Speaker 1: I want to head over to an interview. We all
Speaker 1: are very much looking forward to Jonathan Farrow just high
Speaker 1: tail the ADDA here to head over to Apollo sitting
Speaker 1: down with Mark Rowan, who is the CEO.
Speaker 2: John take it away, A Lisa, thank you.
Speaker 3: This was the deal we agreed to it. If the
Speaker 3: stock closed, it an all time hard investigate. Mark Rowan
Speaker 3: would show up alongside me and it's a man of
Speaker 3: its word.
Speaker 2: Market morning. It's good to see you.
Speaker 4: Thank you, and technically you're here. You came to visit us,
Speaker 4: so thank you.
Speaker 2: Thank you. You planned it this way.
Speaker 3: I'm sure big target for twenty twenty nine ten billion
Speaker 3: dollars of annual learning. So I think we have to
Speaker 3: start with a pretty broad question. Race are coming down.
Speaker 3: Economy is pretty decent. Let's just call financial conditions easy.
Speaker 3: Why people coming to you instead of just issuing a
Speaker 3: bond in public markets?
Speaker 4: I think if they come to us, when they can
Speaker 4: issue a bond in public markets and it's cant is
Speaker 4: not that it's not open, It's that they want to
Speaker 4: do something that the public markets will not allow. Public
Speaker 4: markets over the past two decades have become very vanilla,
Speaker 4: call it beta.
Speaker 5: If you want to do something unique.
Speaker 4: If you want to finance the next generation of infrastructure,
Speaker 4: you want to build a project, you want to build
Speaker 4: data centers, you want to build power, you want long data.
Speaker 4: Do you want special features that's just not available, you
Speaker 4: come to someone like us, and increasingly private markets are
Speaker 4: offering really compelling solutions to investment grade borrowers.
Speaker 3: Let's talk about some of those days, IC and c
Speaker 3: IB and beth Intel recently. What's the common theme behind
Speaker 3: those three companies for you?
Speaker 4: The common theme for US is excess return relative to
Speaker 4: the credit of the underlying borrower. The common theme for
Speaker 4: the issuer is they are achieving something they could not
Speaker 4: otherwise achieve. When we did ABMBV some six billion dollars
Speaker 4: years ago, everyone around us, our peer group, that was interesting.
Speaker 4: That was one off in COVID, You'll never do another
Speaker 4: one another investment grade private deal. One hundred billion dollars later,
Speaker 4: we're still doing investment grade private deals. And I see
Speaker 4: nothing but a long line of of interesting borrowers and
Speaker 4: interesting situations.
Speaker 5: Because think about what we're doing in the world today.
Speaker 4: We are building infrastructure, we are building and changing energy transition.
Speaker 4: We're just at the beginning of this, and we are
Speaker 4: building the next generation of data and power. Every one
Speaker 4: of those things is long dated. Many of them are
Speaker 4: complex financings. Some will go to the banking system, some
Speaker 4: will go to public markets, But increasingly, for these more
Speaker 4: complicated financings and long dated financings, private market investment grade
Speaker 4: is where borrowers are coming.
Speaker 3: There was a theme an invested Day, and you've talked
Speaker 3: about this with me yourself, privately global industrial renaissance.
Speaker 2: What are you talking about?
Speaker 5: We're talking about is this massive need for capital.
Speaker 4: I mean, you can believe or not believe all the
Speaker 4: figures that are out there, but when you add up
Speaker 4: the amount of money that is needed for energy transition,
Speaker 4: the amount of money that is needed to fix our infrastructure,
Speaker 4: the amount of money that will be needed to build
Speaker 4: data centers and power to supply them, much less to
Speaker 4: connect and redo our power lines, you're talking about the
Speaker 4: amount of money that's been spent since the invention of five,
Speaker 4: all with the backdrop of the US government borrowing two
Speaker 4: trillion dollars to finance itself. On a current basis, this
Speaker 4: is not a question of will private markets grow. The
Speaker 4: question will be how much, Yes, public markets will continue
Speaker 4: to play a really important role banking system, really important role.
