Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
Speaker 2: This week on the podcast, I have an extra special guest.
Speaker 2: Stephanie Dresher is Chief Client and Product development Officer at
Speaker 2: private investment giant Apollo. She's been there for over twenty years.
Speaker 2: She spent a decade before that doing alternatives at JP Morgan.
Speaker 2: What a fascinating person. Apollo runs eight hundred and forty
Speaker 2: billion dollars in client assets, and she has really not
Speaker 2: over overseen the wealth division, but also worked on a
Speaker 2: variety of geographies, new products. She's on everybody's Best off list,
Speaker 2: She's been on the Baron's Women and Financial List, sits
Speaker 2: inception every year. I thought this conversation was fascinating. If
Speaker 2: you're remotely interested in private equity, private debt, private credit,
Speaker 2: private infrastructure, you'll find this conversation absolutely fascinating. With no
Speaker 2: further ado Apollos, Stephanie Drescher, Stephanie Dresher, Welcome to Bloomberg.
Speaker 3: Thank you, Mary, happy to be here, Happy to have you.
Speaker 2: So we're going to get into Apollo when your investment
Speaker 2: philosophy in a bit, but before we do. I just
Speaker 2: have to start with your background. Bachelors in Barnard at
Speaker 2: Columbia MBA from Columbia Business School. What was the original
Speaker 2: career plan?
Speaker 3: I did always have finance in my sites, so undergrad
Speaker 3: it was econ and psych. I joke that I use
Speaker 3: the psych in my day to day field way more
Speaker 3: than the econ RaSE days. But there was always a
Speaker 3: draw towards doing something in the financial kind of arena,
Speaker 3: interest in markets and the like. So very early internships
Speaker 3: led me down that path.
Speaker 2: And I read somewhere in your background that you were
Speaker 2: particularly inspired to go into finance by your grandmother. Tell
Speaker 2: us about that.
Speaker 3: That is true. So my father's mother live with us
Speaker 3: for a time, and I believe or not, she was
Speaker 3: born in the very very late eighteen hundreds, and while
Speaker 3: her brother went on to become a doctor, she kept
Speaker 3: out it an eighth grade education, and so the power
Speaker 3: of education was always a core value and a focus
Speaker 3: of hers and my family. And she used to read
Speaker 3: the Wall Street Journal cover to cover every day, super smart,
Speaker 3: loved tracking stocks, and so we started to track stocks together.
Speaker 3: And how old were you at this time? Oh, I
Speaker 3: don't know, maybe twelve, Okay, and in a very high
Speaker 3: time way. We would put it up on the refrigerator
Speaker 3: and kind of see the changes and the holdings that
Speaker 3: she had in her portfolio and sometimes overlapped with that
Speaker 3: of my parents. That was the early.
Speaker 2: Start, so you get an MBA from Columbia. JP Morgan
Speaker 2: was the first job right out of school.
Speaker 3: It was although there was a mentor right prior to
Speaker 3: the JP Morgan opportunity that, believe it or not, I
Speaker 3: started babysitting for this family and I didn't know what
Speaker 3: the mother did day to day until after a period
Speaker 3: of time of babysitting. She looked at me and she said,
Speaker 3: I think your babysitting days are over. And I said,
Speaker 3: I don't know what you're trying about. And she said,
Speaker 3: I run a women led healthcare consulting firm. Would you
Speaker 3: like an internship? And I practically fell off my chair
Speaker 3: and I said, I would love an internship.
Speaker 2: How old are you at this time?
Speaker 3: It was like late high school, maybe early college, early
Speaker 3: early and it was the most amazing kind of opportunity
Speaker 3: that someone could give me, right just seeing a professional
Speaker 3: organization do its thing and all the analysis and client
Speaker 3: relationship management that went into that so while I decided
Speaker 3: that healthcare wasn't my thing and consulting wasn't my thing,
Speaker 3: it was very an easy bridge to JP Morgan and
Speaker 3: the finance field.
Speaker 2: So when you started JP Morgan, what was the role,
Speaker 2: how did you what areas were you toiling in?
Speaker 3: So I started with a rotational opportunity, which was terrific.
Speaker 3: I had everything from fixed income research to private banking
Speaker 3: in Geneva.
Speaker 2: Did you go to Switzerland?
Speaker 3: I did? Yeah. For about six months, I realized that
Speaker 3: I needed to buy all of my groceries during the
Speaker 3: day because it was closed by the time I got
Speaker 3: out of work, and then I liked to travel on weekends. Importantly, though,
Speaker 3: and seriously, it was a terrific time in my life
Speaker 3: to be more aware of time zones and cultural nuances
Speaker 3: and really see kind of a client perspective outside of
Speaker 3: New York and the US.
Speaker 2: It's a big world.
Speaker 3: Totally, yet it also can feel so small once you
Speaker 3: start to travel and live elsewhere. So that was a
Speaker 3: terrific opportunity. And then ultimately out of that rotational program,
Speaker 3: ended up in alternatives within the private bank, and then
Speaker 3: we were off to the races.
Speaker 2: So alternatum's way back then, but before we leave Switzerland,
Speaker 2: I recall a vacation not too long ago to Lake
Speaker 2: Geneva and what's amazing, And we were in this hotel
Speaker 2: that used to be a castle, and like, you think
Speaker 2: you have some understanding of the Gilded Age and old
Speaker 2: money and then you see no, no, we mean five
Speaker 2: hundred years. Yeah, it's just such a different io, so
Speaker 2: different than here. Yeah, really really amazing. So you're in
Speaker 2: the Alts group at JP Morgan. You stay at JP
Speaker 2: Morgan for a decade, tell us a little bit about
Speaker 2: the work you did there.
