Apollo CEO Rowan on Credit, 'De-Banking,' Antisemitism

private markets versus public markets and why you believe the big opportunity right now is in the former and not the L look we've had a c change not just over a year we've had it over 15 years so much of our public markets are indexed and correlated 80% of volume S&P 500 60% of the market ETFs 100% of our returns this year are from 10 stocks which constitute 35% of the S&P that traded an average PE of 50 how many of us come in every day looking to buy 50 PE stocks not many and I guess what I'm suggesting to you is that if you public markets are so correlated and index to interest rates and to money flows that if you actually want Alpha Al performance you need to step away from public markets and I think that's happening because we're also revisiting the notion of public being safe and private being risky this is the framework we used to be in private meant Venture Capital hedge funds private equity now it just means less liquid is that not inherently a risk in your mind liquidity well liquidity is a risk to everyone but in different degrees so if you are a retirement plan or a retirement system you know your liquidity requirements for the next 10 years so if you can get paid for illiquidity why not get paid for illiquidity if you're a wealthy individual how many of them need 100% of their money on Tuesday if they don't they should get paid for illiquidity and we're seeing that in the performance data if you look at the Active management active management has failed to beat the index 85% of the time for 20 years and I think it's going to get harder not easier to beat the index as more and more of the market is indexed very little money is left to actually make up what needs to be done in active management what is the single operational distinction between Drexel Burnham lambar and EUR aollo what is the the micro idea you can give us of then versus now I'll not just I'll give you Drexel I'll give you Leman Brothers I'll give you Bear Sterns I'll give you svb I'll give you first Republic the financial institutions tend to die of one of two causes heart attack or cancer heart attack is funding risk they borrow short and they lend long cancer is the slow addition of poor quality assets which over time undermine the system so you look at all of those firms all of those had an element of both heart attack and cancer funding risk as well as Asset Risk you look at what we're doing we are borrow long borrowed long and lent long everything is matched everything is in a fund there is no daily liquid quarterly liquid money at Apollo we are ideally situated to take advantage of less liquid assets we've structured ourselves that way and then you look at the totality of what we do um Equity is a risk business equities go up and down every day you can lose money in public Equity you can lose money in private equity in the credit business the vast vast majority of what we do is private investment grade when I look at the risks out there and it translate into Nasim taleb and all the work he did in qu with Black Swan what are the tail risks you see right now for private Equity I mean are you hedged perfectly is is there next to no Delta where you feel so comfortable or are there actual tail risks at Apollo I don't think there are tail risks and I don't think there are tail risks in private Equity I think private Equity is a risk-taking activity but each of the companies each of the situations as idio syncratic onto itself um and over time private Equity has proven to be a very good asset class recognizing that in certain markets you will lose money just like in certain public markets you will lose money well you had a test here with the way interest rates went you had a four five6 standard deviation shock how did your risks perform given the shock of higher rates the the the Glide path of that how was it along the way up single best year in Apollo's history earnings asset performance performance the our platform if you think about it we are around 650 billion of assets under management in our asset management business 500 billion of that is credit we generally benefit from rising rates yes on the equity side some Equity will be worth less than it was but as a general rule for Apollo credit rates going up is very strong on the Retirement Services side of our business which is the Athen business just gone through the roof Athen is up 30% year-over-year so I'm going to steal a page from this guy cuz he's been talking about OIC a lot and honestly I think that it's important for us to talk about are you telling me something that I absolutely not you're suggesting that I'm on OIC please continue I'm not saying that anyone is on OIC we're talking about this as a game CH potentially no one here is on oepic and we're not making any not that there's anything wrong with it whatever let's move on here's this question about how much that transforms life expectancy how much that transforms some of the investment thesis from your perspective and for retirement look o o over time you would expect improvements in healthcare improvements in health technology to improve life expectancy but not by all that much we tend to find other things that are bad for the human body as as one thing does not uh kill us another thing does so I but I would expect the trend to continue we are just to be clear we are not in the insurance business we are in and we are an insurance company that is in the retirement Services business we make money by guaranteeing people's retirement and we earn money by earning more on our assets than we pay on our liabilities very little exposure to longevity or any other what you would consider biometric or typical Insurance risk there's a real