 0:06:09.080 not deny that change is coming, and change is not 0:06:09.160 --> 0:06:12.760 coming just in data centers and AI. As a world, 0:06:12.880 --> 0:06:16.720 we are building infrastructure, we're building energy, we're doing energy transmission, 0:06:17.279 --> 0:06:20.520 we're building next gen manufacturing, we're ramping defense, and we're 0:06:20.520 --> 0:06:23.560 doing this thing called AI and data. We're essentially spending 0:06:23.600 --> 0:06:25.600 every dollar since the creation of fire. 0:06:25.400 --> 0:06:26.560 And we're doing it all at once. 0:06:27.279 --> 0:06:29.359 And whatever we're doing in the US, they want to 0:06:29.400 --> 0:06:31.159 do in Europe and they're not as well prepared to it, 0:06:31.200 --> 0:06:32.840 and they're doing in the Middle East, and they're doing it. 0:06:32.760 --> 0:06:34.080 Elsewhere around the world. 0:06:34.160 --> 0:06:38.120 We will see the largest need for capital ever and 0:06:38.160 --> 0:06:40.000 that's what we've seen so far this year. And so 0:06:40.080 --> 0:06:44.719 now to your specific question, it's about underwriting. There are 0:06:45.800 --> 0:06:48.839 a number of very strong US tech companies who run 0:06:48.880 --> 0:06:54.160 diversified businesses Amazon, Google, Microsoft, who are interested in seeing 0:06:54.200 --> 0:06:57.320 these centers built and are interested in not consolidating the 0:06:57.320 --> 0:06:59.520 debt on their balance sheet, and to the extent they 0:06:59.520 --> 0:07:03.360 are prepared to lend their credit. One can lend against 0:07:03.360 --> 0:07:08.080 those types of things and make sensible underwriting decisions. There 0:07:08.080 --> 0:07:13.120 are those who are more equity story oriented, where it's 0:07:13.160 --> 0:07:15.960 maybe not as sensible or underwright, and good underwriters pick 0:07:16.000 --> 0:07:18.320 good credits and bad underwriters pick everyone. 0:07:18.800 --> 0:07:21.080 You and Ido have lived between us through a lot. 0:07:21.160 --> 0:07:24.840 I think we're almost identical ages Rob Stringtion, but we've 0:07:24.960 --> 0:07:28.880 lived through many iterations of credit coming and credit going. 0:07:28.960 --> 0:07:32.520 So when you talk about these individual decisions, like you know, 0:07:32.640 --> 0:07:35.800 is it good to be in digital infrastructure at the 0:07:35.840 --> 0:07:38.720 moment or not, that matters, But so does the overall 0:07:38.760 --> 0:07:41.320 picture and the one you just explained where you said 0:07:41.320 --> 0:07:44.760 there's all this money going into energy, going into AI, 0:07:44.840 --> 0:07:48.200 getting into all these different bits. Does the bill for 0:07:48.280 --> 0:07:51.600 that either end up with taxpayers or does it end 0:07:51.680 --> 0:07:54.720 up with banks and credit institutions. 0:07:55.760 --> 0:07:58.440 So, again, a longer answer than you probably want here, 0:07:58.480 --> 0:08:03.680 but the banking system is incredibly de levered and very diversified. 0:08:03.760 --> 0:08:05.440 I think it's in the best shape I've ever seen 0:08:05.440 --> 0:08:09.560 it in my forty two years of professional career. And 0:08:09.600 --> 0:08:12.680 then we get to the so called public and private markets. 0:08:13.880 --> 0:08:18.200 Private and public are just variations of the theme. The 0:08:18.360 --> 0:08:22.360 vast majority of the private market is investment grade. There's 0:08:22.360 --> 0:08:25.560 a forty trillion dollar market, and ninety nine percent of 0:08:25.600 --> 0:08:28.160 the headlines are focused on a little slice of a 0:08:28.200 --> 0:08:31.440 trillion and a half called levered lending. Levered lending is 0:08:31.440 --> 0:08:34.600 a below investment grade activity. If you trace the history 0:08:34.640 --> 0:08:37.079 of this. In two thousand and eight, levered lending was 0:08:37.120 --> 0:08:44.040 on bank balance sheets post GFC. Banks distributed this credit. 