I WOULD LOVE TO BE
A FLY ON YOUR WALL. IT IS NO SECRET PRIVATE EQUITY
HAS BEEN IN AND AROUND REGIONAL BANKS.
WERE YOU INTERESTED IN BUYING FIRST REPUBLIC ASSETS? >> WE ARE ALWAYS INTERESTED IN
BUYING ASSETS BUT NOT IN THIS BUSINESS.
WE DON'T BUY BANKS BUT IF WE CAN BE SUPPORTIVE OF
RESTRUCTURING OF THE BANKING SYSTEM THROUGH THE PURCHASE OF
ASSETS, ABSOLUTELY. SONALI: LOOK BEYOND TODAY.
WE HAVE THE FIRST REPUBLIC SALE TO JP MORGAN YOU HAVE JAMIE
DIMON SAYING THE BANKING CRISIS IS ALMOST OVER.
DO YOU SEE A SECOND WAVE OF THE CRISIS COMING? MARC:
I THINK PART ONE IS OVER. I WOULD NEVER DISAGREE WITH
JAMIE BECAUSE THIS IS HIS JOB AND HE LOVES IT.
BUT WHAT HAS HAPPENED SO FAR IS TOTALLY PROTECTABLE.
MARK TO MARKET LOSSES IS WELL KNOWN.
STRUCTURE OF DEPOSITS ABOVE MINIMUM GUARANTEES, WELL KNOWN.
ARE WE SURPRISED? WE SHOULD BE. EVERYONE KNEW WHAT WAS
HAPPENING. RISING RATES CREATED STRESS.
THE INTERESTING THING IS NOT WHETHER THESE RANKS FAIL, IT IS
WHETHER -- IT IS WHAT IS THE BUSINESS OF REGIONAL BANKING
GOING FORWARD? 40 BILLION LEFT SVB WITHIN TWO
HOURS WITHOUT A LINE. SO YOU ARE A CEO OF A BIG BANK,
YOUR COSTS ARE UP AND YOUR REGULATORY FUNDS ARE UP.
CAN YOU EARN MONEY OR DOES THE BUSINESS MODEL NEED TO EVOLVE?
THAT IS INTERESTING AND I THINK WE HAVE A SECOND WAVE IN
COMMERCIAL REAL ESTATE. SONALI: DO YOU THINK THAT WAVE PERTAINS
TO THE BANKING SYSTEM AT LARGE OR A BROADER SET OF INVESTORS?
MARC: THERE ARE LOTS OF PEOPLE IN
REAL ESTATE ACROSS THE WORLD AND ECONOMY.
INVESTORS WHO OWN REAL ESTATE SUFFER LOSSES.
STOCKS GO DOWN, INVESTORS SUFFER LOSSES.
THAT IS NOT SYSTEMIC. A BANKING SYSTEM WHICH HAS
GOVERNMENT GUARANTEES WHERE PEOPLE PUT THEIR MONEY IN A
TRUST RELATIONSHIP, IF THEY SUFFER SIGNIFICANT LOSSES, THAT
CAUSES CONCERN. THAT IS WHAT WE HAVE.
IT WON'T BE SYSTEMIC IN MY VIEW BUT IT WILL BE CONCENTRATED.
REGIONAL BANKS ARE THE PRIMARY LENDERS TO MANY OF OUR REGIONAL
REAL ESTATE ISSUES. SONALI: WE SOUGHT THIS MORNING THE BIG
BIGGER. JP MORGAN BUYING A REGIONAL
BANK. WHAT HAPPENS TO THE SYSTEM MOVING FORWARD?
WHICH IS THE NEW BANKING SYSTEM LOOK LIKE COMING OUT OF THESE
TROUBLES? MARC: IT HAS ALREADY CHANGED.
WE HAVE YET TO ADJUST TO THE CHANGES OF 2008.
WITH DODD-FRANK THE LEGISLATION WAS TO RESTRICT THE EXPOSURE OF
THE U.S. ECONOMY TO LARGE, SYSTEMICALLY
IMPORTANT BANKS. IT WORKED. BANKS ARE LESS THAN 20% OF ALL
LENDING IN THE U.S.. NEW BANKS ARE INVESTORS.
EVERYONE WHO IS AT THIS CONFERENCE TODAY IN SOME WAY OR
ANOTHER PARTICIPATES IN THE BANKING SYSTEM.
