WEBVTT - Fan Favorite: Japan’s New Horizon 0:00:12.800 --> 0:00:15.640 This is Wall Street Week. I'm David Weston bringing you 0:00:15.760 --> 0:00:20.239 stories of capitalism. This time capitalism Japanese style. This is 0:00:20.280 --> 0:00:23.040 an ancient land with the imperial dynasty stretching back over 0:00:23.079 --> 0:00:26.960 one thousand years. Apollo Global Management invited us along as 0:00:27.000 --> 0:00:29.360 it convened the meeting of its two hundred partners from 0:00:29.400 --> 0:00:32.760 around the world to see firsthand the investment opportunities it 0:00:32.880 --> 0:00:36.160 sees in Japan today, a world that has not traditionally 0:00:36.159 --> 0:00:39.600 been associated with risk. We're going to talk with Mark Rowan, 0:00:39.640 --> 0:00:41.840 the head of Apollo, as well as the leaders of Sony, 0:00:41.960 --> 0:00:45.800 Panasonic Automotive, and the Tokyo Stock Exchange. But we start 0:00:45.880 --> 0:00:48.920 with the story of choraku. That's a Japanese term meaning 0:00:48.960 --> 0:00:52.720 falling behind. In nineteen eighties, Japanese industry was the envy 0:00:52.760 --> 0:00:56.720 of the world in a variety of sectors such as automotive, electronics, 0:00:56.760 --> 0:01:00.000 and steel. As a result, asset values went out, particularly 0:01:00.080 --> 0:01:02.920 here in Tokyo, where real estate values went sky high, 0:01:02.960 --> 0:01:06.160 supported by patient capital that did not demand a lot 0:01:06.200 --> 0:01:10.080 of returns. The nineteen nineties, though, saw that asset bubble burst, 0:01:10.400 --> 0:01:12.840 and when the Japanese government in Japanese banks did not 0:01:12.959 --> 0:01:16.280 step in aggressively. They took what was a lost decade 0:01:16.400 --> 0:01:18.759 and turned it into a lost three decades. 0:01:21.040 --> 0:01:24.839 Most people's expectation of Japan or business mindset of Japan 0:01:25.360 --> 0:01:26.560 is thirty years of stagnation. 0:01:26.880 --> 0:01:30.840 I think, you know the we called the lost ages 0:01:31.319 --> 0:01:36.880 during decads and we do not have substantial growth in Japan. 0:01:37.280 --> 0:01:40.160 Japan faced the deferation for VADI eighty long. 0:01:40.000 --> 0:01:43.560 Time Japan has been you know, suffering from deflation for 0:01:43.600 --> 0:01:44.759 more than two decades. 0:01:46.000 --> 0:01:48.480 In the late eighties, Japan's economy grew by as much 0:01:48.480 --> 0:01:51.800 as six point seven percent a year, only to have 0:01:51.840 --> 0:01:54.800 that growth plummet for most of the next thirty years, 0:01:55.120 --> 0:01:58.840 hovering between zero and two percent and contracting during the 0:01:58.880 --> 0:02:02.720 Great Financial Crisis and the COVID pandemic, relegating what had 0:02:02.720 --> 0:02:05.320 been the third largest economy in the world to number four. 0:02:05.680 --> 0:02:09.800 As Germany surged past the nick stock market went thirty 0:02:09.800 --> 0:02:13.720 four years without setting new highs. Japanese government bond yields 0:02:13.760 --> 0:02:17.560 turned negative and stayed there for years. But all that 0:02:17.639 --> 0:02:21.800 could now be changing as Japan emerges from those lost decades. 0:02:22.080 --> 0:02:23.680 What a lovely day in Tokyo. 0:02:23.960 --> 0:02:27.079 Mark Rowan is CEO of Apollo Global Management. 0:02:27.320 --> 0:02:30.200 This is a savings culture, and holding on to your 0:02:30.200 --> 0:02:33.079 cash or leaving your money into jgb's for the past 0:02:33.120 --> 0:02:37.280 thirty years has been fined because there's been no inflation. 