Speaker 3: So it was very early days of speaking to families
Speaker 3: around the world, the ultra high network. Clients of JP
Speaker 3: Morgan thought the role of alternatives in their portfolio, and
Speaker 3: I remember distinctly speaking about the core and satellite within
Speaker 3: alternatives now kind of private markets as our nomenclature. But
Speaker 3: it gave me such a great perspective in terms of
Speaker 3: the educational kind of foundation that we needed to set
Speaker 3: first with those clients. And I see it now continuing
Speaker 3: to play out. But my time at JP Morgan, and
Speaker 3: it was a very fast ten ten years and an
Speaker 3: amazing kind of training ground, was kind of assessment of
Speaker 3: all the different private market strategies from private equity to
Speaker 3: hedge funds to credit, and the seat was a combination
Speaker 3: of the buyside, so kind of due diligence on the
Speaker 3: managers we were going to put on platform and then
Speaker 3: the cell side in terms of the educational component to
Speaker 3: the end banker and client. Super Fun traveled around the
Speaker 3: world speaking about how alts could factor in to return
Speaker 3: profiles and diversifications, smoother volatility, all at a time when
Speaker 3: private equity was not on the front page. Yeah, every day.
Speaker 3: It was very early.
Speaker 2: Let's contextualize a little bit. This is the mid to
Speaker 2: late nineties and early two thousands. The stock market was
Speaker 2: just screaming high or double digits, especially the last four
Speaker 2: years of the nineties. What was it like then? How
Speaker 2: receptive was the audience to you should consider the private markets?
Speaker 2: How how much smaller was the whole space back then?
Speaker 3: Yeah, it was very early days and a very small fraction.
Speaker 3: I remember, you know, if we if we launched kind
Speaker 3: of one manager a quarter, it was a big deal.
Speaker 3: Now I feel like there are probably dozens kind of
Speaker 3: on the shelf available for for clients every every day,
Speaker 3: every quarter. The but the transformation was starting to take
Speaker 3: hold where there were especially the large families, recognizing the
Speaker 3: return potential that a manager in alternatives could provide in
Speaker 3: their portfolio, and they didn't want to rely. It was
Speaker 3: very early, but they saw that they didn't want to
Speaker 3: rely exclusively on public market exposure. So you know, when
Speaker 3: we look at actually the percentage is in kind of
Speaker 3: large family office clients today it matches or frankly exceeds
Speaker 3: that of an institution, but it's still they started at
Speaker 3: the ultra high net worth end so much earlier, kind
Speaker 3: of back in those days than most in wealth. So
Speaker 3: I think there were the likes of a JPMorgan client
Speaker 3: base and a select number of other private banks did
Speaker 3: start early in showcasing these opportunities, and the adoption as
Speaker 3: I traveled around the world was strong, but it was
Speaker 3: still kind of storytelling and a lot of niche opportunities.
Speaker 3: Where I feel like we fast forward to today, people
Speaker 3: recognize that private market solutions can play both the core
Speaker 3: and satellite in their portfolios. It relates to a compliment
Speaker 3: to the public market exposure.
Speaker 2: So you join Apollo in two thousand and four, I'm
Speaker 2: kind of curious a few years earlier we have the
Speaker 2: dot com implosion. A few years later, we have the
Speaker 2: Great Financial Crisis. I hate when people call these, you know,
Speaker 2: once a century events because it seemed to happen a
Speaker 2: lot more frequently than that. But how significant were those
Speaker 2: giant public events to telling the story of, hey, here's
Speaker 2: some private market investments that you don't have the same
Speaker 2: sort of volatility and regular you know explosions.
Speaker 3: Yeah, no, you're you're right. They were such an incredibly
Speaker 3: important backdrop to why alternatives, why private markets? And in fact,
Speaker 3: when I was still in my seat at JP Morgan,
Speaker 3: but Apollo was offering then our private equity flagship fund five,
Speaker 3: the dot com boom was just at its tail and
Speaker 3: was starting to fracture. You saw the signs, and Apollo
Speaker 3: came onto the platform and was talking a value story,
Speaker 3: and for the first several weeks there wasn't as much
Speaker 3: take up, and then as the market started to change dramatically,
Speaker 3: there was this wake up call of whoa, you know what,
Speaker 3: let's look at value again, And that kind of was
Speaker 3: the tell end of the of the story for that fundraise.
Speaker 3: Back around the two thousand period, fast forward to the
Speaker 3: Great Financial Crisis, it was such an incredible time at
Speaker 3: that point, I was already in my apollo seat to
Speaker 3: see the investment committee dynamic, and you know, there were
Speaker 3: moments that, thankfully because we were so steeped on the
Speaker 3: credit side in addition to obviously our view of private equity,
Speaker 3: where we could back up the truck on certain credits
Speaker 3: with conviction. And I look back now with honestly such
Speaker 3: pride for the decisions that were made in that period
Speaker 3: of time, and frankly many subsequently during moments of dislocation
Speaker 3: where they make it look so easy on the investment side,
Speaker 3: but it actually takes so much work and rigor to
Speaker 3: be in position to make those big investment calls in
Speaker 3: those moments in time. But it served us incredibly well
Speaker 3: and continues to even Liberation Day. Right post when the
Speaker 3: market started to move materially, there wasn't that much time
Speaker 3: within forty eight hours were there was kind of a
Speaker 3: correction from the volatility that we saw on household issuers
Speaker 3: and names. But thankfully, based on our scale and knowledge
Speaker 3: of those capital structures, we were able to put about
Speaker 3: twenty five billion of dollars to work in just a
Speaker 3: few days, and we're one of the biggest market participants
Speaker 3: during that moment of dislocation.