IF YOU ASK ABOUT BANKING PROPER I THINK WE WILL SEE THE BIG GET
BIGGER. PEOPLE WILL FLY TO SAFETY WHEN
YOU HAVE A CRISIS. JP MORGAN IS POSITIONED TO STEP
INTO FIXED AND SAVE FIRST REPUBLIC.
WE SHOULD NOT BE SURPRISED. BUT REGIONAL BANKS ARE AN
ATTRACTIVE POLITICAL ENTITY. IT WILL BE INTERESTING TO SEE
HOW THE SYSTEM DEALS WITH THE FUNDAMENTAL ISSUES FACING
REGIONAL BANKING. SONALI: YOU MENTIONED OUR BANKING
SYSTEM HAS ONLY BEEN 20% OF THE COUNTRIES LENDING.
WHAT DOES THAT MEAN FOR WHO WILL AND WILL NOT BE ABLE TO
HAVE ACCESS TO CREDIT IN THE FUTURE? MARC: I WILL SING AT A COUNTRY LEVEL,
WE ARE 50% OF THE WORLD'S CAPITAL.
OUR BUSINESSES AND GOVERNMENT BENEFIT, OUR CONSUMERS BENEFIT.
WE HAVE UNRESTRICTED ASSETS TO CREDIT.
SOMETIMES MORE, SOMETIMES LESS EXPENSIVE.
WE ARE THE ENVY OF THE WORLD AND NO ONE HAS WE HAVE.
THE DEMOCRATIZATION OF CREDIT THROUGH THE INVESTOR INVESTMENT
MARKETPLACE HAS CREATED UNPARALLEL ACCESS. SONALI:
IF YOU THINK ABOUT THE ISSUES WE TALKING ABOUT, AT APOLLO YOU
LOOK AT THINGS SECURITY BY SECURITY, SOMETIMES BY BUILDING.
WHAT OUR OFFICE VACANCIES TELLING YOU ABOUT THE COMMERCIAL REAL ESTATE MEANT --
REAL ESTATE MARKET? MARC: IT IS A BAD DAY TO HAVE REAL
ESTATE IN SAN FRANCISCO OR CHICAGO.
EVERYTHING IS NOW WORTH LESS. WE HAVE HAD A MOVE IN INTEREST
RATES AND REAL ESTATE IS AN INTEREST RATE SENSITIVE
ACTIVITY. EVERYTHING IS WORTH LESS.
IT DOES NOT MEAN IT WILL NOT BE A GOOD INVESTMENT.
BUT IN THE SHORT TERM WE HAVE THIS AND THIS CHANGE OF HOW
PEOPLE USE THIS. WE ARE GOING TO SEE LOSSES.
SONALI: IN CONVERSATION WITH THE CEO OF
APOLLO GLOBAL MANAGEMENT. MARC, YOU MENTIONED THE PAIN IN
OFFICE SYSTEM AND COMMERCIAL REAL ESTATE HAS YET TO SEE.
OF WHAT'S THAT MEAN FOR INVESTORS IN COMMERCIAL REAL
ESTATE AND IN REGIONAL BANKS AS A DERIVATIVE EFFECT?
DO YOU THINK THE MARKET IS UNDERCOUNTING HOW BAD THINGS
CAN GET? MARC: I THINK THE MARKET HAS YET TO
ASK THE LONG-TERM QUESTION. RIGHT NOW THEY ARE ASKING IS
THE BANK SAFE, WILL IT SURVIVE? SAFETY HAS BEEN OUR PRIMARY
FOCUS. BUT WE HAVE SEEN THE GOVERNMENT
CAN MAKE THIS SAFE WITH THE STROKE OF A PEN.
I BELIEVE THE BANKING SYSTEM TO BE SAFE.
THAT IS DIFFERENT THAN WHAT IS THE BUSINESS OF A REGIONAL
BANKS GOING FORWARD? IF YOUR COST TO FUNDS -- COST
OF FUNDS IS HIGH, WHAT IS YOUR BUSINESS MODEL?
LIKE EVERY INDUSTRY THAT HAS HAD TO ADJUST TO TECHNOLOGY,
REGIONAL BANKING WILL. I WOULD BE SHOCKED IF IN FIVE
YEARS AGO THE BUSINESS MODEL OF A REGIONAL BANK LOOKS LIKE
TODAY. SONALI: LET'S STEP BACK. THERE IS UNDERSTANDING THAT YOU
CAN'T UNWIND 12 YEARS OF EASY MONEY SO EASILY.