0:02:37.360 --> 0:02:41.000 In fact, there's been deflation. All of a sudden, you 0:02:41.120 --> 0:02:44.440 have closer to three percent inflation. You have interest rates 0:02:44.520 --> 0:02:47.800 up for the first time, and that savings is going 0:02:47.840 --> 0:02:51.440 to be deployed productively, and now some of it has 0:02:51.480 --> 0:02:54.840 to go toward retirement. They will want better solutions for retirement, 0:02:55.200 --> 0:02:56.760 but some of it is just going to keep up 0:02:56.760 --> 0:03:00.280 with purchase price and purchasing power. I think about what's 0:03:00.320 --> 0:03:05.280 happening in Japan, and in Japan, they're going through generational change, 0:03:05.680 --> 0:03:09.440 and it's generational change in corporate governance, it's in interest rates, 0:03:09.639 --> 0:03:12.440 it's in government policy, and in many ways they are 0:03:12.520 --> 0:03:16.799 the first of the Western democracies to face real aging, 0:03:17.600 --> 0:03:22.080 retirement and high levels of government debt. And what's happening 0:03:22.080 --> 0:03:26.560 here is totally different than people's expectation, because most people's 0:03:26.600 --> 0:03:30.519 expectation of Japan or business mindset of Japan is thirty 0:03:30.600 --> 0:03:34.280 years of stagnation, and that is so dynamic here today. 0:03:35.360 --> 0:03:37.880 The thing that got things going again for Japan was 0:03:38.080 --> 0:03:42.120 ironically adversity as supply change came under stress from the 0:03:42.160 --> 0:03:45.240 COVID shutdown and a war in Ukraine put pressure on 0:03:45.400 --> 0:03:48.480 energy prices, a big problem for a country dependent on 0:03:48.560 --> 0:03:49.760 oil from abroad. 0:03:50.120 --> 0:03:55.200 With the supply hand breakdown, corporate has executes to transfer 0:03:55.280 --> 0:03:59.960 the price to the retail. So now the CPI started 0:04:00.080 --> 0:04:03.680 to suddenly, which has been zero one negative for very 0:04:03.680 --> 0:04:06.840 long time, suddenly went up to almost three percent. 0:04:07.040 --> 0:04:10.200 If she can get to third, that's a. 0:04:10.280 --> 0:04:13.520 Long a g Waida is head of Asia Pacific for. 0:04:13.560 --> 0:04:19.159 Apollo, everybody has to think differently. So with the defrational environment, 0:04:19.480 --> 0:04:23.160 cash has been the king. But with the inforation at 0:04:23.200 --> 0:04:26.440 the close to three percent, cash is not the right 0:04:26.480 --> 0:04:29.720 assets to own. It's actually the war's assets to own. 0:04:30.720 --> 0:04:33.200 So that has to put the pressure out of a 0:04:33.200 --> 0:04:35.560 lot of people to think about things differently. 0:04:37.000 --> 0:04:40.479 Even before the return of inflation, those responsible for Japanese 0:04:40.480 --> 0:04:44.080 markets were thinking differently, starting with Prime Minister Abbe's call 0:04:44.160 --> 0:04:46.440 for market reform back in twenty fifteen. 0:04:46.720 --> 0:04:49.839 And it's true that for maybe a good decade Japan 0:04:49.880 --> 0:04:53.520 did struggle in finding its way out of that banking crisis. 0:04:53.680 --> 0:04:56.679 Maria Soliz is Director of the Center for Asia Policy 0:04:56.760 --> 0:05:01.760 Studies at the Brookings Institution and author of Japan's Quiet Leadership. 0:05:02.080 --> 0:05:05.400 But the fact is that we have overused the image 0:05:05.440 --> 0:05:08.159 of the last decades because this has not been a 0:05:08.200 --> 0:05:11.560 period where Japan has stood still, and people referred to 0:05:11.600 --> 0:05:14.800 this period as thirty years. And a lot has happened 0:05:14.839 --> 0:05:18.120 in the economy, in the politics, in the international projection 0:05:18.200 --> 0:05:22.120 of Japan that actually shows that undercurrents of change have 0:05:22.240 --> 0:05:25.640 repositioned where Japan stands today. Some areas actually there was 0:05:25.680 --> 0:05:28.400 a lot of progress. I think in the area of 0:05:28.440 --> 0:05:32.919 corporate governance you do see important changes there. I also 0:05:33.000 --> 0:05:36.039 believe that the notion of women omics, the idea that 0:05:36.160 --> 0:05:39.320 Japan needed to create conditions for women not to have 0:05:39.440 --> 0:05:42.919 to choose between a career and a family raising a family, 0:05:43.400 --> 0:05:46.840 those also were very, very positive, so much so that 0:05:46.960 --> 0:05:51.160 Japan actually has a very high level of female lever participation. 