Speaker 4: But this tool, this notion of private investment grade, has
Speaker 4: really not been available to CFOs or others arranging financing,
Speaker 4: and increasingly it will be.
Speaker 2: How labor intensive is this for you?
Speaker 3: And as you do more deals, do you get a
Speaker 3: benefit from that that you better able to replicate things
Speaker 3: and use less and less people.
Speaker 5: This is scars of experience.
Speaker 4: So these are all labor intensive, and that is actually
Speaker 4: what the competitive advantage is. The investment grade bond market
Speaker 4: became so efficient and so low cost that financial firms
Speaker 4: stopped allocating resources to it. There were just not any
Speaker 4: money in doing that, and so the market is very available,
Speaker 4: but it is very plain vanilla.
Speaker 5: One has built what we've built.
Speaker 4: When you look at employment at Apollo, the greatest group
Speaker 4: of employment four thousand people, some eight billion dollars that
Speaker 4: we've spent over the past fifteen years all goes to
Speaker 4: what we call origination. Now, not all of these originators
Speaker 4: are out calling on investment grade borrowers. Some are running
Speaker 4: other types of origination vehicles, aircraft finance, fleet finance, receivables finance,
Speaker 4: inventory finance, infrastructure finance.
Speaker 5: Increasingly, this is how America.
Speaker 3: Borrows introduced City and a twenty five billion a dollar partnership.
Speaker 3: What's behind that it's that acknowledgment from you that you've
Speaker 3: got more cash than you know what to do with.
Speaker 4: I think it's an acknowledgment that origination, the control of
Speaker 4: the product is actually what has value. And some of
Speaker 4: that origination we're going to build ourselves, and we've built
Speaker 4: more of it than any But let's face it, we
Speaker 4: a whole industry is short origination. To the extent we
Speaker 4: can find a meeting of the minds with City, that's fabulous.
Speaker 4: And I think the bigger theme here is the banking system,
Speaker 4: particularly one of the big four banks, is actually figuring
Speaker 4: out what we believe all along. We don't want what
Speaker 4: the bank wants. We don't want the bank's customer. We
Speaker 4: want the asset the bank. We can't offer advice, m
Speaker 4: and A, derivatives hedging, foreign exchange payments, credit cards, or
Speaker 4: any other service the bank wants to offer those things.
Speaker 4: The bank sometimes wants the loan, but more often than
Speaker 4: not does not want the loan.
Speaker 2: Who do you think field it?
Speaker 3: The most calls that day when that was announced that partnership,
Speaker 3: was it Jane Fraser an annoyed asset managers or was
Speaker 3: it you an annoyed bankers.
Speaker 5: From the comparing of notes last night? It was Jane.
Speaker 2: It was Jane. Did you get the calls you saw
Speaker 2: from LOX.
Speaker 5: We definitely got a few calls.
Speaker 3: Do you get the sense that this is the beginning
Speaker 3: of something bigger? Twenty five billions the number with citsy
Speaker 3: just give me an idea of what this looks like
Speaker 3: further down the line.
Speaker 2: Does it include other banks too?
Speaker 4: I think it does, and now I think it is
Speaker 4: difficult to serve lots of people in the same way
Speaker 4: with the same terms. But the City partnership is focused
Speaker 4: on a certain type of borrower. I think you'll see
Speaker 4: international partnerships. I think you'll see investment grade partnerships. I
Speaker 4: think you'll see infrastructure related partnerships. I do think that
Speaker 4: we are becoming a partner in some ways to the
Speaker 4: banking system, rather than how it is portrayed in the press,
Speaker 4: which is a fierce competition over everything.
