Bloomberg Wealth: Apollo CEO Marc Rowan

Our job as investors in alternatives is to produce excess return per unit of risk out of every bit of misfortune actually comes opportunity. If you look at the now thirty two year history thirty six percent growth 26 percent net returns every fund has made carry. We've done really well. Mark Rowan became CEO of Alternative Asset Manager Apollo in March of 2021 31 years after he co-founded the firm. This is not a job you just know how to do. This is a job learned. Rowan never attracted the same amount of attention as his co-founders Leon Black and Josh Harris. But he's been overseeing successful deals for the firm for decades. I have a responsibility to make sure this is in good hands and carry forward. He's known for crafting Apollo's credit business which makes up about 350 billion dollars of its 500 billion dollars in assets under management. Now the spotlight is on him to keep Apollo growing. I think our job is to grow that which should be grown where we can still produce excess return meet our promise to investors but not just grow for the sake of growth. Under Rowan's leadership Apollo has been reshaping itself from a bold buyout and credit fund into a more stable asset manager. In January Apollo closed its 11 billion dollar purchase of ensure a theme. I think we have always stepped back and said let's not worry about what we want to do. Let's listen to what the market is telling us as to where the opportunity is. So you've been the CEO of Apollo now for a little bit more than a year. It was reported the press you weren't dying to be CEO. So now that you've done it for a year are you happy you're doing this job or do you wish you hadn't done it. Amazing. Best thing I've ever done. It's a totally different challenge than what I had been doing previously trying to do something where you have to motivate others to actually make you successful. It's just a different kind of puzzle. And I love it. So you are happy doing this job but you have to pay attention to your investors and your funds. Or do you pay more attention to your shareholders and your stock. I don't think it's either or I think it's about creating a winning team a team that wins wins for investors and it also wins for shareholders. So when I took the job I defined four lanes four things I do. So I do strategy I do culture I do communication and I deal with problems. And somehow that's one hundred and fifty percent of my day. That's ISE. I joke. Sometimes it's not hard. It's just a lot of work. What do you get involved. The investment decisions at this point. On a day to day basis. No. I say jokingly if it's life threatening I will absolutely be involved. But most of what we do is handled by people who are much better equipped than I am to make the decision. So Apollo is how big today in terms of assets under managed. We're a little bit over half a trillion of assets under management. How many employees do you have. Twenty one hundred plus another fifteen hundred at a theme. So Apollo today in the core Apollo business. Not a theme business. Let's say it's buyouts distressed debt venture capital growth capital. What are the main businesses. We really are in three businesses. We're in the equity business. Think of equity as private equity. It's a business we've been in for 32 years. It is now circa one hundred billion dollar business. We're in the hybrid business. Hybrid business represents the midpoint between debt and equity. It's a series of strategies where one gives up the upside of equity to protect the downside producing mid teens rates of return. And we're in the yield business. And the yield business for us is primarily a fixed income replacement business rather than an opportunistic business. So does distressed distressed have a place. Yes it's a hybrid strategy. Private equity an equity strategy. You say that the large alternative asset management firms yours KKR Blackstone Carlyle that they are relatively mature operations or can they continue to grow at the rate they have been. So I've been a little bit of an outlier in the industry in really pointing out what I think an alternative is what the promise of alternative is and what that leads to in terms of strategy. So if I tick through that quickly I think an alternative is nothing other than an alternative to publicly traded stocks and bonds. I think alternatives exist from double to equity. And then I look at our three businesses our equity business we've been in 32 years. It is unclear to me that massively scaling that business is good for investors or good for us or possible our job as investors in alternatives is to produce excess return per unit of risk. That business will grow. There's growth. It's a hugely important business but I'm not sure it's a growth business. The hybrid business I think has lots of the characteristics of the equity business. It's just very early in its capital formation stage. It will double over the next five years. And the yield business for us today is about three hundred and sixty billion which sounds large but we're like that. I think that's one of the businesses that I see scaling dramatically. So for us in alternatives I think our job is to grow that which should be grown where we can still produce excess return meet our promise to investors but not just grow for the sake of growth. So how did you manage through Covid when Covid came. I assume you were working out of your house somewhere. Yes. All right. So how was that to manage all of Apollo through Covid. It was shocking. If you had told me two weeks before we went fully remote that we were going to be fully remote and up and running. I would have bet against the reality is the business not only ran it ran better. All of a sudden you didn't have to fine figure out where the senior leadership of the firm was which country they were in what airplane they were on. Everyone was free. And for 20 20 single best year in Apollo's history 20 one even better. I'm not sure I would want to do it a third time because the culture the mentorship the trust the nuances of our business which you know so well I don't know how you convey them remotely. So you encourage your people to come back to work. What's your style now. Three days a week. Four days a week. Five days a week in the office. What's your. So we are back in the office. We were back. Eighty five percent of us were back probably almost a year ago. And now we are mandatorily back in the office. But we also are flexible. We've learned something. We don't need to be here every day. So for most of the firm we're three and two for some of the firm where foreign one. Depending on your position. But also we're open in Miami where we have critical