0:08:44.280 --> 0:08:46.920 On the one hand, you had the COLO market, which 0:08:46.960 --> 0:08:50.160 took credit off bank balance sheets, particularly less than investment 0:08:50.160 --> 0:08:54.240 grade credit, and distributed the risk to investment grade buyers 0:08:54.360 --> 0:08:56.760 on a senior basis and to below investment grade buyers 0:08:56.800 --> 0:09:00.400 how you'll buyers on a junior basis. Then it was 0:09:00.400 --> 0:09:04.920 also distributed to private market BDCs. Banks again supported them, 0:09:05.160 --> 0:09:09.840 but at a very safe tranch, and investors, private investors, 0:09:09.840 --> 0:09:15.920 retail investors, institutional investors came in to support private BDCs. 0:09:16.640 --> 0:09:18.520 And now we look at it and we say, well, 0:09:19.360 --> 0:09:22.040 credit is going through a cycle. Is that good or bad? 0:09:22.280 --> 0:09:25.080 And the answer is relative to what. And this is 0:09:25.120 --> 0:09:30.880 the point that people often miss. Credit is the formation 0:09:30.960 --> 0:09:33.560 of credit, particularly in these private BDCs, is a de 0:09:33.720 --> 0:09:38.240 risking activity for the economy and for individuals. It's de 0:09:38.400 --> 0:09:40.360 risking because it moved it off bank balance sheets and 0:09:40.440 --> 0:09:44.000 essentially democratized it throughout our economy. And it's de risking 0:09:44.040 --> 0:09:47.720 for individuals because people are not funding their investments in 0:09:47.760 --> 0:09:51.480 these BDCs with their treasury portfolio. They're selling their equities. 0:09:52.400 --> 0:09:55.880 Last I looked firstly in debt is senior to equity. 0:09:55.920 --> 0:09:58.400 They are making an intelligent decision that they can earn 0:09:58.440 --> 0:10:01.640 equity like returns without equity like risk and take money 0:10:01.679 --> 0:10:02.320 off the table. 0:10:02.640 --> 0:10:04.280 That does not guarantee success. 0:10:04.600 --> 0:10:05.080 You can have. 0:10:05.600 --> 0:10:08.520 If you own software stocks, you're really unhappy. If you 0:10:08.600 --> 0:10:12.000 own mostly software first lean, you're really unhappy. You're just 0:10:12.040 --> 0:10:14.880 less unhappy than if you own the equity. We can't 0:10:14.960 --> 0:10:17.679 legislate out of existence stupidity. 0:10:17.880 --> 0:10:21.280 But the underlying system you're arguing is safer because it's 0:10:21.320 --> 0:10:24.640 allocated in individual companies and it's not leaking back into 0:10:24.679 --> 0:10:26.720 the fully leveraged part of banks. 0:10:27.120 --> 0:10:30.120 And that's what in some ways we can say the 0:10:30.160 --> 0:10:34.120 post regulatory reform of the GFC worked. It's doing exactly 0:10:34.120 --> 0:10:36.360 what it was supposed to have do. It has socialized 0:10:36.360 --> 0:10:39.920 this risk, It has given investors another thing to invest in, 0:10:40.240 --> 0:10:42.760 which is actually de risking for them, and it has 0:10:42.840 --> 0:10:46.080 moved it out of the levered government guaranteed portion of 0:10:46.080 --> 0:10:49.079 our economy because we made a choice, and we've made 0:10:49.120 --> 0:10:53.040 a choice going back to the formation of Drexel below, 0:10:53.080 --> 0:10:55.680 investment grade companies have been a massive source of growth. 0:10:56.160 --> 0:10:58.520 Private companies have been a massive source of growth eighty 0:10:58.520 --> 0:11:02.720 percent of jobs. How are they financed? Well, they weren't 0:11:02.760 --> 0:11:06.400 really financed. They were cast out from the marketplace. If 0:11:06.400 --> 0:11:09.280 we want them to be financed, There's only two places 0:11:09.280 --> 0:11:11.720 they can get financed. One is the banking system, the 0:11:11.760 --> 0:11:16.240 second is the investment marketplace. If you're concerned about what's happening, 0:11:16.720 --> 0:11:18.640 you don't want it in your banking system. You prefer 0:11:18.720 --> 0:11:21.840 it in your investment marketplace where people can price the risk. 0:11:22.520 --> 0:11:24.600 So it's an extent. There are problems in private credit. 