YOU SAW PICKUPS. THE PRICES IN THE U.K., THE
REGIONAL BANKING CRISIS AND THE CRYPTO CRASH.
WHAT ELSE IS YET TO BREAK? MARC:
IT IS HARD TO BE A PREDICTOR OF WHAT ELSE IS TO BREAK.
BUT I LOOK AT PLACES WHERE WE HAVE MISMATCHES BETWEEN LIQUID
LIABILITIES LIKE A BANK, BORROW SHORT AND LEND LONG.
WE HAVE OTHER PLACES WHERE THE SAME BUILD HAS TAKEN PLACE.
12 YEARS OF EASY MONEY FORCED PEOPLE TO DO UNNATURAL THINGS
TO LOOK FOR YIELD AND RATE OF RETURN.
IT WAS THE FIRST TIME THE QUESTION WAS CALLED. LDI WAS NOTHING MORE THAN AN --
A MISPLACED -- THAT PUBLIC SECURITIES WERE LIQUID.
THEY ARE NOT LIQUID ON THE WAY DOWN.
WE HAVE THE SAME IN CERTAIN OPEN-ENDED MUTUAL FUNDS.
WE HAVE SEEN IT IN ETF'S AND POINTS OF STRESS.
EVEN IN SOME PRIVATE VEHICLES AND POINT OF STRESS.
THIS IS NOT PUBLIC OR PRIVATE. THIS IS THE STRUCTURE OF
LIABILITIES. SONALI: THERE IS QUESTION OF HOW WELL
THE PUBLIC MARKETS HAVE HELD UP IN THE FACE OF SOME OF THIS. HOW SAFE CAN YOU FEEL IN THE
FACT THAT YOU HAVE LIQUIDITY? MARC:
I THINK ABOUT WHAT HAS HAPPENED IN THE WORLD AND THE DIFFERENCE
BETWEEN PUBLIC AND PRIVATE. WE USED TO THINK PUBLIC IS SAFE
AND PRIVATE WAS RISKY. WE KNOW PUBLIC CAN BE RISKY AS
WELL. WE HAVE FOUND OUT PRIVATE CAN
BE SAFE AND RISKY. WE ARE TALKING ABOUT DEGREES OF
LIQUIDITY. WHAT WE HAVE ELECTED TO DO IN
OUR INDUSTRY AND APOLLO IS FOCUS ON PRIVATE.
WE DON'T BELIEVE THERE IS SUSTAINABLE OUTCOME. EXCESS RETURN IN PUBLIC
TRAINING -- PUBLICLY TRADING MARKET.
IF INVESTORS COME TO US FOR EXCESS RETURN, WE NEED TO STEP
AWAY FROM DAILY LIQUID MARKETS. THERE IS PLENTY FOR US TO DO.
SONALI: THIS MORNING, -- REDEMPTION
WHEN IT COMES TO THAT LIQUID VEHICLE AND THE REAL ESTATE
MARKET. TRYING TO COURT RETAIL INVESTORS.
WHEN YOU LOOK AT THE HICCUPS SOME OF THE CURRENT FUNDS ARE
FACING IN THE MARKET, SOME CHALLENGES WHEN IT COMES TO
INVESTORS ASKING FOR THEIR MONEY BACK, FOR LONG DATE OF
INVESTMENTS ON THE OTHERS, WHAT DOES THIS TELL YOU ABOUT THE
DIRECTION OF TRAVEL? IS INVESTOR CONFIDENCE IN
RETAIL SEMI LIQUID FUNDS BECOMING DENTED? >> I DON'T KNOW ABOUT THAT.
I THINK BLACKSTONE IS DOING THE RIGHT THING.
THE INDUSTRY OWES THEM A DEBT OF GRATITUDE BECAUSE THEY ARE
TEACHING INVESTORS THAT ALTERNATIVES ARE NOT AN ATM.
THEY ARE AN ASSET CLASS THAT IS UNDER STRESS BECAUSE PEOPLE ARE
CONCERNED ABOUT REAL ESTATE VALUATIONS.