0:05:53.000 --> 0:05:55.279 As much as Prime Minister Abbe may have laid the 0:05:55.279 --> 0:05:58.040 groundwork for reform, the state of the economy did not 0:05:58.200 --> 0:06:02.120 demand the changes he wanted. For that they needed three 0:06:02.160 --> 0:06:03.840 percent inflation to kick in. 0:06:04.040 --> 0:06:07.520 Well, it has changed everything. It has changed the politics, 0:06:07.600 --> 0:06:11.799 it has changed the main economic challenges that the country faces, 0:06:11.839 --> 0:06:15.159 and I think in many ways it has redirected areas 0:06:15.240 --> 0:06:18.120 where reform is necessary. 0:06:19.400 --> 0:06:22.560 Now inflation has returned, and there's a new prime minister 0:06:22.640 --> 0:06:26.000 in town, one who's just won a landslide victory and 0:06:26.040 --> 0:06:28.640 seeks to take Abyamk's reform to a new level. 0:06:28.800 --> 0:06:33.200 So many similistic changes them in the Japanese not only 0:06:33.200 --> 0:06:36.240 the Japanese market, but also Japanese society. 0:06:36.320 --> 0:06:40.040 Hiromi Yamaji is Group CEO of the Japan Exchange Group, 0:06:40.320 --> 0:06:44.280 which oversees the Tokyo and Osaka stock exchanges. What was 0:06:44.320 --> 0:06:47.960 the role of government, the Japanese government in the reforms. 0:06:47.520 --> 0:06:52.240 I think it all since the prime ministave supported our 0:06:52.400 --> 0:06:56.480 governor's deform back in twenty fifteen. I think all the 0:06:56.520 --> 0:07:02.159 successes of Mista Abe Suga, the Kishida Shiba, and the 0:07:02.200 --> 0:07:06.360 current Miss Takaichi, all of them are quite big supporter 0:07:06.600 --> 0:07:10.480 of a governance deform because all of them are convinced 0:07:10.600 --> 0:07:15.040 that growth of the private sector is essential for the 0:07:15.080 --> 0:07:17.360 growth of entire Japanese economy. 0:07:18.400 --> 0:07:22.200 Since taking over the TSE in twenty twenty one, Yamaji 0:07:22.280 --> 0:07:25.800 has implemented a series of reforms to encourage Japanese companies 0:07:25.880 --> 0:07:29.360 to become more profitable and more accountable. Your reforms of 0:07:29.440 --> 0:07:33.120 the markets has various aspects to including price to book 0:07:33.240 --> 0:07:37.920 ratio and interlacking ownership of equity and independent directors. What 0:07:37.960 --> 0:07:39.040 are the most important ones? 0:07:39.480 --> 0:07:44.080 I think to transform the mindset of the management of 0:07:44.160 --> 0:07:47.960 the companies. That's very important and also probably the most 0:07:48.600 --> 0:07:53.080 challenging thing. And PBR is just kind of a you know, 0:07:53.200 --> 0:07:59.640 financial indicator to just gauge how much you progressed. But 0:07:59.720 --> 0:08:03.600 I think, I think fundamental challenge is to transform the 0:08:03.680 --> 0:08:05.120 mindset of the management. 0:08:05.680 --> 0:08:09.200 Not all minds are willing to be transformed. Have you 0:08:09.280 --> 0:08:12.640 had some management changes in order to respond to it? 0:08:12.800 --> 0:08:12.960 Well? 0:08:13.040 --> 0:08:17.400 I think, you know, at least once a year we've 0:08:17.480 --> 0:08:21.440 analyzed the current situation of the Japanese market or Japanese companies, 0:08:21.960 --> 0:08:24.840 and we are not the entity to assess the progress. 0:08:25.560 --> 0:08:29.320 The Grover Investors is the you know, the people who 0:08:29.400 --> 0:08:33.840 assess how much progress we've made. And you know, last 0:08:33.920 --> 0:08:38.000 year we've the most recent one. We did a analysis 0:08:38.040 --> 0:08:41.520 of a current situation December last year based upon the 0:08:41.559 --> 0:08:45.360 four hundred Grover investors domestic and overseas. 0:08:45.640 --> 0:08:49.040 If the markets are any judge, Yamaji's efforts are bearing fruit. 0:08:49.160 --> 0:08:51.120 Last yea was the record or high modern We have 0:08:51.320 --> 0:08:55.680 five thousand, one hundred mondays and the total amount was 0:08:55.920 --> 0:08:59.200 thirty five two years. Yeah, both of them are recorded high. 0:08:59.520 --> 0:09:02.319 And that means is that the buyer side seeking for 0:09:02.440 --> 0:09:07.240 other say more growth or algier needs for growth, and 0:09:07.280 --> 0:09:13.000 the set out side is trying to reorganize their business portfolio. 