0:11:24.640 --> 0:11:26.600 You would argue it's a little bit more like that 0:11:27.000 --> 0:11:31.319 Dot Com problems of years ago, where it's really an 0:11:31.360 --> 0:11:34.040 equity play rather than a debt one. So there isn't 0:11:33.760 --> 0:11:37.280 that gelig nite of leverage going through things. 0:11:37.880 --> 0:11:41.280 Almost every investor is not a levered investor in the 0:11:41.320 --> 0:11:46.040 private credit ecosystem. But we've also we have this habit 0:11:46.080 --> 0:11:48.640 of throwing the baby out with the bathwater. All the 0:11:48.679 --> 0:11:51.760 press is focused on this levered lending portion of the market. 0:11:52.040 --> 0:11:55.199 As I sometimes remind my partners, as a deal shop, 0:11:55.200 --> 0:11:57.840 we don't get to be that big because although we're 0:11:57.840 --> 0:12:01.280 doing something from an efficiency point of view, we use 0:12:01.360 --> 0:12:04.120 up a lot of social capital. On the other hand, 0:12:04.160 --> 0:12:07.600 the vast majority of the market is private investment grade, 0:12:07.679 --> 0:12:10.880 which is also called private credit and has almost nothing 0:12:10.920 --> 0:12:12.760 to do with what we're talking about today. 0:12:13.240 --> 0:12:16.079 So I think I try. 0:12:15.880 --> 0:12:18.600 To be careful in using my language to make sure 0:12:18.679 --> 0:12:22.400 that we understand. Most of the capital going into private 0:12:22.440 --> 0:12:25.439 companies is actually going to finance this global industrial renaissance 0:12:25.440 --> 0:12:27.720 which is taking place around the world. A lesser amount 0:12:27.760 --> 0:12:30.480 of capital is going into the deal business, which is 0:12:30.520 --> 0:12:34.480 primarily being funded by investors or by institutions who are 0:12:34.720 --> 0:12:38.600 making a decision to sell their equity portfolio to invest 0:12:38.600 --> 0:12:40.960 in credit because they offer about the same rates of return. 0:12:41.400 --> 0:12:43.920 And by the way, we have ten companies that are 0:12:43.960 --> 0:12:47.160 forty percent of the SMP. We're not even a quote 0:12:47.240 --> 0:12:49.679 qualified market at this point. We're too concentrated. 0:12:50.520 --> 0:12:53.120 There is this issue. There isn't other private people. 0:12:53.200 --> 0:12:55.520 Consumers are trying to get involved in this, and you've 0:12:55.520 --> 0:12:58.120 pushed into kind of retail four oh one KSE things 0:12:58.160 --> 0:13:01.000 like that which you know they aren't investment grade, that's 0:13:01.000 --> 0:13:04.040 what they're looking at. Some people say that, you know, 0:13:04.200 --> 0:13:07.200 Apollo was a buccaneering shop. You know, it was all 0:13:07.240 --> 0:13:10.600 about taking being at the forefront. The more you get 0:13:10.679 --> 0:13:14.400 pushed back into these investment grade debts and stuff like that, 0:13:14.520 --> 0:13:17.959 or you might say, expanding into it, do you worry 0:13:17.960 --> 0:13:20.960 that limits the kind of risk appetite of the kind. 0:13:20.880 --> 0:13:23.240 Of people you want to bring in. I don't think so. 0:13:23.400 --> 0:13:25.200 I think what happened in our market if you go 0:13:25.280 --> 0:13:28.120 back again to the history, going to the eighties and 0:13:28.200 --> 0:13:30.960 the formation of Drexel. Drexel created the high yo bond market. 