Speaker 2: You know, you mentioned high conviction investments. I recall in
Speaker 2: the mid to late two thousands, people tossed around the
Speaker 2: phrase toxic assets, and my attitude was always, there's no
Speaker 2: such thing as toxic assets. There are only toxic prices.
Speaker 2: Everything discounted enough eventually becomes attractive.
Speaker 3: Look, we are one of our kind of taglines that
Speaker 3: you'll hear internally and externally is purchase price matters.
Speaker 2: Yeah, one hundred percent. What you pay for something is
Speaker 2: going to have a giant impact on what the subsequent returns.
Speaker 3: I'm going to be totally and you know that that does.
Speaker 3: It does require discipline, especially when multiples are going to
Speaker 3: kind of stratospheric levels. But you know it has that
Speaker 3: strategy has borne out in a very kind of productive
Speaker 3: and successful way for us maintaining that discipline. But as
Speaker 3: you're saying, like spotting those moments where investments are mispriced
Speaker 3: or not well understood, and being willing to deal with
Speaker 3: that complexity at the right place, at the right price
Speaker 3: in order to generate the outcome we want.
Speaker 2: Really really interesting coming up, we continue our conversation with
Speaker 2: Stephanie Dresher, Apollo's chief client and Product development officer, discussing
Speaker 2: her career at Apollo. I'm very ritults. You're listening to
Speaker 2: Master's in Business on Bloomberg Radio. I'm Barry Ridolts. You're
Speaker 2: listening to Masters in Business on Bloomberg Radio. My extra
Speaker 2: special guest this week is Stephanie Dresher. She is Apollo's
Speaker 2: Chief Client and Product Development Officer. Apollo runs about eight
Speaker 2: hundred and forty billion dollars in client assets, So I
Speaker 2: love this title, but I got to think people are wondering,
Speaker 2: what's a day in the life of Apollo's chief Client
Speaker 2: and Product development officer? Like it sounds like that's a
Speaker 2: really wide bit of land.
Speaker 3: It's it's a fun job. So I've been at Apollo
Speaker 3: now twenty one years, and when I first started, I
Speaker 3: built out the institutional side of the business globally, so
Speaker 3: sovereign well funds think the dB public pension plans, and
Speaker 3: that was very much our core client base with an
Speaker 3: episodic offering through a private bank or a wire from
Speaker 3: time to time. As that market evolved and matured into
Speaker 3: a very robust global business there, it was clear to
Speaker 3: Mark Rowan now CEO and I that at some point
Speaker 3: complementing that institutional business with a wealth strategy was in
Speaker 3: our future. We wanted to make sure, though, that we
Speaker 3: chose the right moment to really lean in to wealth
Speaker 3: because it does take a massive commitment, and I'm sure
Speaker 3: we'll talk more about it. So in my role, I
Speaker 3: am fortunate enough to build out our business as it
Speaker 3: relates to our client set of offerings, our product development,
Speaker 3: as well as our partnerships with our distributors, with our investors,
Speaker 3: and just making sure that as we continue to innovate,
Speaker 3: wet our clients where they are and often kind of
Speaker 3: co author the types of offerings that are most meaningful
Speaker 3: to them. So in any given day, I get to
Speaker 3: think about our set of products and what we're innovating.
Speaker 3: I get to speak with our clients and partners existing
Speaker 3: and prospects. I manage a large group of people and
Speaker 3: our talent, and I lean in with a very keen
Speaker 3: focus on culture, which means a lot to me.
Speaker 2: So that's really interesting. How would you describe Apollo's culture
Speaker 2: and what do you do to help shape that?
Speaker 3: So, look, since the day I join, there have been
Speaker 3: certain common themes to our culture which I think have
Speaker 3: always kind of propelled us forward as a firm now public,
Speaker 3: but very much feels like a partnership. And the first
Speaker 3: one is making sure that we continue to innovate, to
Speaker 3: feel very entrepreneurial, and to empower our people to kind
Speaker 3: of find those opportunities and pursue them in an appropriate way.
Speaker 3: We manage the firm as a meritocracy, so we want
Speaker 3: to give people responsibility and let them kind of really
Speaker 3: kind of have the greatest impact that they can for
Speaker 3: their own professional careers as well as for the firm.
Speaker 3: And we want to have a winning high performance culture,
Speaker 3: meaning you know, even with all the success that we've had,
Speaker 3: we want to maintain that, propel it forward and continue
Speaker 3: that high level of performance. And importantly, we do it together,
Speaker 3: so it's not about any one person. I often say
Speaker 3: to my team, you know, it's we, not me, And
Speaker 3: that's really powerful. So when we bring everything that Apollo
Speaker 3: has to offer, we call it kind of the one
Speaker 3: Apollo to any client situation or any goal. We can
Speaker 3: use that power of the firm to be successful and
Speaker 3: to allow us all to win.
Speaker 2: Really really interesting, you know. So the biggest complaint I
Speaker 2: heard from various corporate executives during the pandemic was how
Speaker 2: do we maintain the corporate culture We've spent so much
Speaker 2: time and energy trying to build over the years. Suddenly
Speaker 2: everybody's at home on a zoom call in their pajamas.
Speaker 2: How do you maintain corporate culture like that?
Speaker 3: It is it's so important, frankly, whether we're all in
Speaker 3: the office to maintain that culture or certainly the challenges
Speaker 3: during during the pandemic making sure certainly during that during
Speaker 3: kind of that COVID period of creating forums, even if
Speaker 3: it was remote, to maintain the connectivity was really important
Speaker 3: to have different I remember many different kind of lunchtime
Speaker 3: meetings that we would have on Zoom, or our family
Speaker 3: community group would have different webinars where it was the
Speaker 3: employee as parent and then their children frankly were involved
Speaker 3: as well. So I think it's kind of forced fostering
Speaker 3: that sense of community, even if it is in fact remote.