Speaker 3: This conversation so far has really been about how the
Speaker 3: financing of companies, particularly in this country, is changing, how
Speaker 3: the company's doing the financing is shifting. The emphasis being
Speaker 3: on private markets. Part of your vision is how investing
Speaker 3: is going to change as well, So let's spend some
Speaker 3: time on that. How is investing going to change? How
Speaker 3: do we think about public versus private now? And how
Speaker 3: do you hope we're going to think about it in
Speaker 3: years to come.
Speaker 5: Look for me, this is year forty.
Speaker 4: It's sometimes hard to believe I've been doing it this long,
Speaker 4: but we grew up thinking private was risky and public
Speaker 4: was safe, and probably forty years ago that was true.
Speaker 4: Private was three products, equity, venture capital, and hedge funds,
Speaker 4: all three of which can be risky, but done the
Speaker 4: right way are excellent investments. And public was eight thousand
Speaker 4: public companies, diversified portfolios of stocks and bonds.
Speaker 5: Let's just say that's not how the world is today.
Speaker 4: The world that we see private is safe and risky
Speaker 4: and public is safe and risky.
Speaker 5: And if that's.
Speaker 4: True, everything we know about portfolio management, the way we
Speaker 4: construct portfolios today is going to change. Think of the
Speaker 4: typical investor a very bland I say, a three flavor
Speaker 4: ice cream portfolio, stocks, bonds, and a little bit of alternatives.
Speaker 4: Why well, because when something is risky, you put it
Speaker 4: in a small bucket called alternatives. You watch it carefully
Speaker 4: and you demand high returns out of it. But if
Speaker 4: private is just another form, I think what you're going
Speaker 4: to see is the whole business of what I call
Speaker 4: replacement fixed income, which today means investment grade public credit.
Speaker 4: I think is going to be investment grade public and
Speaker 4: investment grade private teen months from now. I do not
Speaker 4: believe investors will actually know the difference between investment grade
Speaker 4: public and investment grade private. It will not be the issuers,
Speaker 4: it will not be the size, it will not be
Speaker 4: the ratings, it will not even be the liquidity. Everything
Speaker 4: that exists in the public markets, repo borrowing, market making,
Speaker 4: daily pricing, is coming to the private markets.
Speaker 3: What is the total addressable market? What kind of numbers
Speaker 3: are we thinking about?
Speaker 4: We're talking about massive marketplace when we look at the
Speaker 4: entirety of our industry.
Speaker 5: The entirety of our.
Speaker 4: Industry has been built out of the alternative bucket of
Speaker 4: institutional investors. The fixed income bucket, which is the one
Speaker 4: I'm talking about now, is fifty percent larger than the
Speaker 4: alternative bucket and is mostly one hundred percent private.
Speaker 5: Work to me public.
Speaker 2: Investment grade iquitcy different to debt.
Speaker 3: Can you tell me how that's going to be transformed,
Speaker 3: and whether some of the companies that typically would becoming
Speaker 3: public are going to state private. Whether we've got to
Speaker 3: see a big shift in capital markets over the next
Speaker 3: five years or so on that front.
Speaker 5: Well, we're seeing it already.
Speaker 4: So this is this This is a two pronged to answer,
Speaker 4: which is eight thousand public companies? Is now four thousand
Speaker 4: public companies. Fewer than one hundred companies go public every
Speaker 4: year and more than one hundred companies go private. There
Speaker 4: do not seem to be compelling reasons for companies to
Speaker 4: be public, particularly with what's happened on the investing side.
Speaker 4: So much of our market today is indexed and correlated.
Speaker 4: Think of passive now sixty seventy percent of the overall marketplace.
Speaker 4: Active management, which historically has been the buying and selling
Speaker 4: of stocks, has really been a very, very difficult place
Speaker 4: to be, has failed to be at the index ninety
Speaker 4: plus percent of the time for twenty years. I think
Speaker 4: we're going to see an evolution also take place in equity.