0:13:31.040 --> 0:13:34.079 It basically provided capital to these companies. So the banks 0:13:34.120 --> 0:13:38.320 responded with levered lending. All of the brain power in 0:13:38.400 --> 0:13:42.800 the financial marketplace left the investment grade market, and everyone 0:13:42.840 --> 0:13:45.079 wanted to do levered lending and high yo bonds because 0:13:45.080 --> 0:13:47.200 that's where the money was, that's where the excitement was, 0:13:48.200 --> 0:13:50.520 and it didn't come back into the market. The investment 0:13:50.520 --> 0:13:54.520 grade market is a drive by market with very low compensation, 0:13:54.679 --> 0:13:59.160 with very low creativity. What we've done, starting seventeen years ago, 0:13:59.240 --> 0:14:02.840 with the need to create investment grade for our captive 0:14:02.840 --> 0:14:06.160 insurance Carrier Athene and for others in the insurance market, 0:14:06.520 --> 0:14:09.560 was to put creativity and intelligence back in the investment 0:14:09.600 --> 0:14:10.200 grade market. 0:14:11.040 --> 0:14:11.880 No one is bored. 0:14:12.760 --> 0:14:14.680 I can tell you that this is not now a 0:14:14.800 --> 0:14:18.760 question of they're not no longer buccaneering, so they don't 0:14:18.960 --> 0:14:23.360 enjoy being there. The ability to be creative in the 0:14:23.400 --> 0:14:26.360 investment grade market is at a scale that's almost hard 0:14:26.360 --> 0:14:27.280 to imagine. 0:14:27.520 --> 0:14:28.480 So if you think. 0:14:28.320 --> 0:14:31.320 Last year we originated a little over three hundred billion 0:14:31.360 --> 0:14:35.320 dollars of new investments, mostly credit, eighty percent of that 0:14:35.400 --> 0:14:38.800 was investment grade, I assure you no one is complaining 0:14:38.800 --> 0:14:40.760 about the lack of buccaneering. 0:14:41.440 --> 0:14:43.400 But there is there is one. 0:14:43.400 --> 0:14:45.440 There's one good thing about what's happening out there is 0:14:45.480 --> 0:14:49.280 you could argue that finance has moved into private private markets. 0:14:49.320 --> 0:14:50.400 We have just a non bank. 0:14:50.680 --> 0:14:53.720 What's happening is consumers are now getting a chance to participate. 0:14:54.400 --> 0:14:56.120 But there is a kind of trade off, isn't there 0:14:56.160 --> 0:14:59.680 that there is? This is bringing them, this is giving 0:14:59.680 --> 0:15:03.120 them a ans to participate in these higher yielding areas 0:15:03.160 --> 0:15:06.040 which you've pioneered. But some people will say there is 0:15:06.080 --> 0:15:08.120 a degree of risk in that, and at some point 0:15:08.200 --> 0:15:10.400 that could cause problems. 0:15:10.160 --> 0:15:12.840 There's always a degree of risk. So I come back 0:15:12.880 --> 0:15:15.640 and no investment offers you a free lunch. 0:15:15.680 --> 0:15:16.600 There is no free launch. 0:15:16.640 --> 0:15:19.520 You can take equity risk, you can take credit risk, 0:15:19.600 --> 0:15:21.160 you can take duration risk, you can. 0:15:21.000 --> 0:15:23.800 Take all sorts of risks. The question is what's appropriate. 0:15:24.120 --> 0:15:27.200 But if you look around the world, every place that 0:15:27.320 --> 0:15:31.640 private assets have been added to public portfolios, you've gotten 0:15:31.680 --> 0:15:34.200 better outcomes. And if you go to the extreme and 0:15:34.240 --> 0:15:36.680 you take retirees, for instance, in four oh one k 0:15:37.440 --> 0:15:41.600 an extra percent compounded over the duration of how long 0:15:41.600 --> 0:15:44.120 you're going to be in there is a fifty to 0:15:44.160 --> 0:15:48.280 one hundred percent better outcome by having better investments. And 0:15:48.320 --> 0:15:50.640 what are they invested in today, Well, they're invested in 0:15:50.760 --> 0:15:52.880 daily liquid index funds for fifty years. 