0:09:12.600 --> 0:09:17.560 Of Tokyo Stock Exchange, pushing the corporate to create more 0:09:17.600 --> 0:09:22.480 efficiency in the capital usage for corporates and ROE has 0:09:22.520 --> 0:09:26.400 been very, very low, and more than fifty percent of 0:09:26.440 --> 0:09:29.280 the company listed in Japan has been trading below the 0:09:29.280 --> 0:09:36.040 book valio. So they are pushing for capital efficiency and 0:09:36.679 --> 0:09:40.400 they need to explain the reason why they're trading below 0:09:40.400 --> 0:09:40.760 the book. 0:09:41.240 --> 0:09:44.480 The Japanese push for higher returns and response to reflation 0:09:44.880 --> 0:09:47.560 comes against the backdrop of a long term challenge that's 0:09:47.640 --> 0:09:53.200 increasingly common in major economies around the world. A rapidly aging. 0:09:53.000 --> 0:09:58.640 Workforce population between age fourteen to sixty five hit the 0:09:58.679 --> 0:10:04.840 peak in nineteen nine and since then, because society started aging, 0:10:05.559 --> 0:10:09.880 people spend less, so always demands showing faster than supply, 0:10:10.840 --> 0:10:15.160 so the country faces long term defration and low growth. 0:10:15.440 --> 0:10:17.520 Well, I think we're looking at things that are structural 0:10:17.559 --> 0:10:19.360 that are going to take place over the next five 0:10:19.400 --> 0:10:24.040 to ten years, the need for Japan to provide for 0:10:24.120 --> 0:10:26.559 its aging population and to deal with its aging population, 0:10:27.040 --> 0:10:30.000 the need for Japan to finance what it needs to finance, 0:10:30.640 --> 0:10:33.120 and the opportunity that Japan has. 0:10:33.320 --> 0:10:36.319 Japan responded to the challenges of its aging workforce by 0:10:36.360 --> 0:10:39.320 adding workers from groups that had been on the sidelines. 0:10:39.559 --> 0:10:42.520 Well, this is clearly one of the most serious challenges 0:10:42.600 --> 0:10:45.160 because they share a drop in the level of a 0:10:45.200 --> 0:10:48.880 population absolute numbers, but also the graining of the population. 0:10:49.160 --> 0:10:51.400 The other one who's of course to bring in women 0:10:51.559 --> 0:10:55.040 into the workforce, to bring in the elderly, who in 0:10:55.120 --> 0:10:58.200 Japan tend to be still very active, and to make 0:10:58.240 --> 0:11:03.239 sure that you can as much as possible maximize labor participation. 0:11:03.600 --> 0:11:06.160 But there is a limit to how many women, elderly 0:11:06.320 --> 0:11:09.800 and foreign workers Japan can bring into the workforce. What 0:11:09.920 --> 0:11:13.520 does reform of capital markets do to help that problem? 0:11:13.800 --> 0:11:17.439 I think, you know, the corporate governance reform sets that 0:11:17.480 --> 0:11:22.120 we'd like to see more active female workers in the 0:11:22.160 --> 0:11:27.080 in the workforce, and also a more senior persons are working. 0:11:27.200 --> 0:11:30.800 Really in Japan now, the labor force increased in Japan 0:11:31.160 --> 0:11:35.679 but obviously a female job participation as well as a 0:11:35.800 --> 0:11:39.760 senior members job part spationition. There's a seedting. I think, 0:11:39.840 --> 0:11:43.480 you know, we don't expect too much from those new 0:11:43.800 --> 0:11:48.080 forces coming in. So I think Japanan's companies has been 0:11:48.559 --> 0:11:53.880 making a huge investment into automation or digitalization AI usage. 0:11:54.080 --> 0:11:57.520 I think those are very important to enhance productivity, even 0:11:57.600 --> 0:12:02.120 though appropriation has been shrinking, and also he's going to 0:12:02.120 --> 0:12:03.280 shink in the future. 0:12:03.520 --> 0:12:07.520 What are the large long term capital means that companies say, 0:12:07.559 --> 0:12:09.280 I need to have this for a long period of time. 0:12:09.559 --> 0:12:13.960 This is manufacturing, This is energy, This is AI and data, 0:12:14.440 --> 0:12:18.240 this is infrastructure. These are the big buckets that we're 0:12:18.280 --> 0:12:22.360 looking at. And the scale just of the infrastructure market, 0:12:22.480 --> 0:12:24.640 or as I say, just of the AI, data energy 0:12:24.640 --> 0:12:28.000 market as one package, is beyond anything we can comprehend. 