Speaker 3: And then thankfully once in office. I know, as I
Speaker 3: was passing through the sixth floor here at Bloomberg, I
Speaker 3: saw the very deliberate kind of floor plan that you
Speaker 3: have and food and beverage kind of accessible to employees.
Speaker 2: Everybody has to go through six It causes all these
Speaker 2: random meetings that you have. Oh, I haven't seen all
Speaker 2: the time. How's everything going? Because everybody shows up for
Speaker 2: coffee or.
Speaker 3: Treats totally and we have the same So ours is
Speaker 3: on the eighth floor. But we call it the casual collision,
Speaker 3: and that's really important to our culture to kind of
Speaker 3: show up certainly as soon as we could do do
Speaker 3: so from a practical perspective and allow for that collaboration,
Speaker 3: it's super important for people to share and get to
Speaker 3: the best answer possible together.
Speaker 2: So I want to talk about the wealth channel, but
Speaker 2: before I get there, I have to ask about something
Speaker 2: that Apollo does that not every large private markets firm does.
Speaker 2: You have talked about realigning the interest of the firm
Speaker 2: with clients, making sure that you're on the same side
Speaker 2: of trades and towards that end. Apollo is a regular
Speaker 2: co investor along with clients in certain projects.
Speaker 3: Tell us about that. Yeah, So from a kind of
Speaker 3: balance sheet perspective, we are often one of, if not
Speaker 3: the largest investor side by side with our third party
Speaker 3: clients and the investments and rategies that we manage. So
Speaker 3: through our retirement services business a theme as well as
Speaker 3: our third party business we invest side by side, and
Speaker 3: so the decisions we make on behalf of the balance
Speaker 3: sheet are aligned with the outcomes of the strategies in
Speaker 3: which we invest their party capital. So we often say, well,
Speaker 3: we can't guarantee the outcome, we guarantee a shared outcome,
Speaker 3: and that means a lot to us in terms of
Speaker 3: our commitment and focus, but also to our clients because
Speaker 3: they know how important it is to us in multiple ways.
Speaker 2: I would imagine if anybody has hesitation on a investment,
Speaker 2: if you see the private equity firm co investing along
Speaker 2: with you, that has to be a big confidence driver.
Speaker 3: It is, and in certain instances, like when you look
Speaker 3: across the industry, a commitment from an asset manager might
Speaker 3: be at the two point five percent or three point
Speaker 3: five percent. It's it's an outlier if it's a five
Speaker 3: percent commitment.
Speaker 2: But not double digits exactly.
Speaker 3: Where in one strategy of ours, which has a diversified
Speaker 3: portfolio of private markets, we are two thirds of that portfolio.
Speaker 3: So when we say that it's it's meaningful to our
Speaker 3: balance sheet, we mean it.
Speaker 2: How does that work in terms of direct stakes and
Speaker 2: performance fees? Like if you're most of the invested assets.
Speaker 2: That has to have an impact on what the balance
Speaker 2: sheet looks like. How do you guys align that?
Speaker 3: So, look, we are performance first at the end of
Speaker 3: the day. Our our relationships and the trust that we
Speaker 3: build are over time through performance and through service. I mean,
Speaker 3: we want to make sure that our partners feel our
Speaker 3: support in just about every way. So for us, it's
Speaker 3: never about a particular fee of one type or another. Ultimately,
Speaker 3: we're not focused on an AUM goal. That is the
Speaker 3: reward for good performance and as long as we are
Speaker 3: making the best investment decisions and showing up frankly as
Speaker 3: a best in class partner for our clients, that is
Speaker 3: what drives our business forward.
Speaker 2: So let's talk a little bit about the wealth channel,
Speaker 2: which is where you focus some of your time early
Speaker 2: in your career at Apollo. Tell us how this has
Speaker 2: changed over the past twenty years, and tell us a
Speaker 2: little bit about what type of clients show up there.
Speaker 3: Yeah, so, you know, the wealth business I saw certainly
Speaker 3: in my very early days of JP Morgan, but then
Speaker 3: for my first kind of sixteen plus years at Apollo,
Speaker 3: the private bank or wire was really more the exception
Speaker 3: than the role. It was more of a episodic type
Speaker 3: of relationship that all completely transformed into a strategic commitment
Speaker 3: from all of us at Apollo starting about four or
Speaker 3: five years ago. So when Mark Rowan took the Reins
Speaker 3: as CEO, all the stars aligned to build a wealth
Speaker 3: business to complement the institutional and that decision truly needed
Speaker 3: to come from the top CEO on down because it
Speaker 3: is strategic, it's not transactional. If you're going to do
Speaker 3: it well, it needs to be a long term commitment
Speaker 3: to the channel. And in my view, there are actually
Speaker 3: only a small number of firms that can really show
Speaker 3: up and do this well in partnership with all the
Speaker 3: financial intermediaries involved with wealth. And the reason I say
Speaker 3: that is when you look at what's required, it's a
Speaker 3: pretty massive lift. You need to make sure that you
Speaker 3: build out the right relationships and you need the team
Speaker 3: globally in place to do that across channels and geographies.
Speaker 3: You need to make sure that the product mix is
Speaker 3: extensive enough so that you're relevant as it pertains to
Speaker 3: our investment capability, but you want to make sure that
Speaker 3: you're showing up with the right structures for the right clients.
Speaker 3: Then there's the educational component there's a service, there's technology.
Speaker 3: For example, we have spent actually a billion dollars one
Speaker 3: billion dollars from our balance sheet in wealth tech investments
Speaker 3: alone to make sure that we're partnering and investing in
Speaker 3: firms that will help the industry. So I think there
Speaker 3: are very few that can do that well and truly
Speaker 3: meet the wall clients where with in order to meet
Speaker 3: their portfolio needs.
