1
00:00:00,120 --> 00:00:02,840
Speaker 1: A publog Global Management posting a record in twenty twenty

2
00:00:02,880 --> 00:00:05,680
Speaker 1: three for private credit, the firm reporting more profit last

3
00:00:05,760 --> 00:00:09,079
Speaker 1: year than the previous decade. Jim's outser Apollo. John just

4
00:00:09,160 --> 00:00:10,680
Speaker 1: now for more. Jim, it's going to see you with

5
00:00:10,800 --> 00:00:11,800
Speaker 1: us of the Act. Good mornings you.

6
00:00:11,840 --> 00:00:14,520
Speaker 2: Good to see you too. Always welcome. I appreciate the invite.

7
00:00:14,560 --> 00:00:16,560
Speaker 1: Well, thanks for coming on. Let's talk about these ernigs

8
00:00:16,720 --> 00:00:19,960
Speaker 1: well received by this market. What's underpinning these trends for you?

9
00:00:20,800 --> 00:00:23,080
Speaker 2: Well, I think it's a repeat of the secular trends

10
00:00:23,079 --> 00:00:26,440
Speaker 2: we've been talking about over the last several years. You know, certainly,

11
00:00:27,000 --> 00:00:29,280
Speaker 2: we have a business and an industry that gets better

12
00:00:29,320 --> 00:00:32,960
Speaker 2: every day as there are more and more retirees and

13
00:00:33,040 --> 00:00:37,599
Speaker 2: savers looking to think about retirement retirement income on our

14
00:00:37,600 --> 00:00:40,640
Speaker 2: annuity business. At the same time, you've got an involving

15
00:00:40,720 --> 00:00:42,960
Speaker 2: banking system, which I'm taught. I'm sure we're talking about

16
00:00:42,960 --> 00:00:46,720
Speaker 2: where lots of companies are looking for a variety of

17
00:00:46,760 --> 00:00:50,800
Speaker 2: capital solutions. We have the broadest toolbox, but as an industry,

18
00:00:50,960 --> 00:00:53,800
Speaker 2: it's it's a secular change and where we've been fortunate

19
00:00:53,840 --> 00:00:55,200
Speaker 2: to be right in the middle of it. But you're right,

20
00:00:55,440 --> 00:00:57,959
Speaker 2: we had a business last year that hit on all cylinders.

21
00:00:57,760 --> 00:01:01,320
Speaker 2: All parts of our business were a to first and

22
00:01:01,360 --> 00:01:06,720
Speaker 2: foremost great investor performance. Assets and asset gathering follows performance,

23
00:01:07,040 --> 00:01:09,559
Speaker 2: and we did so on a very strong risk adjusted basis.

24
00:01:09,640 --> 00:01:12,280
Speaker 1: You went there early, so we'll go there early. Well,

25
00:01:12,280 --> 00:01:14,399
Speaker 1: this means for the banks there is a sentiment out there.

26
00:01:14,400 --> 00:01:15,920
Speaker 1: You know how this is portrayed in the media. She

27
00:01:16,120 --> 00:01:19,360
Speaker 1: goes something like this, Apollo's killing get the banks of struggling.

28
00:01:19,400 --> 00:01:22,480
Speaker 1: It's their loss? Is your wind your gain? Is that

29
00:01:22,520 --> 00:01:23,319
Speaker 1: how it works for you?

30
00:01:23,840 --> 00:01:27,160
Speaker 2: Well, the reality is this is a brutally competitive business

31
00:01:27,280 --> 00:01:29,160
Speaker 2: and it has been for the thirty nine years I've

32
00:01:29,160 --> 00:01:31,240
Speaker 2: been in a business, whether it's you, whether you're in

33
00:01:31,240 --> 00:01:35,160
Speaker 2: the banking side, the asset management side, or anywhere in between.

34
00:01:35,600 --> 00:01:39,840
Speaker 2: You know, the competition for market share for assets is

35
00:01:39,880 --> 00:01:43,920
Speaker 2: always brutally competitive. But certainly it's a great narrative right now.