0:12:28.320 --> 0:12:30.800 This is measured in trillions. Sometimes I joke and I say, 0:12:30.800 --> 0:12:33.319 we're about to spend every dollar since the invention of fire, 0:12:34.080 --> 0:12:37.000 and that's what we're doing. We are as a world 0:12:37.880 --> 0:12:41.240 going to issue more debt, access more capital in twenty 0:12:41.280 --> 0:12:44.080 twenty six than ever before. I think this is ultimately 0:12:44.080 --> 0:12:48.240 about growing the pie. I think the Japanese were very 0:12:48.240 --> 0:12:50.840 defensive for a long period of time, with good reason 0:12:51.160 --> 0:12:54.120 given what was happening in the hall market. I think 0:12:54.120 --> 0:12:55.480 there's a new swagger. 0:12:57.000 --> 0:13:01.319 Coming up, matchmaking between abundant capital and abundant capital needs 0:13:01.480 --> 0:13:18.719 the opportunities that presents for companies like Apollo. This is 0:13:18.760 --> 0:13:23.120 a story about henkaku. That's a Japanese term meaning fundamental reform. 0:13:23.520 --> 0:13:25.680 We've come to Japan to see how and why it 0:13:25.760 --> 0:13:28.200 is changing the way it does business, changing what it 0:13:28.200 --> 0:13:31.440 expects from its corporations, and changing what it expects in 0:13:31.480 --> 0:13:34.280 its investments, not just for the sake of change, but 0:13:34.320 --> 0:13:37.200 in order to raise the capital needed to invest in productivity. 0:13:39.559 --> 0:13:42.760 Over the last three decades, Japan fell from second to 0:13:42.880 --> 0:13:46.000 fourth in the ranking of world economies. As it struggles 0:13:46.000 --> 0:13:49.319 to climb back up the leaderboard, it is focused on investment. 0:13:49.720 --> 0:13:52.360 In this case, trillions of dollars. 0:13:52.000 --> 0:13:55.560 Worth fifty five percent over the asset sits in cash, 0:13:55.600 --> 0:13:59.400 historic gardy, and the corporate has been accummulated a lot 0:13:59.520 --> 0:14:02.720 of cash balance sheet because they want to be safe 0:14:02.880 --> 0:14:06.880 and they want to be sustainable, and cash is the 0:14:06.920 --> 0:14:11.160 safest assets for them to own. So even though the 0:14:11.280 --> 0:14:15.160 raidars of the being lowest in the world. The ratio 0:14:15.160 --> 0:14:17.080 of the cash on balance sheet among the old the 0:14:17.080 --> 0:14:18.680 culprits was the highest in the world. 0:14:18.760 --> 0:14:20.040 That must be a lot of cash. 0:14:20.440 --> 0:14:24.840 It is retail asset is two thousand treating en, so 0:14:25.360 --> 0:14:26.560 that's a lot of cash. 0:14:26.840 --> 0:14:27.080 Well. 0:14:27.160 --> 0:14:30.800 Almost fifty five percent of household financial assets in Japan 0:14:30.880 --> 0:14:33.680 set in cash and deposits in twenty twenty two, a 0:14:33.720 --> 0:14:36.680 figure far higher than the US or Europe. By twenty 0:14:36.760 --> 0:14:40.360 twenty four, that number had inched lower to around fifty percent, 0:14:40.800 --> 0:14:43.400 and the percentage of assets in equity markets had crept 0:14:43.480 --> 0:14:46.560 up to fourteen percent. The head of the Tokyo and 0:14:46.560 --> 0:14:51.120 Osaka Stock Exchanges, Hero Mediyamaji, says that many Japanese companies 0:14:51.160 --> 0:14:53.680 are starting to use that cash to change the way 0:14:53.720 --> 0:14:54.400 they do business. 0:14:54.680 --> 0:15:01.200 Japanese companies are quite receptive for new de mental technologies 0:15:01.320 --> 0:15:06.520 like AI. I think Japanese companies are are the adopters 0:15:06.920 --> 0:15:10.200 of a new technologies. But at the same time, how 0:15:10.240 --> 0:15:13.440 do we take advantage of those new technologies that you know, 0:15:13.840 --> 0:15:18.120 you have to be quite serious how to utilize in 0:15:18.240 --> 0:15:21.360 what kind of areas. So now we are still in 0:15:21.440 --> 0:15:24.520 the very early stage, but I think Japanese company is 0:15:24.560 --> 0:15:28.200 quite a receptive to those new ideas. 