Speaker 2: So within that channel, family offices, high net wealth, sovereign
Speaker 2: funds are you're also selling through other intermediaries like broker's
Speaker 2: firms or rias.
Speaker 3: Tell us a little bit about that, yes, So the
Speaker 3: channels represented in wealth include the private banks and wires
Speaker 3: as one channel, the independence which includes rias and independent
Speaker 3: broker dealers. Family office is also kind of under our
Speaker 3: wealth umbrella. That's the ultra high net worth space selectively.
Speaker 3: And then we have geographic focus, you know, outside of
Speaker 3: of the US, across EMA, uh and and Asia. The
Speaker 3: rest of North America is covered appropriately out of Canada
Speaker 3: and lat Ham. So so each of those channels are
Speaker 3: are represented. And while each has differences and we definitely
Speaker 3: approach them with different resourcing and and commitments, the common
Speaker 3: denominator of all of them is helping the intermediary, the
Speaker 3: advisor or the banker or the CIO of the family
Speaker 3: office either build for retirement in the case of their
Speaker 3: underlying client, or build to a certain level of wealth.
Speaker 3: And so whether it's you know, a wire like a
Speaker 3: UBS or a Morgan Stanley and their set of advisors
Speaker 3: or you name kind of an RIA, we want to
Speaker 3: show up to that intermediary with offerings that are going
Speaker 3: to work for their platform and their their base and
Speaker 3: make sure that we can speak to semi liquid as
Speaker 3: well as drawdown and really kind of listen closely to
Speaker 3: what they're looking to provide their clients.
Speaker 2: So the challenge we always see on the RAA side
Speaker 2: is on the privates, it seems everything is sort of
Speaker 2: a one off and whereas on the public side, the
Speaker 2: custodianship is standardized, the reporting is standardized, all the compliance
Speaker 2: and due diligence is pretty you know, turnkey tell us
Speaker 2: about a the challenges of all the private investments that
Speaker 2: may not all be identical, and is there a solution
Speaker 2: out there, a platform in development that might make this
Speaker 2: more like a turnkey, more public security like than private.
Speaker 3: It's a journey, but I think it's already getting better,
Speaker 3: and I do see a world where it becomes so
Speaker 3: much easier, more efficient to access. And so if we
Speaker 3: look at what we're already seeing, you know, when we
Speaker 3: think about an interval fund structure where you can buy
Speaker 3: many different underlying strategies, it's point and click through an advisor.
Speaker 3: But it's point and click. There isn't kind of the
Speaker 3: fullsome subscription process that we've seen. There's innovation which you
Speaker 3: know we have worked on in partnership with Statesheet, for example,
Speaker 3: where there are ETF structures of which private markets are
Speaker 3: a part. And I think the technology is moving from
Speaker 3: kind of more of an analog to digital in just
Speaker 3: kind of the plumbing in the infrastructure that supports the
Speaker 3: private markets overall ecosystem. So there's definitely a lot of
Speaker 3: time and effort to try to simplify the processes, and
Speaker 3: I think it's going to go hand in hand with
Speaker 3: an evolution that's already starting where allocators are looking to
Speaker 3: managers like ourselves to not only offer specific parts or
Speaker 3: specific strategies, but to increasingly offer more holistic solutions. So
Speaker 3: a bundle of private market solutions which could be multi
Speaker 3: strategy going to eventually kind of multi strategy, multi manager
Speaker 3: as well, which can then be housed not only in
Speaker 3: the accounts, brokerage accounts or self directed that we see
Speaker 3: so often today, but in a range of pools of
Speaker 3: capital and models and a number of discretionary pools of
Speaker 3: capital that are highly applicable for private markets.
Speaker 2: Really really interesting. Coming up, we continue our conversation with
Speaker 2: Stephanie Dresher, Apollos chief Client and Product development Officer, discussing
Speaker 2: the state of private markets today. I'm very results you're
Speaker 2: listening to Masters in Business on Bloomberg Radio. I'm Marry Redults.
Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My
Speaker 2: extra special guest to Stephanie Dresher. She is the chief
Speaker 2: Client and Product development Officer at private investment giant Apollo,
Speaker 2: helping to oversee eight hundred and forty billion dollars in
Speaker 2: client assets. So we're living in a moment where private
Speaker 2: credit and private equity they used to be a small niche.
Speaker 2: That's no longer the case. Not only are they mainstream,
Speaker 2: they're one of the fastest growing parts of the investment world.
Speaker 2: Tell us a little bit about what's happening in that
Speaker 2: space and what's driving that shift?
Speaker 3: Yeah, I think there's been a transformation in terms of
Speaker 3: public and private holdings in a portfolio and what does
Speaker 3: it mean to be safe or risky? Think Historically people
Speaker 3: have thought that because something was liquid in the public markets,
Speaker 3: it was inherently safe or frankly safer, and something less
Speaker 3: liquid in the private markets. And as we look at
Speaker 3: twenty twenty two and frankly many moments of dislocation in
Speaker 3: the public markets, I think there's now a much clearer
Speaker 3: recognition that the public markets can be both safe and risky,
Speaker 3: as can the private markets. Because when we look at
Speaker 3: the public markets, let's say the S and P five hundred,
Speaker 3: for example, the performance and frankly moments of underperformance had
Speaker 3: been so concentrated in terms of the attribution to roughly
Speaker 3: seven stocks. Sometimes people will say ten stocks. But when
Speaker 3: there's so much concentration or frankly, lack of diversification in
Speaker 3: the public markets, it creates a moment where people start
Speaker 3: to zoom out and say, frankly, what if the toolkit
Speaker 3: for my equity piece of the portfolio should have a
Speaker 3: combination of both public and private And frankly, what if
Speaker 3: my fixed income segment of the portfolio should have both
Speaker 3: public and private. Then the toolkit for advisors and for
Speaker 3: families is much broader to create that excess return. And
Speaker 3: what we've seen is the desire to incorporate the private markets,
Speaker 3: not just as an add on to an otherwise traditional
Speaker 3: sixty forty portfolio, but rather thinking of it as part
Speaker 3: of their core holdings in equity and debt, and now
Speaker 3: thinking simply of alternatives as an alternative to public stocks
Speaker 3: and bonds.