36
00:01:43,959 --> 00:01:47,200
Speaker 2: The reality is there's much more of a symbiotic relationship

37
00:01:48,040 --> 00:01:51,640
Speaker 2: than exists. And we're a major counter party of all

38
00:01:51,680 --> 00:01:54,760
Speaker 2: the large US institutions and even globally in Japan and

39
00:01:54,800 --> 00:01:58,520
Speaker 2: Europe as well, So it's not certainly on any one

40
00:01:58,720 --> 00:02:02,480
Speaker 2: transaction a buyout financing, whether it's going to go to

41
00:02:02,480 --> 00:02:04,680
Speaker 2: the Broady syndicated market or it's going to go to

42
00:02:04,760 --> 00:02:08,080
Speaker 2: private credit. These are all they're competitive within our industry,

43
00:02:08,120 --> 00:02:12,040
Speaker 2: and they're competitive within the banks. That's never going to change.

44
00:02:12,200 --> 00:02:15,520
Speaker 2: But the reality is the financing that takes place at

45
00:02:15,560 --> 00:02:19,000
Speaker 2: the counterparty financing that we get from the large institutions

46
00:02:19,160 --> 00:02:21,919
Speaker 2: really critical to our business. We provide them a lot

47
00:02:21,960 --> 00:02:25,919
Speaker 2: of financing fees and opportunities across our equity and debt businesses.

48
00:02:26,000 --> 00:02:28,919
Speaker 2: So there's a narrative that sells papers, and then there's

49
00:02:28,960 --> 00:02:30,760
Speaker 2: the reality, and it's somewhere in between.

50
00:02:30,880 --> 00:02:33,120
Speaker 3: This is like in high school when they're two friends

51
00:02:33,200 --> 00:02:35,040
Speaker 3: and they're kind of always talking about each other behind

52
00:02:35,080 --> 00:02:36,920
Speaker 3: their backs, but they're really like to each other because

53
00:02:36,919 --> 00:02:39,040
Speaker 3: they kind of will operate in the same circles. I'm

54
00:02:39,040 --> 00:02:41,560
Speaker 3: just saying we're getting Stanley front of these a little bit.

55
00:02:41,600 --> 00:02:44,720
Speaker 3: I mean, the idea is Morgan Stanley bolstering it's private

56
00:02:44,760 --> 00:02:47,359
Speaker 3: credit portfolio to fifty billion dollars in the medium term.

57
00:02:47,520 --> 00:02:49,760
Speaker 3: Gold and Sachs reportedly aiming to double the size of

58
00:02:49,760 --> 00:02:51,720
Speaker 3: it's one hundred and ten billion dollar credit business. They

59
00:02:51,760 --> 00:02:54,079
Speaker 3: want to fight back, don't she kind of feel that yees.

60
00:02:54,440 --> 00:02:58,119
Speaker 2: Again, we're in a really competitive industry with the smartest,

61
00:02:58,600 --> 00:03:02,040
Speaker 2: most determined mind in the globe in the US and Europe.

62
00:03:02,080 --> 00:03:03,880
Speaker 2: The reality is, and the end of the day, it

63
00:03:03,880 --> 00:03:07,200
Speaker 2: gets about your business model, how you fund your business,

64
00:03:07,639 --> 00:03:10,440
Speaker 2: and the client product that you're bringing to solutions. So

65
00:03:10,800 --> 00:03:13,280
Speaker 2: there's no doubt, I mean, there's no doubt that there's

66
00:03:13,280 --> 00:03:15,280
Speaker 2: going to be firms that are going to start private

67
00:03:15,320 --> 00:03:18,000
Speaker 2: credit businesses. But again let's take a step back. As

68
00:03:18,000 --> 00:03:20,160
Speaker 2: I've talked to you many times in New York and

69
00:03:20,200 --> 00:03:24,320
Speaker 2: in London, private credit is broader than just the sponsor

70
00:03:24,400 --> 00:03:27,959
Speaker 2: buyout business. It's a great headline product, it's a great

71
00:03:28,000 --> 00:03:31,800
Speaker 2: headline tool, but the reality is that's a trillion five market.