question here and real focus on income and you've been talking about that how there is risk in equity but not necessarily the same type of thing uh that you see in credit and we just saw credit outperform private credit outperform private Equity pretty meaningfully are you going to shift away from private Equity more and more and just focus purely on the more credit business no this is the answer but we have to step back and go back to what our businesses our business at Apollo and for most people in the alternative Asset Management industry we're not in the asset management business we're in the excess return perun of risk business and then I ask myself where can we get excess return well in equity we've gotten to 150 billion is it going to grow I think it will grow will it grow multiples I don't think so I think the nature of the business if we're true to ourselves of just focusing on excess return is slower growth I look at the credit business the credit business is nearly 500 billion today we're not relevant in the scheme and the scale of these markets 500 billion is not a relevant sentiment I assure you when you speak to all the big Bank CEOs today they don't wake up every day wondering what the mighty Apollo is doing there's a phrase I've used twice already this morning in the last 40 minutes 1 hour de Banking and every time I've used it I've had push back around this table why don't we like that phrase de banking I personally like that phrase uh Jim zelter will it'll cost me $20 for just saying the word Deb banking but I'm happy to pay it uh I think the world is De Banking and I say it this way every economy every regulatory scheme credit is tied to GDP and Regulators have only two choices as to where credit comes from it can come from the banking system or it can come from the investment Marketplace there's no third choice and everyone around the globe has made a different decision but if you look at the trend with the exception of China everywhere in the world Regulators are favoring investors over banks that does not mean we're going to see a sun shift that does not mean the banking business is going out of business on the margin though the growth is going to take place in the investor Marketplace rather than in the banking system for good and valid reasons and for regulatory choice not because the banking system is unsafe so given that you said you don't see a lot of upside in terms of growth tremendous amount of growth in the Equity side you said you're relevant with $500 billion how big how relevant could you become well I I sat next to uh senior executive from Black Rock last night at dinner and they had food in front of them and I had no food and I said how how big do you have to be to get food in front of you and he said 10 trillion so that's what you're aiming for $10 trillion is that what you're saying look for us for us this is about excess return per unit of risk our business plan calls for a doubling of our business and at the end of the doubling liking who we are as a culture our limiter is not Capital raising our limiter is not size of AUM our limiter is making sure we get excess return per unit of risk so finding assets and making sure we like our culture at the end of the day and we all bring to this our childhoods my childhood was a white Anglo-Saxon Protestant grandmother John after her third Scotch who would talk about how Jews couldn't go to a certain School in Massachusetts most of them ended up at Lisa's un University of Chicago that was a different battle now there is a new battle and we address this with Mark Rowan I am stunned at what I see at these schools and particularly at your University of Pennsylvania you've been vocal what is the dialogue you're having right now with the leadership of University of Pennsylvania as they deal with this new anti-Semitism um there there's no dialogue with leadership at the moment leadership is on their way or in DC for a series of congr hearings but the underlying culture that permitted this to happen is just so strong and until there is a moment of self-reflection where we're not dealing with just anti-Semitism we're dealing with the culture that allowed this to happen there really is going to be no progress and to date there's been no progress so what is progress right because there's a real question around Free Speech versus something else what is the something else that you're looking for some of these universities to Target this really not a question of free speech this is a question of favored speech and disfavored speech and an Institutional psychology and an Institutional culture so there are places where this is modeled and they're getting it right for instance University of Chicago University of CH Chicago is getting it right they are kicking Pen's butt to be candid and it's not that hard the institution has decided that it is institutionally neutral and that the students and professors and other actors on campus are allowed to have opinions and to speak their opinions within respectful ways say what you will say what you want allow the other side to speak that is a culture of free speech a culture where you shout people down where you have 95% of the professor or Academia speaking in one way where you permit violent protest where students aren't aable to go to class because there's boycotts or there's pressure or other things is not a culture of free speech how do you understand the increase and anti-Semitism on the left which has really polarized frankly the Democratic party and created a lot of sort of Soul surging look this is a long time coming but I'll start with history um the definition of anti-semitism the modern definition the IRA definition includes anti Zionism as a form of anti-Semitism this