Speaker 2: So sixty forty becomes fifty thirty twenty or sixty twenty
Speaker 2: twenty or something along those lines.
Speaker 3: Yeah, or it could even keep whatever percentages are split
Speaker 3: between public, between equity and debt, but have both the
Speaker 3: public and private options available within each of those percentages
Speaker 3: to maximize the return, to maximize oversification, and to reduce
Speaker 3: the volatility. It's a game changer. It's no longer nice
Speaker 3: to have private markets in a portfolio. It's a need
Speaker 3: to have in order to meet the long term financial
Speaker 3: goals of the client.
Speaker 2: So one of the things I can't help but notice
Speaker 2: over the course of my career, which began more or
Speaker 2: less around the same time as yours in the mid nineties,
Speaker 2: is that the total number of public equities has shrunk dramatically.
Speaker 2: The Wilshire five thousand is about thirty four hundred stocks,
Speaker 2: The S and P five hundred still five hundred and
Speaker 2: two stocks. Because of a shares it's a little over
Speaker 2: five hundred. But even the Russell two thousand and some
Speaker 2: of the other broader indexes far fewer public names in there.
Speaker 2: How much the shrinking of the public float driving activity
Speaker 2: onto the private side.
Speaker 3: I think it's very real. You're right, it's about half
Speaker 3: the number of public companies it was, you know, just
Speaker 3: you know, even a couple of decades ago. At the
Speaker 3: same time, when when you look at the number of
Speaker 3: companies total number of companies globally, ninety percent are in
Speaker 3: fact private. So if someone truly wants representative exposure in
Speaker 3: their portfolio, it's really hard to rationalize eliminating ninety percent
Speaker 3: of the total number of companies out there right and
Speaker 3: focusing exclusively on public because it's liquid. Realistically, one needs
Speaker 3: to look at what is the return profile goal for
Speaker 3: the portfolio, what type of illiquidity can can someone accept,
Speaker 3: and then a portfolio that allows for that excess return.
Speaker 3: Institutions have realized that now over decades, and they've been
Speaker 3: the beneficiaries of that excess return by accepting some amount
Speaker 3: of illiquidity. With the advent of new structures in the
Speaker 3: private market, certainly for wealth and increasingly even for institutions.
Speaker 2: You.
Speaker 3: Can select offerings out there that provide more interim liquidity.
Speaker 3: It's not your ATM, no one should think that it is,
Speaker 3: but it provides a much broader suite of solutions across
Speaker 3: a range of liquidity profiles, offering far more liquidity than
Speaker 3: one would have received in a traditional private equity draw
Speaker 3: down structure. In our view, as we develop portfolios with
Speaker 3: our clients, depending on what they're looking for in terms
Speaker 3: of underlying return and liquidity, we believe there's a role
Speaker 3: for a mix of both more liquid private markets structures
Speaker 3: as well as draw down depending on the strategy.
Speaker 2: So let's talk about liquidly and semi liquidly as well
Speaker 2: as illoquidly. The academic perspective has always been, hey, when
Speaker 2: you're moving into an ill liquid market, you get the
Speaker 2: benefit of the illiquidity premium. It's a smaller market, it's
Speaker 2: less efficient, there's opportunities to create alpha here, but the
Speaker 2: trade off is your money is locked up for three years,
Speaker 2: for five years, for seven years, whatever it is. When
Speaker 2: first with the semi liquid products, are you giving up
Speaker 2: some of that upside in exchange for semi liquidity.
Speaker 3: Our view is that the structure and the design should
Speaker 3: marry the underlying assets in the portfolio.
Speaker 2: So two year credit notes are going to be more
Speaker 2: liquid than perpetual open ended exactly.
Speaker 3: So we have you know, in our view, the strategies
Speaker 3: within private markets are so wide ranging, which to your point,
Speaker 3: in terms of portfolio construction, you know, our view is
Speaker 3: that since a private market holding can span everything from
Speaker 3: short term investment grade credit all the way through to
Speaker 3: your traditional kind of private equity drawdown, that's a very
Speaker 3: wide range. And when you think broadly about that type
Speaker 3: of exposure, why shouldn't an allocation in in a portfolio
Speaker 3: be maybe even fifty percent to private markets, just given
Speaker 3: the breath and applicability of the underlying assets from the
Speaker 3: short dated investment grade credit all the way through to
Speaker 3: more traditional private private equity. To your point, there are
Speaker 3: options where private markets can be a part of an
Speaker 3: overall portfolio, like an ETF format where it is in
Speaker 3: fact daily as part of a broader portfolio, or if
Speaker 3: you go to kind of an investment create strategy. It
Speaker 3: may be you know, monthly in nature, but you're you're right.
Speaker 3: The trade off for stepping out a bit on the
Speaker 3: liquidity curve, albeit you know, not too much. Further, is
Speaker 3: a pickup in the access return really interesting?
Speaker 2: You know, I'm not going to quote you exactly, but
Speaker 2: I did read something you had said about private credit
Speaker 2: is that you see a full on fundamental rethink taking
Speaker 2: place in the space. Explain what you mean by fundamental rethink.