0:15:28.440 --> 0:15:32.720 Japan is I think well positioned for the industrial renaissance, 0:15:33.400 --> 0:15:38.160 the energy shift, supply chain breakdown, and they need to 0:15:38.240 --> 0:15:42.280 rebuild it AI changes. There are a lot of big 0:15:42.320 --> 0:15:46.560 themes going on where companies need a lot of capets, 0:15:47.160 --> 0:15:51.920 and the size of the new finance finance needs is 0:15:52.000 --> 0:15:57.800 growing so fast that big demand for the capex will 0:15:57.840 --> 0:16:01.720 create a lot of demand for our news, which the 0:16:02.200 --> 0:16:04.200 note of a capital camp shift. 0:16:03.920 --> 0:16:07.840 To Japan may have a big need for investment, it 0:16:07.880 --> 0:16:10.720 may have the capital that's needed, but our ex financial 0:16:10.760 --> 0:16:13.760 institutions in a position to direct the capital to where 0:16:13.800 --> 0:16:16.040 it is needed and at scale. 0:16:16.360 --> 0:16:19.040 Japan is like I would say, like many economies. If 0:16:19.080 --> 0:16:21.840 you think about the structure of the Japanese market, it 0:16:21.920 --> 0:16:26.240 is primarily two financial products bank debt and equity. 0:16:26.600 --> 0:16:29.720 Apollo CEO Mark Rowan sees his company is providing a 0:16:29.800 --> 0:16:34.000 much needed third way to finance the capital investment Japan needs. 0:16:34.360 --> 0:16:36.480 The equity market in the context of the world is 0:16:36.520 --> 0:16:39.080 actually quite small though it is the second largest equity 0:16:39.120 --> 0:16:40.800 market in the world, but it is roughly the size 0:16:40.800 --> 0:16:44.320 of Nvidia. Just to put things in perspective, there's not 0:16:44.480 --> 0:16:47.400 the well developed you know kind of corporate bond market 0:16:47.880 --> 0:16:51.000 that exists throughout the US, and so I think what 0:16:51.000 --> 0:16:53.840 we're watching not just in Japan but around the world 0:16:54.040 --> 0:16:57.800 is corporate CFOs. Corporate treasurers now understand that there are 0:16:57.800 --> 0:17:00.920 three types of finance, things that are really highly rated 0:17:00.920 --> 0:17:02.720 and short. You want to be with your banks. There's 0:17:02.720 --> 0:17:08.119 no better provider equity, very very expensive public markets for 0:17:08.240 --> 0:17:13.199 plain vanilla, very very good execution. Everything else comes to 0:17:13.200 --> 0:17:15.760 the private market. The largest part of the private market 0:17:15.840 --> 0:17:18.960 today is investment grade. It is these large companies who 0:17:19.000 --> 0:17:24.439 have these transformational opportunities who want to match long dated investments, 0:17:24.720 --> 0:17:27.040 and most of what we're doing is long dated with 0:17:27.160 --> 0:17:29.679 long dated capital, and that is not what the banking 0:17:29.720 --> 0:17:32.040 system does well. That is not what the public markets 0:17:32.040 --> 0:17:35.520 do well. And so you're seeing this extraordinary growth in 0:17:35.600 --> 0:17:38.160 the US. We've seen it in lots of ways. You've 0:17:38.240 --> 0:17:41.959 met as financing last year at some thirty billion. In Europe, 0:17:42.040 --> 0:17:45.320 we've seen the Europeans, who also have structural issues via 0:17:45.440 --> 0:17:51.040 v capital availability, really embrace private finance. In Japan, we're 0:17:51.040 --> 0:17:54.080 seeing the beginnings of that. The work we've done with Sony, 0:17:54.119 --> 0:17:56.720 the work we've done with SMBC, the work we've done 0:17:57.040 --> 0:18:01.560 in financing buy now, pay later Japanese companies is beginning 0:18:01.600 --> 0:18:04.000 to open up in the minds of CFOs and treasures 0:18:04.280 --> 0:18:05.800 that there's just another alternative. 