72
00:03:32,200 --> 00:03:35,520
Speaker 2: The reality is private capital, private credit is a forty

73
00:03:35,560 --> 00:03:39,120
Speaker 2: trillion dollar opportunity. And that's where when we see what

74
00:03:39,160 --> 00:03:42,800
Speaker 2: we're doing in terms of aircraft finance and solar finance

75
00:03:42,960 --> 00:03:46,320
Speaker 2: and a variety of trade and inventory finance, that's where

76
00:03:46,360 --> 00:03:49,880
Speaker 2: we have a really competitive toolbox. Because of the structure

77
00:03:49,920 --> 00:03:53,000
Speaker 2: of our liabilities, the duration of those liabilities, and the

78
00:03:53,000 --> 00:03:55,680
Speaker 2: cost of capital. What we've really done at a poll

79
00:03:55,800 --> 00:03:58,800
Speaker 2: the last ten twelve years has really brought our cost

80
00:03:58,840 --> 00:04:02,320
Speaker 2: of capital down drama. If you're just in the pe business,

81
00:04:02,680 --> 00:04:05,600
Speaker 2: your cost of capital is mid to high twenty percent.

82
00:04:06,000 --> 00:04:08,480
Speaker 2: If you're in the measure to stress businesses in the teens.

83
00:04:08,800 --> 00:04:11,640
Speaker 2: When you have an annuity business, and the reality is

84
00:04:11,680 --> 00:04:15,760
Speaker 2: in this higher rate environment, more people like to buy annuities.

85
00:04:15,800 --> 00:04:19,040
Speaker 2: Annuities had a record volume last year. That just brings

86
00:04:19,080 --> 00:04:23,240
Speaker 2: in a lot of long duration, lower cost capital. So

87
00:04:23,360 --> 00:04:26,159
Speaker 2: our ability to be very relevant to any client or

88
00:04:26,240 --> 00:04:29,760
Speaker 2: borrower is a It's really a defining characteristic.

89
00:04:30,160 --> 00:04:32,800
Speaker 3: How much has the money that you're talking about, which

90
00:04:32,839 --> 00:04:36,760
Speaker 3: is coming from different sources than traditionally, basically been the

91
00:04:36,800 --> 00:04:38,680
Speaker 3: reason why we haven't seen the credit cycle that so

92
00:04:38,720 --> 00:04:39,840
Speaker 3: many people were expecting.

93
00:04:41,000 --> 00:04:42,800
Speaker 2: Well, I think it's a very interesting question. I think

94
00:04:42,800 --> 00:04:44,600
Speaker 2: what's going on right now, and I know you had

95
00:04:44,600 --> 00:04:46,760
Speaker 2: tors in here yesterday, is you know last year you

96
00:04:46,800 --> 00:04:49,960
Speaker 2: had the equity markets of twenty something percent broadly speaking,

97
00:04:50,240 --> 00:04:52,000
Speaker 2: and at the end of the year you had defaults

98
00:04:53,120 --> 00:04:56,720
Speaker 2: going approaching almost five percent. That's a pretty unique characteristic.

99
00:04:56,800 --> 00:04:59,520
Speaker 2: Usually when you see defaults rising like that, you have

100
00:04:59,560 --> 00:05:04,039
Speaker 2: a decline economy. The strength of this economy has befuddled

101
00:05:04,600 --> 00:05:07,240
Speaker 2: economists and all your guests for the decade, and if

102
00:05:07,279 --> 00:05:09,200
Speaker 2: you look at where all the dot plots have been,

103
00:05:10,000 --> 00:05:12,080
Speaker 2: even with those folks who have all the information have

104
00:05:12,200 --> 00:05:16,000
Speaker 2: missed this. Now. I think once we all say that,

105
00:05:16,040 --> 00:05:18,159
Speaker 2: you know there's not going to be a cycle. I

106
00:05:18,360 --> 00:05:22,560
Speaker 2: do think you are seeing some signs of a hardening

107
00:05:22,560 --> 00:05:25,680
Speaker 2: of economic conditions that are fondly coming up. We'll see

108
00:05:25,680 --> 00:05:27,200
Speaker 2: it in the next few weeks. I think the Fed's

109
00:05:27,240 --> 00:05:29,960
Speaker 2: made the right choice. I think theyve I talked several

110
00:05:30,000 --> 00:05:32,160
Speaker 2: months ago here about the FED put us back. They