Speaker 4: It's going to happen more slowly. In fixed income. We
Speaker 4: are going to see fixed income replacement public and private
Speaker 4: essentially come together. And the reason I know that is
Speaker 4: we're seeing it every single day. And in fixed income
Speaker 4: we have arbiters of credit quality rating agencies who tell
Speaker 4: investors that something public and something private is of the
Speaker 4: same quality.
Speaker 5: In equity, we lack those.
Speaker 4: Our But nonetheless, I think investors are beginning to understand
Speaker 4: when ten stocks are thirty five to forty percent of
Speaker 4: your portfolio and four stocks have determined all your returns
Speaker 4: for the past four years, and one stock has basically
Speaker 4: been one hundred percent of your quarter. I mean, think
Speaker 4: of what we've done as a country. We've taken the
Speaker 4: largest pool of savings in the world, four oh one
Speaker 4: k twelve to thirteen trillion dollars from a group of
Speaker 4: people who need retirement savings more than ever.
Speaker 5: What are they own?
Speaker 4: They own daily liquid stock index funds generally S and
Speaker 4: P for fifty years. Why well, we have a mistaken
Speaker 4: belief that public is safe and private is risky. You
Speaker 4: look at the best retirement system anywhere in the Western
Speaker 4: world in Australia, where they've introduced superannuation forty years ago.
Speaker 4: Just a fancy way of saying is they gave the
Speaker 4: equivalent of four oh one k investors access to private markets.
Speaker 4: The returns have been nothing short of spectacular. Outcomes for
Speaker 4: investors can be not a little bit better, fifty and
Speaker 4: sixty percent better.
Speaker 3: You know the view here public is transparent and privates
Speaker 3: a payek.
Speaker 2: How do you change that view?
Speaker 4: Well, I think it's going to happen in fixed income.
Speaker 4: I think when you get to daily pricing, when you
Speaker 4: get to daily liquidity, when you can see a market.
Speaker 4: But let's not fool ourselves. Markets are different than we
Speaker 4: think they are. Everything changed in two thousand and eight,
Speaker 4: as it should as a response to the financial crisis,
Speaker 4: but we just did not experience as investors those changes
Speaker 4: because right after we change the rules, we printed eight
Speaker 4: trillion dollars and everything went up into the right. One
Speaker 4: of the most interesting things that changed there is no
Speaker 4: liquidity in public fixed income the SATs I've seen it
Speaker 4: takes five days to sell an investment grade corporate bond.
Speaker 4: So when you see a quote, is that liquid, Well,
Speaker 4: we feel good because it's public, it's there, we can
Speaker 4: see it. I do think we're going to end up
Speaker 4: not caring in fixed income in the next eighteen months
Speaker 4: as to whether something is public or private. The comfort
Speaker 4: that people are developing in private markets on the fixed
Speaker 4: income side, I believe will eventually extend to equity, and
Speaker 4: we will see equity also adopt private side by side
Speaker 4: with public. As I sometimes joke, investors will own equity
Speaker 4: that is private rather than private equity, the difference being
Speaker 4: the leverage.
Speaker 3: You say, wait, you mean investors to regulate to say
Speaker 3: it the same way.
Speaker 5: I think they do.
Speaker 4: I mean, the conversation with regulators is actually a fascinating
Speaker 4: one because clearly.
Speaker 5: Change is scary.
Speaker 4: But the typical conversation is every dollar of borrowing that
Speaker 4: moves outside of the banking system to the investment marketplace.
Speaker 4: And let's face it, there are only two choices for regulators.
Speaker 4: Money in an economy can come from investors or from banks.
Speaker 5: There's no third choice.
Speaker 4: So every dollar that moves actually delevers the banking system
Speaker 4: and makes it safer, and people recoil and shock. And
Speaker 4: this is just math. A bank is levered twelve to
Speaker 4: fourteen times. The typical institutional investor is levered zero, the
Speaker 4: typical mutual fund levered zero, typical bde levered one point
Speaker 4: five times, typical retirement services company levered eight times. It
Speaker 4: is deleveraging. The second is disclosure. We think it's not transparent.
