Speaker 1: A publog Global Management posting a record in twenty twenty
Speaker 1: three for private credit, the firm reporting more profit last
Speaker 1: year than the previous decade. Jim's outser Apollo. John just
Speaker 1: now for more. Jim, it's going to see you with
Speaker 1: us of the Act. Good mornings you.
Speaker 2: Good to see you too. Always welcome. I appreciate the invite.
Speaker 1: Well, thanks for coming on. Let's talk about these ernigs
Speaker 1: well received by this market. What's underpinning these trends for you?
Speaker 2: Well, I think it's a repeat of the secular trends
Speaker 2: we've been talking about over the last several years. You know, certainly,
Speaker 2: we have a business and an industry that gets better
Speaker 2: every day as there are more and more retirees and
Speaker 2: savers looking to think about retirement retirement income on our
Speaker 2: annuity business. At the same time, you've got an involving
Speaker 2: banking system, which I'm taught. I'm sure we're talking about
Speaker 2: where lots of companies are looking for a variety of
Speaker 2: capital solutions. We have the broadest toolbox, but as an industry,
Speaker 2: it's it's a secular change and where we've been fortunate
Speaker 2: to be right in the middle of it. But you're right,
Speaker 2: we had a business last year that hit on all cylinders.
Speaker 2: All parts of our business were a to first and
Speaker 2: foremost great investor performance. Assets and asset gathering follows performance,
Speaker 2: and we did so on a very strong risk adjusted basis.
Speaker 1: You went there early, so we'll go there early. Well,
Speaker 1: this means for the banks there is a sentiment out there.
Speaker 1: You know how this is portrayed in the media. She
Speaker 1: goes something like this, Apollo's killing get the banks of struggling.
Speaker 1: It's their loss? Is your wind your gain? Is that
Speaker 1: how it works for you?
Speaker 2: Well, the reality is this is a brutally competitive business
Speaker 2: and it has been for the thirty nine years I've
Speaker 2: been in a business, whether it's you, whether you're in
Speaker 2: the banking side, the asset management side, or anywhere in between.
Speaker 2: You know, the competition for market share for assets is
Speaker 2: always brutally competitive. But certainly it's a great narrative right now.
Speaker 2: The reality is there's much more of a symbiotic relationship
Speaker 2: than exists. And we're a major counter party of all
Speaker 2: the large US institutions and even globally in Japan and
Speaker 2: Europe as well, So it's not certainly on any one
Speaker 2: transaction a buyout financing, whether it's going to go to
Speaker 2: the Broady syndicated market or it's going to go to
Speaker 2: private credit. These are all they're competitive within our industry,
Speaker 2: and they're competitive within the banks. That's never going to change.
Speaker 2: But the reality is the financing that takes place at
Speaker 2: the counterparty financing that we get from the large institutions
Speaker 2: really critical to our business. We provide them a lot
Speaker 2: of financing fees and opportunities across our equity and debt businesses.
Speaker 2: So there's a narrative that sells papers, and then there's
Speaker 2: the reality, and it's somewhere in between.
Speaker 3: This is like in high school when they're two friends
Speaker 3: and they're kind of always talking about each other behind
Speaker 3: their backs, but they're really like to each other because
Speaker 3: they kind of will operate in the same circles. I'm
Speaker 3: just saying we're getting Stanley front of these a little bit.
Speaker 3: I mean, the idea is Morgan Stanley bolstering it's private
Speaker 3: credit portfolio to fifty billion dollars in the medium term.
Speaker 3: Gold and Sachs reportedly aiming to double the size of
Speaker 3: it's one hundred and ten billion dollar credit business. They
Speaker 3: want to fight back, don't she kind of feel that yees.
Speaker 2: Again, we're in a really competitive industry with the smartest,
Speaker 2: most determined mind in the globe in the US and Europe.
Speaker 2: The reality is, and the end of the day, it
Speaker 2: gets about your business model, how you fund your business,
Speaker 2: and the client product that you're bringing to solutions. So
Speaker 2: there's no doubt, I mean, there's no doubt that there's
Speaker 2: going to be firms that are going to start private
Speaker 2: credit businesses. But again let's take a step back. As
Speaker 2: I've talked to you many times in New York and
Speaker 2: in London, private credit is broader than just the sponsor
Speaker 2: buyout business. It's a great headline product, it's a great
Speaker 2: headline tool, but the reality is that's a trillion five market.
Speaker 2: The reality is private capital, private credit is a forty
Speaker 2: trillion dollar opportunity. And that's where when we see what
Speaker 2: we're doing in terms of aircraft finance and solar finance
Speaker 2: and a variety of trade and inventory finance, that's where
Speaker 2: we have a really competitive toolbox. Because of the structure
Speaker 2: of our liabilities, the duration of those liabilities, and the
Speaker 2: cost of capital. What we've really done at a poll
Speaker 2: the last ten twelve years has really brought our cost
Speaker 2: of capital down drama. If you're just in the pe business,
Speaker 2: your cost of capital is mid to high twenty percent.
Speaker 2: If you're in the measure to stress businesses in the teens.
Speaker 2: When you have an annuity business, and the reality is
Speaker 2: in this higher rate environment, more people like to buy annuities.
Speaker 2: Annuities had a record volume last year. That just brings
Speaker 2: in a lot of long duration, lower cost capital. So
Speaker 2: our ability to be very relevant to any client or
Speaker 2: borrower is a It's really a defining characteristic.