0:18:06.320 --> 0:18:08.560 It's not the private credit firms like a policy to 0:18:08.640 --> 0:18:12.000 replace Japanese banks. A POLOS team says that it can 0:18:12.040 --> 0:18:13.560 supplement what the banks do. 0:18:13.920 --> 0:18:18.920 The public credit market is very very small. I think 0:18:19.000 --> 0:18:22.320 there's the only sixty trity again outstanding on the corporate 0:18:22.359 --> 0:18:27.120 bond market. Compared to the size of the finance, it's 0:18:27.160 --> 0:18:31.479 being quite small. So a lot of finance has been 0:18:31.560 --> 0:18:35.639 done by banks, who is basically private credit. So I 0:18:35.680 --> 0:18:40.719 think there's a demand for longer dated capital and also 0:18:40.840 --> 0:18:46.720 compress capital because the bank can provide cheaper and short 0:18:46.800 --> 0:18:50.920 term finance, and with the huge capex needs, they need 0:18:51.000 --> 0:18:56.080 longer term, more complex finance structure where the private capital 0:18:56.119 --> 0:18:58.840 markets can solve the problem for it. 0:18:59.040 --> 0:19:03.520 We will start to establish private as just another alternative 0:19:03.720 --> 0:19:06.320 for every CFO and every treasure and by the way, 0:19:06.720 --> 0:19:10.000 in partnership with the Japanese banking system, because at the 0:19:10.080 --> 0:19:12.040 end of the day, we don't do what the banks do. 0:19:12.520 --> 0:19:15.359 We don't provide advice, we don't provide hedging, derivatives, m 0:19:15.400 --> 0:19:18.879 and a any other service that's the purview of the 0:19:18.920 --> 0:19:21.879 banking system. We provide a piece of capital that is 0:19:21.880 --> 0:19:26.639 in very short supply in Japan, investment grade long dated 0:19:27.200 --> 0:19:28.400 to finance what they need. 0:19:28.720 --> 0:19:33.000 It's growing gradually, and I think it's a good alternative 0:19:33.119 --> 0:19:37.720 investment alternative funding BIKU from the viewpoint of the companies, 0:19:37.760 --> 0:19:41.480 as you said, used to be banks are the main credits. 0:19:41.880 --> 0:19:45.199 But in these days because of the banking industry has 0:19:45.200 --> 0:19:49.480 so many restrictions, capital restrictions and kinds of things, and 0:19:49.840 --> 0:19:54.720 so their capability to provide lending to apply the sector 0:19:54.960 --> 0:19:58.080 is getting to a limited the amount. So I think 0:19:58.200 --> 0:20:02.680 private credit can play a big role in Japan as well. 0:20:02.920 --> 0:20:06.320 Firms like Apollo Global Advisors may see an important opportunity 0:20:06.440 --> 0:20:10.080 in the newly evolving Japanese markets. But our Japanese investors 0:20:10.119 --> 0:20:13.920 and companies receptive to adding private market alternatives to their 0:20:14.000 --> 0:20:18.040 means of financing. As you go out into the Japanese market, 0:20:19.160 --> 0:20:22.800 what resistance do you get to these new forms of 0:20:22.800 --> 0:20:23.720 investment vehicles. 0:20:23.920 --> 0:20:26.119 I don't think it's resistance. I think again, just like 0:20:26.160 --> 0:20:29.600 in the wealth market, this is about education. In many instances, 0:20:29.640 --> 0:20:32.960 we are not going to Japanese corporates directly. We're going 0:20:33.000 --> 0:20:37.920 with their longtime banker. In some instances, particularly when Japanese 0:20:37.960 --> 0:20:41.360 companies are financing overseas, we'll deal with them directly. Our 0:20:41.400 --> 0:20:47.280 team here is unbelievable. From our chairman Tanakasan to the 0:20:47.320 --> 0:20:51.480 head of our Asian Business Aetasan, these are very well known, 0:20:51.600 --> 0:20:54.440 very substantive individuals who have been at the cutting edge 0:20:54.480 --> 0:20:57.719 of finance for a very long time. The weight we 0:20:57.760 --> 0:20:59.920 have put here, at the intellectual capital we've put here 0:21:00.280 --> 0:21:02.240 is second to none. I think we're at the beginning 0:21:02.240 --> 0:21:05.040 of a trend, but I think this is going to 0:21:05.080 --> 0:21:07.640 be just a fascinating market for any number of reasons. 0:21:08.200 --> 0:21:10.600 I have never seen a business strategy or an investment 0:21:10.680 --> 0:21:13.520 that doesn't have some downside risk. So what are the 0:21:13.560 --> 0:21:16.840 possible downside risks to this bright new future that you see? 0:21:16.920 --> 0:21:19.280 Well, look, the downside risks are the same risks that 0:21:19.560 --> 0:21:22.679 exist around the world. So for me, the way I 0:21:22.760 --> 0:21:25.800 describe it is in my business career, most of the time, 0:21:25.880 --> 0:21:28.520 where I'd say ninety five percent of the outcomes are 0:21:28.640 --> 0:21:32.240 between two sidelines, and sometimes we like what's on the 0:21:32.240 --> 0:21:34.840 playing field, and sometimes we don't. Sometimes the economy is 0:21:34.840 --> 0:21:37.200 better or worse. Sometimes the capital markets are better worse, 0:21:37.240 --> 0:21:39.920 valuations better or worse, but we know how to navigate 0:21:39.960 --> 0:21:43.240 those things, and the chance of an outside the sidelines 0:21:43.280 --> 0:21:50.520 outcome was small and unpredictable. That's my normal setup today. 