Speaker 4: The typical bank disclosure says loans to customers and loans
Speaker 4: to companies. You click on our website you can see
Speaker 4: every security we own every quarter. Then you talk about
Speaker 4: maturity transformation. Maturity transformation is really where the economy has
Speaker 4: suffered and financial markets have suffered. Banks are in business
Speaker 4: to do maturity transformation. They borrow shortened form of deposits
Speaker 4: and lend long in form of loans. That's not a
Speaker 4: bad thing, that's just how they're set up. In the
Speaker 4: investment marketplace, generally, you're talking about investors who are matched
Speaker 4: from a maturity point of view. And the final thing
Speaker 4: that I always sit with regulators, what percentage of assets
Speaker 4: in the US banking system are investment grade?
Speaker 5: They don't know.
Speaker 4: We have a perception that they're all investment grade, but
Speaker 4: the reality is about sixty percent of bank.
Speaker 5: Assets are investment grade.
Speaker 4: You look at a balance sheet like ours and just
Speaker 4: as an example, we're ninety plus percent investment grade. And
Speaker 4: so it's change, but it is actually changed. That is
Speaker 4: making the system more robust and more diversified. And we
Speaker 4: let's make no mistake we are the envy of the world.
Speaker 4: We the US are the envy of the world. In Europe,
Speaker 4: they are squeezing the banking system through Vaslin game, but
Speaker 4: they haven't yet decided to allow investors to fill that gap.
Speaker 4: And there are questions, why are we struggling with financial markets? Well,
Speaker 4: you're squeezing the banking system and you're not allowing investors
Speaker 4: to fill the gap.
Speaker 3: Have you had this conversation with a senator from Massachusetts
Speaker 3: As that conversation ever happened.
Speaker 5: It hasn't, but I welcome it.
Speaker 4: I've spent I spend lots of time in DC and
Speaker 4: elsewhere speaking to regulators because we are in a really
Speaker 4: dynamic phase. Everything that we think works the way it
Speaker 4: works has changed, and we're about to experience and are
Speaker 4: experiencing the changes that were made in two thousand and
Speaker 4: eight in response to the financial crisis.
Speaker 3: Speaking of change, which is Washington, DC is becoming increasingly interventionist.
Speaker 3: You compared some of the benefits of doing business in
Speaker 3: America and doing business in Europe. Doing business in America
Speaker 3: is aren'turally not as easy as it used to be,
Speaker 3: and it may well get harder.
Speaker 2: What's your view on where we're heading.
Speaker 5: You may be right, but it's all relative.
Speaker 4: This is the single best market to be in at
Speaker 4: this point in time, Barnutt.
Speaker 3: When we spoke before Christmas and we talked about the
Speaker 3: choices on the menu, then for the upcoming election, you
Speaker 3: went too impressed.
Speaker 2: The menu's changed a little bit. What's your view?
Speaker 4: Well, since i'll be under banishment here if I give
Speaker 4: you a direct view, let me to say. The way
Speaker 4: I frame this is you are either more scared of
Speaker 4: four years of the status quo or more scared of
Speaker 4: four years of change. You just have to decide what
Speaker 4: you're more scared of. Me personally, I'm more scared of
Speaker 4: four years of the status quo.
Speaker 2: What's wrong with the status quo?
Speaker 4: I see a direction where the trend is not our friend.
Speaker 4: Right now, we are, as you suggest, we are the
Speaker 4: single best place to do business in the world. We
Speaker 4: are the luckiest people in the world. Can we screw
Speaker 4: it up?
Speaker 5: Yeah? We can.
Speaker 4: The notion that we are spending two trillion and excess
Speaker 4: of what we take in in peacetime with full employment
Speaker 4: does not bode well for the availability of capital to
Speaker 4: do what we need to do for the next generation.
Speaker 4: We're spending the next generation's money currently.
Speaker 2: Do you see anyone in the campaign trail that's waiting
Speaker 2: to do And I think.