Speaker 3: How much has the money that you're talking about, which
Speaker 3: is coming from different sources than traditionally, basically been the
Speaker 3: reason why we haven't seen the credit cycle that so
Speaker 3: many people were expecting.
Speaker 2: Well, I think it's a very interesting question. I think
Speaker 2: what's going on right now, and I know you had
Speaker 2: tors in here yesterday, is you know last year you
Speaker 2: had the equity markets of twenty something percent broadly speaking,
Speaker 2: and at the end of the year you had defaults
Speaker 2: going approaching almost five percent. That's a pretty unique characteristic.
Speaker 2: Usually when you see defaults rising like that, you have
Speaker 2: a decline economy. The strength of this economy has befuddled
Speaker 2: economists and all your guests for the decade, and if
Speaker 2: you look at where all the dot plots have been,
Speaker 2: even with those folks who have all the information have
Speaker 2: missed this. Now. I think once we all say that,
Speaker 2: you know there's not going to be a cycle. I
Speaker 2: do think you are seeing some signs of a hardening
Speaker 2: of economic conditions that are fondly coming up. We'll see
Speaker 2: it in the next few weeks. I think the Fed's
Speaker 2: made the right choice. I think theyve I talked several
Speaker 2: months ago here about the FED put us back. They
Speaker 2: put themselves in a really interesting cosition right now where
Speaker 2: they can mute volatility with having a lot of bullets
Speaker 2: left in that gun. But I do think there's a
Speaker 2: modern economy that's going on right now. The depth and
Speaker 2: breadth has surprised economists and guests across the board, and
Speaker 2: it's a much more resilient economy. The US economy is
Speaker 2: the bulwarker the Western world right now. It really is.
Speaker 1: Economy is strong, and I think you told us before Christmas.
Speaker 1: Basically the Federal Reserve has the space now because of
Speaker 1: lower inflation, to respond to negative shock. What I'm trying
Speaker 1: to work out though, of the issuance that we've seen
Speaker 1: so far, and this is more in public markets where
Speaker 1: Lisa and I've been talking about this boom and supply
Speaker 1: to start this year and this flood of demand. Is
Speaker 1: that because the economy is strong or we're just anticipating
Speaker 1: lower rates this year? Which one is it?
Speaker 2: I think it's a combination of. You know, the US
Speaker 2: consumer has prepared themselves very well for a higher rate environment,
Speaker 2: corporate balance sheets have prepared themselves very well for a
Speaker 2: balance sheet, and when people see financing opportunities, they know
Speaker 2: now that like, don't wait a round for perfection. And
Speaker 2: I think that's been a good lesson, you know, don't
Speaker 2: let don't let perfect get in the enemy of progress.
Speaker 2: And I think there's been a very very thoughtful There's
Speaker 2: no doubt there is when people see what's going on
Speaker 2: where rates we're supposed to be going, there has been
Speaker 2: a rush and there's a there is a risk on
Speaker 2: trade right now and virtually every asset class the market
Speaker 2: has priced to perfection in virtually every asset class, and
Speaker 2: that means it's a good time to issue. I'll tell
Speaker 2: you For us, we typically underperforming periods like this. We
Speaker 2: have a lot of cash on the balance sheet, of
Speaker 2: the then right now we're very low levered. We put
Speaker 2: ourselves in the position if there are pockets of volatility,
Speaker 2: we're going to be well positioned. But that's how we prudently,
Speaker 2: that's when we have a macro view, that's how we
Speaker 2: express it.
Speaker 1: It's a classic approach. You want to be the courdancy
Speaker 1: provider in sound to stress. It makes sense.
Speaker 2: Yeah, And I think the story that really has not
Speaker 2: been spent a lot more time on this issue of
Speaker 2: market structure, the rise of passive, the lack of company's
Speaker 2: ability to really do the equity market is and the
Speaker 2: equity IPO market is fundamentally challenged. And I know spacks
Speaker 2: were not the answer, but the real in our view
Speaker 2: that this market structure issue has been going on for
Speaker 2: several years, it's going on for a decade, and the
Speaker 2: advent of passive and scale now more than fifty percent.
Speaker 2: I think that's going to have profound implications on how
Speaker 2: companies raise capital going forward.
Speaker 1: We've got time to work through that through the act
Speaker 1: is luckily going to stay with us. You mentioned credit stress. Fact,
Speaker 1: that's my word. I can't remember the word you use precisely.
Speaker 1: By want to ask you about that are you seeing
Speaker 1: pockets of stress right now? Nyc B Commercial raal Est State.
Speaker 1: We talked about it for the best part of five minutes.
Speaker 1: Market moves on. What are you seeing?
Speaker 2: I think you are seeing in a very broad, growing
Speaker 2: economy with massive fundamental strength, you're seeing some situations where
Speaker 2: companies either poor business plan or way too much debt
Speaker 2: and have not maybe recovered from the COVID crisis. You're
Speaker 2: seeing that a little bit more in the corporate world.
Speaker 2: In the US. The US consumer we are the average
Speaker 2: mortgage is three point eight percent. We've not seen the
Speaker 2: pain that's been seen in the UK and Germany. That's
Speaker 2: really protective. So you're seeing some signs of challenge and weakness.
Speaker 2: But there's been a tremendous amount of private equity activity
Speaker 2: and financing activity the last five to seven years. So
Speaker 2: the fact that you're going to have some stray challenges
Speaker 2: around the edges interesting. I don't think it's a macro
Speaker 2: telltale sign of things changing, but there are challenges out there,
Speaker 2: no doubt.
Speaker 1: It's great to have you with us. Jim's out of
Speaker 1: Apollowest Management