THEY ARE REDEEMING BECAUSE THEY THINK VALUATIONS ARE HEADED
DOWN. THEY ARE DOING EXACTLY WHAT
THEY ARE SUPPOSED TO DO AND WHAT THESE VEHICLES ARE
DESIGNED TO DO. BUT I THINK ABOUT THE STRUCTURE
OF OUR BUSINESS AND RETAIL INVESTORS ARE GOING TO BE 50%
ALLOCATED. BUT NOT ALTERNATIVES, PRIVATE
EQUITY AND HEDGE FUNDS. JUST ALTERNATIVES TO PUBLICLY
TRADED STOCKS AND BONDS. SONALI: WHAT DO YOU SAY TO PEOPLE WHO
CRITICIZE THE PRIVATE MARKETS AND CREDIT MARKETS? >> THE EASIEST THING TO VALUE
IS A BOND. CASH FLOWS, INTEREST RATE AND
DURATION. BETTER RISK REWARD HAS BEEN
AVAILABLE IN PRIVATE MARKETS THAN IN PUBLIC MARKETS FOR MUCH
OF THE LAST 10 TO 12 YEARS. EVERYONE IN OUR INDUSTRY HAS
PICKED A DIFFERENT SEGMENT. PRIVATE INVESTMENT RATE IS
SOMETHING PEOPLE HAVE NOT COMPTON PLATED -- CONTEMPLATED.
THINK WHAT GE CAPITAL USED TO DO. AT $400 BILLION OF PRIVATE
CREDIT, MOSTLY INVESTMENT GRADE, UNFORTUNATELY WE ARE NOT
RELEVANT. IT SOUNDS LIKE 400 MILLION, BUT
WE ARE TALKING ABOUT A $40 TRILLION MARKET. SONALI:
GETTING BIGGER AS WELL. THERE IS DISCUSSION IN
WASHINGTON ABOUT REGULATING NONBANKS.
DO YOU THINK YOU FACE TIGHTER REGULATION? MARC: WE ALL DO.
THAT IS THE DIRECTION OF TRAVEL. PEOPLE LOOK FOR, IF THE
INFORMATION IS AVAILABLE. IT IS ALREADY PUBLIC.
ARE WE MISMATCHED IN TERMS OF BORROWING SHORT AND ENTERING --
LENDING LONG? NO. ARE WE LEVERED OR CONCENTRATED,
A DIVERSIFIER FOR THE ECONOMY? THE U.S.
FINANCIAL SYSTEM IS THE ENVY OF THE WORLD.
WE ARE 50% OF ALL THE ACTION IN THE WORLD.
IT IS A RESULT OF DECISIONS MADE ALONG THE WAY TO ALLOW
INVESTORS TO BE SUPPLIERS OF CREDIT. SONALI:
THAT IS THE ARGUMENT, IF NOT YOU, WHO? MARC: THE U.S.
AND WORLD ECONOMY NEED A CERTAIN AMOUNT OF CREDIT.
THE CHOICES ARE DO YOU ALLOW IT TO BE SUPPLIED EXCLUSIVELY BY
THE BANKING SYSTEM BACKED BY GOVERNMENT GUARANTEES AS IN
MANY FOREIGN COUNTRIES, OR DO WE ALLOW RETAIL INVESTORS, HIGH
NET WORTH INVESTORS, INSTITUTIONS TO PARTICIPATE IN
GET DIVERSIFICATION AND SOCIALIZATION OF RISK?
INVESTORS ARE PREPARED FOR THINGS THAT GO UP AND DOWN.
SONALI: YOU MENTIONED THE BENEFITS OF
THE PRIVATE MARKETS IN TERMS OF RETURN OPPORTUNITIES IN THE
CREDIT MARKETS. I'M CURIOUS WHAT YOU THINK
ABOUT THE CURRENT STATE OF INVESTMENT-GRADE WHEN YOU LOOK
AT THE PUBLIC MARKETS. THERE HAS BEEN DISCUSSION ABOUT
HOW CALM SPREADS HAVE BEEN BEHAVING IN THE FACE OF WHAT
MANY FEEL IS A PENDING RECESSION.
DO YOU FEEL THERE ARE MORE RISKS UNDER THE SURFACE WHEN
YOU LOOK AT PUBLIC CREDIT? MARC: I THINK YOU HAVE A COMMUTE
FUSED -- CONFUSED MARKET. THE CURVE IS UP AND DOWN.