0:15:54.240 --> 0:15:55.280 Is that risk free? 0:15:55.720 --> 0:15:55.800 No? 0:15:56.320 --> 0:15:59.720 We have ten companies that dominate the SMP. We've essentially, 0:15:59.760 --> 0:16:02.200 as I sometimes show, we've levered the entirety of the 0:16:02.240 --> 0:16:03.200 retirement system of. 0:16:03.200 --> 0:16:06.520 The US to navidia. So far, that's been good. 0:16:07.280 --> 0:16:10.280 It's not always going to be good. Public is not 0:16:11.480 --> 0:16:14.280 safe or risky. Private is not safe or risky. They're 0:16:14.280 --> 0:16:16.800 both safe for risky, they're just different degrees of liquidity. 0:16:16.840 --> 0:16:19.760 I suppose It's this is that traditionally, this kind of 0:16:20.240 --> 0:16:23.160 slightly riskier on the face of it, lending has been 0:16:23.520 --> 0:16:26.280 outsourced to professionals like you and too, people who know 0:16:26.320 --> 0:16:28.360 what they're doing. The worry is that suddenly you're now 0:16:28.360 --> 0:16:32.360 getting in Bush and weekle On Tagata coming into these markets. 0:16:32.920 --> 0:16:33.840 We're more worrying. 0:16:33.960 --> 0:16:36.560 Look, we're going to have a correction, but it's no 0:16:36.640 --> 0:16:38.800 different than the correction that happening in banking. If you 0:16:38.840 --> 0:16:42.280 look in banking, the dominant banking institutions of today were 0:16:42.320 --> 0:16:45.400 not as dominant pre crisis. Those that sat out the 0:16:45.440 --> 0:16:50.120 subprime lending have arisen and become magnified in terms of 0:16:50.160 --> 0:16:52.720 their fortress, balance sheeted market share because they were good 0:16:52.720 --> 0:16:55.520 managers of risk, and good managers is of underriding. I 0:16:55.560 --> 0:16:58.200 believe the same thing is going to happen in investment markets. 0:16:58.720 --> 0:17:02.800 Investment markets made choices. If you wanted a higher dividend, 0:17:03.320 --> 0:17:05.479 you could take more risk, you could lend to smaller companies, 0:17:05.520 --> 0:17:07.719 you could do more pick, you can invest in equity 0:17:07.720 --> 0:17:09.520 and preferred not just first lean, and you could run 0:17:09.520 --> 0:17:12.080 with a lot of leverage. That felt really good on 0:17:12.119 --> 0:17:14.120 the way up. That's not going to feel so good 0:17:14.160 --> 0:17:16.920 on the way down. And there are companies of which 0:17:16.920 --> 0:17:19.280 we are one, but not the only one, who went 0:17:19.400 --> 0:17:22.159 all first lean, who went almost all cash pay, who 0:17:22.200 --> 0:17:26.520 went large companies, who worked with low leverage. I like 0:17:26.560 --> 0:17:31.080 where we sit, and Jamie Diamond said it. There's always 0:17:31.119 --> 0:17:33.560 going to be fraud, There's always going to be underwriting mistakes. 0:17:34.240 --> 0:17:36.080 But the question is who's a good risk manager and 0:17:36.080 --> 0:17:38.040 who's not a good risk manager. If thirty percent of 0:17:38.040 --> 0:17:41.560 your portfolio is in one industry and that one industry 0:17:41.800 --> 0:17:45.080 is being impacted by technology, you have not been a 0:17:45.119 --> 0:17:45.920 good risk manager. 0:17:46.440 --> 0:17:48.240 I think that I just looked at Blue Oul I 0:17:48.240 --> 0:17:51.680 think was seventy percent in different versions of tech. There 0:17:51.720 --> 0:17:53.880 is a parallel, though, isn't it. The way you described 0:17:53.920 --> 0:17:56.720 the banking industry, it has consolidated, particularly at the top. 0:17:57.359 --> 0:18:00.480 That would imply the industry you're in is going to 0:18:00.480 --> 0:18:03.359 consolidate as well, that you will end up with fewer people, 0:18:03.840 --> 0:18:06.720 because as you said, there is a reckoning coming. Some 0:18:06.800 --> 0:18:09.320 of those people will have to We have fewer people. 0:18:09.400 --> 0:18:11.879 I mean you started, I mean we were the whole, 0:18:11.960 --> 0:18:14.119 the entirety of the companies that you see that are 0:18:14.160 --> 0:18:17.080 public today. Everyone was forty billion in two thousand eight. 