Speaker 4: You know, the the idea of of private markets or
Speaker 4: alternative of our alternatives being that very high risk portion
Speaker 4: of a portfolio and therefore a small percentage of one's
Speaker 4: allocation locked up for a long period of time.
Speaker 3: That's just no longer the modern thinking of the use
Speaker 3: of private markets in a portfolio. There's no reason right
Speaker 3: now why an advisor and a banker can't think in
Speaker 3: a far more flexible way that how they are meeting
Speaker 3: the need to save for retirement or the ability to
Speaker 3: build wealth with private market structures in mind. So it
Speaker 3: kind of goes back to that idea of public markets
Speaker 3: being safe and private markets being risky. That's no longer
Speaker 3: kind of the thinking in the market. I think intermediaries
Speaker 3: have really challenged that historical way of building portfolios and
Speaker 3: they want the same benefits that the institutions have now
Speaker 3: had for decades. The reality is that the size of
Speaker 3: the wealth market in terms of assets held by families
Speaker 3: by individuals is about the same size as that held
Speaker 3: by institutions, each about one hundred and fifty trillion or so. Globally.
Speaker 3: The institutions right now have an average allocation of over
Speaker 3: twenty percent to private markets. The individual on average three percent.
Speaker 2: Yeah, I was going to say single digits, clearly, absolutely,
Speaker 2: and all of the when we look at the projections
Speaker 2: and a variety of wargame scenarios, this looks like this
Speaker 2: is going to continue to grow over the next decade.
Speaker 2: The I know this is a speculative question and no
Speaker 2: one really knows, but how large can the private markets
Speaker 2: get relative to the public markets? Can they be the
Speaker 2: same size eventually?
Speaker 3: Look, our view is that origination is the great differentiator.
Speaker 3: So we focus not as kind of a um as
Speaker 3: a limiter, but rather origination and.
Speaker 2: Maybe to find that because when I hear origination, I'm
Speaker 2: thinking not all private investments are created the same.
Speaker 3: Right, It's the ability to create proprietary investment opportunities is
Speaker 3: in our view, a huge differentiator for a platform, and
Speaker 3: we partner with financial intermedia years and that is additive
Speaker 3: in terms of the flow of investment opportunities, but not exclusively.
Speaker 3: In fact, over the last almost fifteen years now, we've
Speaker 3: built out sixteen proprietary origination engines so that we can
Speaker 3: create that investment alpha and house for the benefit of
Speaker 3: our clients, and that proprietary origination fuels are underlying portfolios,
Speaker 3: which ultimately, in our view, is critical to delivering on
Speaker 3: the return.
Speaker 2: So those sixteen different engines, I'm going to assume they're
Speaker 2: each in a different type of space exactly, So real assets, infrastructure,
Speaker 2: private credit, private debt, which isn't always the exact same thing.
Speaker 2: Private equity has got to be many more. What other
Speaker 2: spaces are you what other geographies are you looking at,
Speaker 2: What other spaces you're looking at? What's the product makes
Speaker 2: look like?
Speaker 3: Yeah, So on the origination side, it is quite broad.
Speaker 3: I think everything from fleet finance to.
Speaker 2: Fleet jets, ships above.
Speaker 3: And even trucking. You know, there's a whole range in
Speaker 3: terms of everything from aviation to kind of ground transport.
Speaker 3: There's consumer finance, there's specialty finance, that's there's mortgages. So
Speaker 3: it's it's quite broad in terms of the reach, but
Speaker 3: it's it's ultimately originating the investment in what we call
Speaker 3: kind of the industrial renaissance, and the need for that
Speaker 3: private capital is real and additive to to what could
Speaker 3: otherwise be found in the public markets.
Speaker 2: Really really fascinating. But before I get to I only
Speaker 2: have you for limited amount of time. Before I get
Speaker 2: to my favorite questions, let me just ask you one
Speaker 2: more question. What do you think investors who are looking
Speaker 2: at the private markets aren't thinking about or talking about.
Speaker 3: But should be.
Speaker 2: What sort of topics, geographies, policy issues, what's out there
Speaker 2: that is getting overlooked but perhaps shouldn't.
Speaker 3: So what I'm seeing more and more is a global
Speaker 3: trend of the democratization for private markets. And as I
Speaker 3: look at what's happening, certainly in our own backyard in
Speaker 3: terms of the executive orders around four oh one K,
Speaker 3: and then I look to Europe and I see their
Speaker 3: regulation around the l TIF two point zero, or I
Speaker 3: look even to the UK and I see REGs in
Speaker 3: the UK and France in terms of certain requirements and
Speaker 3: percentages to private markets in their retirement plans. To me,
Speaker 3: there's a global theme of the desire to allow more
Speaker 3: access of private markets to the individual and through their advisors,
Speaker 3: through the intermediaries, to truly be able to adequately plan
Speaker 3: for retirement. And we see obviously the state of kind
Speaker 3: of retirees here in the US, and there's a dire
Speaker 3: need to give them through managed accounts, through target date
Speaker 3: access to investments that will provide that additional access return.
Speaker 3: And you know, as as we think about it, most
Speaker 3: of those four oh one k's have time horizons of decades, right,
Speaker 3: yet the solutions they have available to them are daily
Speaker 3: liquid that mismatch does not need to exist. And you know,
Speaker 3: with with the changes that we're we're seeing come out
Speaker 3: of DC, you know, we're hopeful that the framework for
Speaker 3: the benefit of those retirement plans will continue to be
Speaker 3: one that shifts from the historical view of maximizing those
Speaker 3: pools of capital to the lowest possible fee, to one
Speaker 3: where they look to maximize outcome and truly maximize the
Speaker 3: result for those participants.
Speaker 2: Really really very fascinating. Let's jump to our final five
Speaker 2: questions that I ask all of my guests, Starting with
Speaker 2: tell us about your mentors who helped your career.