111
00:05:32,160 --> 00:05:35,080
Speaker 2: put themselves in a really interesting cosition right now where

112
00:05:35,120 --> 00:05:38,760
Speaker 2: they can mute volatility with having a lot of bullets

113
00:05:38,839 --> 00:05:41,480
Speaker 2: left in that gun. But I do think there's a

114
00:05:41,520 --> 00:05:44,039
Speaker 2: modern economy that's going on right now. The depth and

115
00:05:44,120 --> 00:05:47,960
Speaker 2: breadth has surprised economists and guests across the board, and

116
00:05:48,000 --> 00:05:50,480
Speaker 2: it's a much more resilient economy. The US economy is

117
00:05:50,560 --> 00:05:53,039
Speaker 2: the bulwarker the Western world right now. It really is.

118
00:05:53,200 --> 00:05:55,360
Speaker 1: Economy is strong, and I think you told us before Christmas.

119
00:05:55,360 --> 00:05:58,000
Speaker 1: Basically the Federal Reserve has the space now because of

120
00:05:58,040 --> 00:06:00,760
Speaker 1: lower inflation, to respond to negative shock. What I'm trying

121
00:06:00,760 --> 00:06:02,920
Speaker 1: to work out though, of the issuance that we've seen

122
00:06:03,000 --> 00:06:05,159
Speaker 1: so far, and this is more in public markets where

123
00:06:05,279 --> 00:06:07,200
Speaker 1: Lisa and I've been talking about this boom and supply

124
00:06:07,520 --> 00:06:09,839
Speaker 1: to start this year and this flood of demand. Is

125
00:06:09,839 --> 00:06:12,320
Speaker 1: that because the economy is strong or we're just anticipating

126
00:06:12,440 --> 00:06:14,440
Speaker 1: lower rates this year? Which one is it?

127
00:06:15,000 --> 00:06:18,240
Speaker 2: I think it's a combination of. You know, the US

128
00:06:18,279 --> 00:06:21,520
Speaker 2: consumer has prepared themselves very well for a higher rate environment,

129
00:06:21,880 --> 00:06:24,360
Speaker 2: corporate balance sheets have prepared themselves very well for a

130
00:06:24,440 --> 00:06:27,960
Speaker 2: balance sheet, and when people see financing opportunities, they know

131
00:06:28,120 --> 00:06:31,040
Speaker 2: now that like, don't wait a round for perfection. And

132
00:06:31,080 --> 00:06:33,039
Speaker 2: I think that's been a good lesson, you know, don't

133
00:06:33,080 --> 00:06:35,240
Speaker 2: let don't let perfect get in the enemy of progress.

134
00:06:35,240 --> 00:06:37,640
Speaker 2: And I think there's been a very very thoughtful There's

135
00:06:37,640 --> 00:06:40,240
Speaker 2: no doubt there is when people see what's going on

136
00:06:40,279 --> 00:06:42,640
Speaker 2: where rates we're supposed to be going, there has been

137
00:06:42,680 --> 00:06:44,760
Speaker 2: a rush and there's a there is a risk on

138
00:06:44,839 --> 00:06:47,719
Speaker 2: trade right now and virtually every asset class the market

139
00:06:47,760 --> 00:06:52,040
Speaker 2: has priced to perfection in virtually every asset class, and

140
00:06:52,400 --> 00:06:54,480
Speaker 2: that means it's a good time to issue. I'll tell

141
00:06:54,480 --> 00:06:58,880
Speaker 2: you For us, we typically underperforming periods like this. We

142
00:06:58,960 --> 00:07:01,440
Speaker 2: have a lot of cash on the balance sheet, of

143
00:07:01,480 --> 00:07:04,640
Speaker 2: the then right now we're very low levered. We put

144
00:07:04,680 --> 00:07:07,960
Speaker 2: ourselves in the position if there are pockets of volatility,

145
00:07:08,360 --> 00:07:11,280
Speaker 2: we're going to be well positioned. But that's how we prudently,

146
00:07:11,400 --> 00:07:13,240
Speaker 2: that's when we have a macro view, that's how we

147
00:07:13,280 --> 00:07:13,800
Speaker 2: express it.