0:18:17.960 --> 0:18:21.120 We're now close to a trillion Blackstone more KKR. 0:18:20.720 --> 0:18:21.320 A little less. 0:18:21.760 --> 0:18:25.400 This is not good management, or not solely good management. 0:18:25.560 --> 0:18:28.760 This is a function of structural change in our marketplace, 0:18:29.359 --> 0:18:32.600 and that structural change is continuing, and the reward for 0:18:32.680 --> 0:18:35.480 good work is actually more work. In our case, it's 0:18:35.520 --> 0:18:39.320 managing more money. And I think that is where we're heading. 0:18:39.359 --> 0:18:41.399 I think this will be a shakeout. I don't think 0:18:41.480 --> 0:18:43.840 it is going to be short term. I think the 0:18:43.880 --> 0:18:49.960 thirty percent overhang of geopolitics, inflation, technological change is now here. 0:18:51.119 --> 0:18:54.240 It was foreseeable, not maybe exactly how it occurred, but 0:18:54.320 --> 0:18:57.600 it was foreseeable, it was predictable. And all you can 0:18:57.640 --> 0:19:00.800 do is have been a good run underwriter. Risk manager 0:19:01.119 --> 0:19:04.439 have done a small number of stupid things, and by 0:19:04.480 --> 0:19:08.560 the way, we've lived an environment of tight spread. If 0:19:08.600 --> 0:19:11.080 you were a good risk manager, you were going to 0:19:11.119 --> 0:19:14.919 make more money this year and next year if it continues, 0:19:15.119 --> 0:19:17.560 than you ever have before because you've been risk off. 0:19:18.760 --> 0:19:23.359 And so that's always the bifurcation of minds. First, you 0:19:23.400 --> 0:19:25.360 want to play defense and make sure in fact you've 0:19:25.400 --> 0:19:28.200 done what you think you have done, which has managed 0:19:28.240 --> 0:19:28.680 good risk. 0:19:29.040 --> 0:19:30.159 And then you want to play offense. 0:19:30.800 --> 0:19:32.520 Do you think, though you're going to end up with 0:19:32.800 --> 0:19:35.879 mega mergers in the bit, I mean that that's what 0:19:35.960 --> 0:19:37.280 happened in banks at some point. 0:19:37.720 --> 0:19:40.440 I don't think so, because I think that we are 0:19:40.480 --> 0:19:46.080 limited by two other factors. I think our business is 0:19:46.119 --> 0:19:48.520 not at the will not in the long term be 0:19:48.600 --> 0:19:52.040 limited by capital raising. It will be limited by our 0:19:52.080 --> 0:19:56.840 capacity to find good investments and by culture. So unlike 0:19:56.880 --> 0:20:00.800 a public asset manager who can buy anything any day, 0:20:00.960 --> 0:20:03.680 we can only grow as fast as we can originate 0:20:03.720 --> 0:20:05.840 good risk we actually create. 0:20:06.760 --> 0:20:09.800 And therefore, if we grow too fast, we. 0:20:09.720 --> 0:20:12.440 Start commoditizing our business because we're forced to take things 0:20:12.520 --> 0:20:18.000 we don't want. And so judging our industry should be 0:20:18.040 --> 0:20:20.800 judged by our capacity to originate good investments, not by 0:20:20.800 --> 0:20:23.760 our capacity to raise money. But the second piece of this, 0:20:23.880 --> 0:20:27.399 and they're directly related, is culture. We are, at the 0:20:27.480 --> 0:20:31.600 end of the day, an origination driven organization. Whether our 0:20:31.640 --> 0:20:34.800 peers say this or not, they are origination driven organizations. 0:20:35.240 --> 0:20:38.200 Often we're doing the first of everything. It's very hard 0:20:38.280 --> 0:20:40.600 to feed the first of everything into a model and 0:20:40.640 --> 0:20:41.560 get the right answer. 0:20:42.040 --> 0:20:44.159 We will be more efficient because it will not. 0:20:45.840 --> 0:20:51.080 We will not ignore us technology technological change, but the 0:20:51.160 --> 0:20:53.720