Speaker 5: About that on the campaign trail, not in reality. Let's hope.
Speaker 5: All we can hope for is better governance.
Speaker 3: I've said repeatedly on Bloomberg Surveymance, on Bloomberg TV, on
Speaker 3: Bloomback Radio for years that America has the privilege, the
Speaker 3: unique privilege of acting recklessly.
Speaker 2: Are we losing that?
Speaker 5: Not yet? We have a long way to go.
Speaker 4: We have lots of examples around the globe of people
Speaker 4: who have acted recklessly for a much longer period of
Speaker 4: time than we have been acting recklessly. But we also
Speaker 4: have obligations that others do not. Right now, we are
Speaker 4: the beneficiary of being the strongest economy, the strongest capital market,
Speaker 4: the strongest.
Speaker 5: Military, and the best place to do business.
Speaker 4: I mean, if you tick off what's happened over the
Speaker 4: past years here, we may not like how we got
Speaker 4: here and how we financed it. Three years ago we
Speaker 4: decided to build infrastructure. We allocated two trillion dollars. None
Speaker 4: of that's built yet, it's all being built. Two years
Speaker 4: ago we spent fifty two billion dollars of semiconductor subsidies
Speaker 4: to build semiconductors here. Not a single plant is open.
Speaker 4: It's all being built a year ago. Inflation Reduction Act
Speaker 4: to encourage the manufacturer renewables one point three to two
Speaker 4: point three trillion.
Speaker 5: No one really knows. Not a single plant is opened.
Speaker 4: We are the beneficiary and the largest recipient of foreign
Speaker 4: direct investment three years in a row. So people around
Speaker 4: the globe are actually figuring out we're better off here.
Speaker 5: And something tells me we're ramping defense production.
Speaker 4: All of those things are fiscally stimultive and positive fore employment. Oh,
Speaker 4: by the way, we have no legal immigration. This sets
Speaker 4: us up very well fiscally. A strong economy, which I
Speaker 4: think we're seeing.
Speaker 3: Federal Reserve is kind of interest rates by fifty basis points.
Speaker 3: Are you in Toulston slot camp? And you can agree with,
Speaker 3: agree or disagree with. Tulson of course works here. He
Speaker 3: believes this economy doesn't need rate cuts. We're in a
Speaker 3: great place. Do you share that view?
Speaker 5: I said it.
Speaker 4: I was, I guess unfortunate to be on TV an
Speaker 4: hour after the raid cut, and I said, this was
Speaker 4: a very very expensive insurance policy.
Speaker 2: What's expensive about it?
Speaker 5: The notion that we would cut rates.
Speaker 4: Financial markets are wide open, equities are at all time high,
Speaker 4: financing is available, real estate prices are going up in
Speaker 4: every market, and yet we're stimulating, and we're stimulating fiscally.
Speaker 4: It is not clear that we need more rate cuts
Speaker 4: at this point in time. And to the extent we
Speaker 4: encourage growth, and growth was very strong, as you saw
Speaker 4: from GDP for the quarter. To the extent we accelerate
Speaker 4: the economy and have to go in the other direction,
Speaker 4: that would not be a good deck.
Speaker 2: Just pause. You think the Fed might have to start
Speaker 2: hiking interest rates again.
Speaker 4: I'm not saying that yet. I'm just saying I see
Speaker 4: no reason for the cutting of rates right now. So
Speaker 4: am I in the Torston camp? I'm absolutely in the
Speaker 4: Torston camp and it's my privilege to have him down
Speaker 4: the hall.
Speaker 5: I make sure to check in with him every morning.
Speaker 3: I do as well, Mark, Ryan, this was a privilege,
Speaker 3: a pleasure. Good luck for the next five years. And
Speaker 3: I hope it's told you every year.
Speaker 5: Every year you get to do it.
Speaker 2: Thank Mark, Thank you, sir, appreciate it.