IT DOES NOT SURPRISE ME INVESTORS BEING OFFERED YIELDS
TODAY OF A CERTAIN MAGNITUDE ARE ACTIVE AND LOCKING THE MEN.
ESPECIALLY AFTER A DECADE OF LOW RATES. SONALI:
I HAVE HEARD YOU SAY THE ERA OF EQUITY IS ERODING.
DOES THAT MAKE A BIGGER SECULAR PUSH TO CREDIT? MARC:
I THINK IT DOES. THIS IS AN AMAZING ENTRY POINT
FOR CREDIT BECAUSE OF WHAT HAS TRANSPIRED. WE PAINTED--PRINTED -- NOW THAT
WE HAVE STARTED WITHDRAWING, ENTRY POINT FOR CREDIT IS
FABULOUS. IT IS ADJUSTED QUICKLY.
LIQUIDITY HAS ERODED. BANKING CRISES HAVE ERODED.
IT WILL NOT ALWAYS BE THIS GOOD, EQUITY HAS ADJUSTED BUT
NOT AS MUCH AS CREDIT. SONALI: WE'VE SEEN FROM THE BANKING
SYSTEM THAT WHAT WAS SAFE YESTERDAY CAN BE JUNK TOMORROW.
DO YOU NOT BELIEVE WE WOULD BE FACING A WAVE OF DOWNGRADES? MARC: THERE IS NO DOUBT. BUT IF YOU ARE CONCERNED ABOUT
THE DIRECTION OF TRAVEL, I WOULD ALMOST RATHER BE TOP --
YOU TEND TO GET PAID BACK. BEST HAS BEEN ON PRIVATE
INVESTMENT GRADE. I WOULD RATHER PLAY OUR HAND
THAN ANYONE ELSE'S. SONALI: I AM CURIOUS ABOUT APOLLO'S
PLAN FOR THE REST OF THE YEAR. YOU ARE SEEING PEOPLE SLIM BACK
ON HIRING OR FLAT OUT LETTING GO OF THOUSANDS OF STAFF. WHAT OPPORTUNITY DO YOU SEE
GIVEN APOLLO HAS DONE THIS? MARC: WE WILL CONTINUE TO GROW. BETTER THAN 25% THIS YEAR ON
THE RETIREMENT SERVICES SIDE. THAT IS WITH AN OVERLAY OF OUR
STRATEGY CALLED NO NEW TOYS. THE UPSIDE FROM EXECUTING THE
BUSINESS PLAN IN FRONT OF US IS SO HIGH THAT THE PRICE A
DISTRACTION IS HARD TO CONTEMPLATE. I THINK 23 FOR US, WE WILL
GROW, AND WE WILL DO IT IN THE CONTEXT OF THE ENVELOPE OF OUR
BUSINESS THAT EXISTS. NO NEW TOYS. SONALI:
ARE YOU FINDING IT EASY TO HIRE FROM BANKS OR TECHNOLOGY
COMPANIES? MARC: IT IS NEVER EASY TO HIRE.
THIS IS ABOUT CULTURE. WE HAVE GROWN THE TEAM AND IT
IS THE LIMITER OF OUR GROWTH. AT THE END OF THE DAY WE
PROVIDE CLIENTS JUDGMENT. IT COMES FROM PEOPLE BEING AT
APOLLO FOR A LONG TIME AND INTEGRATING INTO OUR CULTURE.
WE CAN ONLY GROW AS FAST AS WE CAN CULTURALLY ABSORB IT.
THERE IS A NATURAL HEDGE OR LIMITER TO OUR GROWTH.
WE WATCH THE BALANCE CAREFULLY. SONALI:
WEDNESDAY IS BIG FED DAY. WHAT YOU EXPECT WHEN YOU LOOK
AT THE INTEREST RATE PER--TRAJECTORY? MARC:
THERE IS A POST-POLL. THE DIRECTION OF TRAVEL
WEDNESDAY IS GOING TO BE OUT. IT WILL DEPEND ON THE LANGUAGE
THAT SURROUNDS IT AND THE ACTIVITIES THAT TAKE PLACE
FOLLOWING IT. IF WE HAVE A SECOND LEG OF THIS
BANKING CRISIS, IT WILL BE SLOWER.
IF WE SEE THE WAGE PRESSURES WE JUST SAW, IT WILL BE TOUGHER.