got through the Senate with many of the current Senators still there 99 to zero including most of the most Progressive uh Democratic centers so what we've seen is we've seen a shift in the mood of the populace particularly on University campuses we live in a culture on these University campuses of Simplicity you are oppressed or you are an oppressor if you are oppressed it does not matter what you do you can do no wrong if you are an oppressor facts be damned it does not matter what you do you can do no right in that kind of mindset it does not surprise me that anti-Semitism anti-zionism has taken hold and if you give historical context go to the Holocaust you have dehumanization you have delegitimization and then you ultimately have genocide now you apply app that to anti-zionism you have dehumanizing of Israelis and Jews you have delegitimizing of Israeli and Jews and now with hamas's attack you have the beginnings of killings it's not that hard to see where we are what all the the only thing that's hard is for the left to recognize it I been surprised that people have been so surprised by where some of these campuses are at and I think about the amount of tremendous philanthropy that have come from people like youself over the years on these campuses I do wonder why we allowed it to come to this Mark why it got this far when we've seen this been building for for years and years and years through a whole generation the answer I believe is a slow build and It ultimately comes back to governance and Leadership if I speak just about University of Pennsylvania the governance is actually divided between the faculty and the trustees except for the last 25 years only one of those two groups has been doing their job and I put myself in the camp that did not do their job I was a trustee for a long period of time the trustees have a very important role to play in setting the Strategic direction of the University permissible and impermissible where we want to go except it's not a governing body 47 trustees really can't agree on anything it's not set up to govern there's no history of govern and so in the absence of any leadership faculty or Administration has taken these universities direction that the alumni do not recognize when you have a John Huntsman or Ronald la a cliff asess and 7,000 other alumni who for their own reasons their own political Persuasions their own belief system all don't recognize the university that they loved you have a problem so first move is to stop donating I guess we could disengage walk away you seem to be more constructive about the prospect of change here you think there is a better path ahead I think the worst thing that could happen to these universities is apathy right now there's not apathy donors are engaged they want change they love the place this goes on much longer I think we will get to apathy and once we get to apathy I don't think the universities can recover from this and unfortunately all University presidents that I'm aware of particularly at the University of Pennsylvania they seek to wait this out maybe this will go away I won't have to deal with this that is actually a loss they haven't internalized that that's a loss but that is a loss there's an understanding there's a woke adjustment going on right now we see in Hollywood the collapse of many Disney movies and others that have certain messages that aren't selling to the public the Ft has an article on uh your colleagues at Black Rock on ESG and how there's a woke adjustment in the ESG how's this going to adjust the wokeness of these universities how will it adjust look this is a question ultimately of balance this is not a question of a pendulum swing all the way back but right now these universities are out of balance and I believe that the trustees the alumni and by the way many of the faculty if we read bill amman's letter yesterday and the experience I'm having at the University of Pennsylvania is word for word the experience that bill Amman is having at Harvard professors don't want to be muzzled anymore they feel that they can't speak out unless they are conforming to The Narrative of the university and the resentment is building all we've done all I've done all bill has done is given people an opportunity to speak their minds and guess what they have a lot to say big election next year let's finish on that is this going to change how you approach us politics who you would endorse for 2024 no it's not going to change do you have a favorite candidate no it's hard to believe with 350 million people in this country that we down to two you disappointed with these two personally I'm disappointed what is it about these two that you find so disappointing look we we are we are in the we have the single best hand of cards anywhere in the world we have it all we just play this hand poorly what does that mean think about it people want to come here we have an incredible knowledge base we have abundant energy we're leaders in technology we have a massive domestic Market we're the strongest military power and yet we have challenges that we have not been able to as a result of lack of leadership as a result of political consensus to address we have a retirement crisis we have a healthcare crisis we have a budgetary crisis we are inconsistent to our allies around the world we have important decisions to make without weighing in as to what's going on in Ukraine and what's going on in the Middle East all of which seems to be caught in a little bit of a morass is United Nations experience important for a presidential candidate United Nations no okay

Channel: Bloomberg Television

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Length: 16min 49sec (1009 seconds)

Published: Tue Dec 05 2023