Speaker 3: Well, I mentioned in a prior part of our series
Speaker 3: someone that I used to babysit for who gave me
Speaker 3: my first shot in a healthcare consulting firm, so she
Speaker 3: will remain part of my kind of uh my personal
Speaker 3: advisory board. While at JP Morgan Mary Erdos is kind
Speaker 3: of rock star status in my book and an amazing
Speaker 3: uh mentor throughout my career.
Speaker 2: Uh.
Speaker 3: And then you know many at Apollo that I won't
Speaker 3: name because I want to embarrass them, but that have
Speaker 3: been incredible sponsors of my career with a lot of
Speaker 3: opportunities just to continue to grow and develop as a professional.
Speaker 2: Let's talk about books. What are you reading? What are
Speaker 2: some of your favorites so well?
Speaker 3: In terms of what I'm reading right now, there's a
Speaker 3: book called Such Good People, which I will give a disclaimer.
Speaker 3: It's written by Amy Bloomfeldt, and she is a great
Speaker 3: close friend from college, and it's a great read. And
Speaker 3: so I'm at the end and I don't want it
Speaker 3: to end. So that's that's a great one. I was
Speaker 3: actually just away this weekend and I have to say
Speaker 3: I was struck where I was in the Berkshires, and
Speaker 3: I was struck by the fall foliage and beautiful coming in.
Speaker 3: I live and work in New York City, so seeing
Speaker 3: those surroundings and being back in nature, it did make
Speaker 3: me think of Emerson and Thoreau, who I did love,
Speaker 3: and it's been a while since I've I read their works,
Speaker 3: but it inspired me to go back and dust that off.
Speaker 2: Let's talk about what's keeping you entertained these days? What
Speaker 2: are you streaming or listening to other than you? Well,
Speaker 2: this doesn't count us. Give us a different.
Speaker 3: One, okay, Well, when that is top of mine and
Speaker 3: who we actually just had participate live at a client
Speaker 3: forum of ours is doctor David Sinclair of life Span,
Speaker 3: and he is affiliated with Harvard, and his work fascinates
Speaker 3: me in terms.
Speaker 2: Of I.
Speaker 3: Love that. That's a different one and I love that
Speaker 3: professor as well in terms of the value of happiness
Speaker 3: at different stages of our lives.
Speaker 2: I love that.
Speaker 3: But this actually relates to longevity more in terms of
Speaker 3: genetics and all the research and science and even drug
Speaker 3: development that is going into the kind of health and
Speaker 3: wellness from a longevity.
Speaker 2: The health Span study is that what they yes.
Speaker 3: Exactly and research that they're already doing in terms of
Speaker 3: eyes that could have applicability to many other parts of
Speaker 3: our bodies. So I just find it kind of a
Speaker 3: fascinating field that I think will develop so much over time.
Speaker 3: And of course, from our work perspective, as I think
Speaker 3: frankly of the work of both of those Harvard professors
Speaker 3: and doctors. Now, how does it tie into the high
Speaker 3: performance culture and mindset that we have as a farm Like,
Speaker 3: how do we take that thinking and try to think
Speaker 3: about our own employees over time?
Speaker 2: And our final two questions, what sort of advice would
Speaker 2: you give to a recent college grad interest in the
Speaker 2: career in investing privates alternative investings? What's your advice?
Speaker 3: Well, first off, go for it, because I think it's
Speaker 3: there's still so much growth ahead. And I would just
Speaker 3: say stay curious because you know, as as we think
Speaker 3: about kind of the innovation that's happening just about from
Speaker 3: every of product innovation and channels, and frankly even applicability
Speaker 3: of AI to what we do today, if you're tuned
Speaker 3: in from a curiosity perspective coupled with kind of strong
Speaker 3: work ethic, I think that's a winning recipe.
Speaker 2: And our final question, what do you know about the
Speaker 2: world of alternative and private market investing today? Would have
Speaker 2: been useful thirty years ago or so when you were
Speaker 2: first getting started.
Speaker 3: Well, no fun if you have the answer key right.
Speaker 3: But look, I would say the one thing that stays
Speaker 3: the same is change, and to embrace that and to
Speaker 3: be flexible, to recognize that there will be so much
Speaker 3: evolution and change that continues in front of us from
Speaker 3: an industry and certain as someone starting if someone's starting
Speaker 3: out now, to kind of enjoy that ride and recognize
Speaker 3: that there will be many chapters that unfold and the
Speaker 3: best we can kind of try to see where that
Speaker 3: puck is going, but certainly and embrace that there's so
Speaker 3: much more innovation and opportunity to come.
Speaker 2: Really really interesting. Thank you, Stephanie for being so generous
Speaker 2: with your time.
Speaker 3: We have been.
Speaker 2: Speaking with Stephanie Dresher, Apollo's chief client and product development Officer.
Speaker 2: If you enjoy this conversation, check out any of the
Speaker 2: five hundred and eighty nine we've done over the previous
Speaker 2: eleven and a half years. You can find those at iTunes, Spotify, YouTube, Bloomberg,
Speaker 2: wherever you find your favorite podcast, and be sure and
Speaker 2: check out my new book, How Not to Invest The ideas, numbers,
Speaker 2: and behavior that destroys wealth and how to avoid them
Speaker 2: wherever you get your books at. I would be remiss
Speaker 2: if I didn't thank the Cracked team that helps put
Speaker 2: these conversations together each week. Alexis Noriega is my video producer.
Speaker 2: Sean Russo is my researcher. Anna Luke is my producer.
Speaker 2: Sage Bauman is the head of podcasts at Bloomberg. I'm
Speaker 2: Barry Rudoltz. You've been listening to Masters in Business on
Speaker 2: Bloomberg Radio