148
00:07:13,800 --> 00:07:15,560
Speaker 1: It's a classic approach. You want to be the courdancy

149
00:07:15,600 --> 00:07:18,160
Speaker 1: provider in sound to stress. It makes sense.

150
00:07:18,400 --> 00:07:20,880
Speaker 2: Yeah, And I think the story that really has not

151
00:07:21,040 --> 00:07:22,960
Speaker 2: been spent a lot more time on this issue of

152
00:07:23,040 --> 00:07:26,720
Speaker 2: market structure, the rise of passive, the lack of company's

153
00:07:26,800 --> 00:07:30,160
Speaker 2: ability to really do the equity market is and the

154
00:07:30,160 --> 00:07:35,200
Speaker 2: equity IPO market is fundamentally challenged. And I know spacks

155
00:07:35,200 --> 00:07:39,080
Speaker 2: were not the answer, but the real in our view

156
00:07:39,160 --> 00:07:42,000
Speaker 2: that this market structure issue has been going on for

157
00:07:42,040 --> 00:07:44,680
Speaker 2: several years, it's going on for a decade, and the

158
00:07:44,760 --> 00:07:47,880
Speaker 2: advent of passive and scale now more than fifty percent.

159
00:07:48,520 --> 00:07:50,720
Speaker 2: I think that's going to have profound implications on how

160
00:07:50,760 --> 00:07:52,360
Speaker 2: companies raise capital going forward.

161
00:07:52,400 --> 00:07:54,120
Speaker 1: We've got time to work through that through the act

162
00:07:54,280 --> 00:07:57,440
Speaker 1: is luckily going to stay with us. You mentioned credit stress. Fact,

163
00:07:57,480 --> 00:07:59,720
Speaker 1: that's my word. I can't remember the word you use precisely.

164
00:07:59,720 --> 00:08:01,920
Speaker 1: By want to ask you about that are you seeing

165
00:08:01,960 --> 00:08:05,520
Speaker 1: pockets of stress right now? Nyc B Commercial raal Est State.

166
00:08:05,520 --> 00:08:07,239
Speaker 1: We talked about it for the best part of five minutes.

167
00:08:07,280 --> 00:08:08,920
Speaker 1: Market moves on. What are you seeing?

168
00:08:09,920 --> 00:08:13,240
Speaker 2: I think you are seeing in a very broad, growing

169
00:08:13,280 --> 00:08:18,040
Speaker 2: economy with massive fundamental strength, you're seeing some situations where

170
00:08:18,480 --> 00:08:21,640
Speaker 2: companies either poor business plan or way too much debt

171
00:08:22,080 --> 00:08:26,440
Speaker 2: and have not maybe recovered from the COVID crisis. You're

172
00:08:26,440 --> 00:08:28,320
Speaker 2: seeing that a little bit more in the corporate world.

173
00:08:28,720 --> 00:08:31,480
Speaker 2: In the US. The US consumer we are the average

174
00:08:31,720 --> 00:08:34,480
Speaker 2: mortgage is three point eight percent. We've not seen the

175
00:08:34,520 --> 00:08:37,000
Speaker 2: pain that's been seen in the UK and Germany. That's

176
00:08:37,000 --> 00:08:40,880
Speaker 2: really protective. So you're seeing some signs of challenge and weakness.

177
00:08:41,200 --> 00:08:45,160
Speaker 2: But there's been a tremendous amount of private equity activity

178
00:08:45,640 --> 00:08:48,320
Speaker 2: and financing activity the last five to seven years. So

179
00:08:48,360 --> 00:08:51,120
Speaker 2: the fact that you're going to have some stray challenges

180
00:08:51,120 --> 00:08:55,199
Speaker 2: around the edges interesting. I don't think it's a macro

181
00:08:55,480 --> 00:08:59,320
Speaker 2: telltale sign of things changing, but there are challenges out there,

182
00:08:59,320 --> 00:08:59,680
Speaker 2: no doubt.

183
00:09:00,000 --> 00:09:01,480
Speaker 1: It's great to have you with us. Jim's out of

184
00:09:01,480 --> 00:09:02,520
Speaker 1: Apollowest Management