0:21:50.800 --> 0:21:53.280 I only think seventy seventy five percent of the outcomes 0:21:53.320 --> 0:21:56.440 are between the two sidelines. And what's between the two 0:21:56.520 --> 0:22:02.800 sidelines is amazing capital cycle grow both employment, inflation coming 0:22:02.840 --> 0:22:07.000 down on a worldwide basis, lots of opportunity, but we 0:22:07.040 --> 0:22:11.560 can ignore that there is an increased risk of an 0:22:11.560 --> 0:22:15.240 out of the box, out of expected outcome, and it's 0:22:15.280 --> 0:22:18.639 of a magnitude that investors people like us, need to 0:22:18.640 --> 0:22:22.359 pay attention to that. And yes, there's always the credit cycle. 0:22:22.920 --> 0:22:24.479 I don't think that's what we're talking about. I think 0:22:24.480 --> 0:22:27.680 we're talking about geopolitics. I think we're talking about government deficits. 0:22:27.840 --> 0:22:30.560 I think we're talking about rates up and rates down. 0:22:31.480 --> 0:22:33.560 And so for the first time in a very long time, 0:22:34.040 --> 0:22:37.800 we are trying to address outcomes that perhaps could occur 0:22:37.920 --> 0:22:40.760 outside of what we normally see in front of us. 0:22:40.880 --> 0:22:44.840 But absent one of those outside the sidelines events. Rowan 0:22:44.920 --> 0:22:48.040 sees his firm as well positioned for a bright future 0:22:48.240 --> 0:22:48.800 in Japan. 0:22:49.080 --> 0:22:52.320 When I look at our toolkit, our toolkit starts with 0:22:52.359 --> 0:22:55.679 retirement services. We have been here any number of years. 0:22:56.160 --> 0:22:59.359 We are a very large reinsurance player to the Japanese market, 0:22:59.640 --> 0:23:04.080 and we are creating products for Japanese retirees. Second, we're 0:23:04.080 --> 0:23:08.440 a provider of capital to industry, whether it's Sony or 0:23:08.880 --> 0:23:12.320 SMBC or others. Third, we are in the buyout business here. 0:23:12.359 --> 0:23:14.720 This is one of the best buyout businesses here. You've 0:23:14.720 --> 0:23:17.520 met with some of our portfolio companies or companies we've 0:23:17.520 --> 0:23:20.480 had an investment in here. It is a very robust 0:23:20.520 --> 0:23:23.560 market and a very interesting market. The capital coming off 0:23:23.560 --> 0:23:27.000 the sidelines from households is looking for better rates of 0:23:27.040 --> 0:23:30.199 return now that they are facing three percent inflation, and 0:23:30.280 --> 0:23:33.280 I expect this to be a very promising wealth market 0:23:33.680 --> 0:23:38.440 where people want safe, healed, they want defensive equity, They 0:23:38.480 --> 0:23:41.439 want the kinds of things that have been available institutionally 0:23:41.920 --> 0:23:43.920 around the world for a long time that are now 0:23:43.960 --> 0:23:45.280 available as wealth products. 0:23:46.880 --> 0:23:51.399 Coming up the challenges and opportunities of changing things, shaking 0:23:51.440 --> 0:24:07.879 things up in the Japanese c suite. This is a 0:24:07.920 --> 0:24:11.639 story about GSM that's a Japanese term meaning putting theory 0:24:11.880 --> 0:24:14.959 into practice. Japan is changing the way it does business 0:24:15.000 --> 0:24:16.800 so it can have the money it needs to invest 0:24:16.840 --> 0:24:20.320 in productivity. What does that mean for Japanese corporations the 0:24:20.359 --> 0:24:23.480 way they are structured and the way they finance those investments. 0:24:26.560 --> 0:24:29.639 There is a real corporate revolution going on. The notion 0:24:29.960 --> 0:24:32.440 of every company needing a plan to get above one 0:24:32.480 --> 0:24:37.040 times book and essentially using shame as a tool for 0:24:37.200 --> 0:24:39.160