mass. We're open in West Palm Beach where we have critical mass. And it will not surprise me to see us open other offices where we have senior leadership who is taking culture and management responsibility and capable of sustaining something that looks and feels like Apollo. So over the years Apollo obviously must have changed. It's grown from a relatively small firm to a very large firm. What would you say are the biggest changes that have occurred in Apollo over the last 30 plus years. It's a lot to encompass. But if I think about the core things that we did we've always done purchase price matters. It's always been our style. And that style is reflected across our three businesses today. We also always started with a very strong understanding of credit markets as well as equity markets. And as you know credit is the largest of our businesses today. And I think we have always stepped back and said let's not worry about what we want to do. Let's listen to what the market is telling us as to where the opportunity is and let's scale those businesses in response to market forces. Do you worry about the economy. Very much. We've been having economy now with high inflation. We have a lot of debt and the federal government. We have a war in Russia Ukraine that were affected by. Are you worried about the economy. Do I worry about the economy. Of course. Of course we worry about the economy. And I think it plays well to how we think as a firm. As if I were to describe what we do we do purchase price matters. That's different than value. Value only buys a certain type of company. But purchase price matters just believes you have to always prepare for a cycle. You have to always prepare for some other kind of market. And we see lots of the signs of that today. FinTech is here to stay long. Change is here to stay. Crypto. I think. Jury at. The deal was the brainchild of Apollo CEO Mark Rowan. In January Apollo closed its eleven billion dollar all stock merger with a theme holding it had already own 35 percent of the insurer. Here's what Apollo gets out of the deal. Assets under management. Apollo expects them to double to about a trillion dollars by 2026. Much of that projected growth will come from the merger and those assets are especially attractive to Apollo. Insurance companies typically go after much more modest returns than buyout investors. That will give Apollo more options for investing the cash. A theme is a steady provider of fee income. It has grown into one of the nation's biggest holders of fixed annuities. Those retirement savings products favored by risk averse customers. The merger will also allow Apollo to simplify its governance. It gave up its dual class share structure and adopted a one share one vote plan. The hope is that will eventually lead to Apollo's inclusion in the S&P 500. In the private equity world you are well-known for among other things recommending that Apollo take a stake in a company called a theme and that grew to be a gigantic investment and a gigantic profit center. Can you explain what the idea was what a theme was and why you were so eager to get it done. Well in 2008 if you think about what happened in the world we had a situation where interest rates were near zero and credit spreads were very wide. It was a very strange time in our capital markets. So if you sat back and said what is the single best thing to be the single best thing to be would've been a bank started you bank zero cost of funds wide credit spreads. That is how a bank makes money. A bank brings with it other complications. The next best thing was to be a retirement savings company. But where you thought like a bank the liability side of your balance sheet rather than being deposits was annuities. The asset side rather than being loans was securities and you made the same spread. And what started out as a 16 million dollar equity investment has now morphed into two hundred and seventy billion of a U.N. and the largest retirement services company in the world. So some people would say it's a retirement security company. Some people would say it's an insurance company. What do you call a theme. A theme is a retirement services company because if you think about what people think about for insurance they think about property and casualty which a thing does not do. They think about mortality which a theme does not do. They think about health which a theme does not do a thing really does one thing. They are in the retirement services business. They guarantee your retirement. So if I think about what Apollo does we offer investors primarily retirees directly or indirectly a return on their money. A theme does the same thing except it offers them a guarantee. And so a theme starts at the guarantee end Apollo at the non guarantee end and in-between. Investors get to select the risk reward that's appropriate for their particular situation. For a theme what does it really do for you to see if you permanent capital that you can deploy. Anywhere you want and then you can also use that money to invest in Apollo funds. It really does that and so much more. So if you step back and think about our business today of the five hundred billion of assets that we manage half of them we manage for ourselves through a theme and half of them are third party clients. Think about what that does from an alignment point of view. We go to a client and we offer them nothing that we don't already own. It is the most aligned way of investing but to service a theme. We've also had to create a whole ecosystem a theme as a retirement services company wants ninety five percent fixed income and five percent alternatives. But that ninety five percent fixed income they can't buy in the market because the market is now completely beta. There's no excess return in publicly traded fixed income markets. So we have had to create this scaled origination platform to service a theme. And guess what. Other clients want that. Pension funds want that. Retail investors want that. Institutions want that. And so a theme has been the bedrock. The reason to create it. But now the alignment and the platform we built for them is scaling for everyone. Let's talk about your international business. Historically you haven't been as big in Asia as some of your peers. Are you going to change that or not. So we've been in Asia a long time. And recently we sent over one of our most senior partners to really take our culture to the Asian market. And he's there. And yes he does all three things. He does equity he does hybrid and he does yield. But if you think about that market it's not clear to me that Asia needs another opportunity fund. But the Asian capital markets are not nearly as developed as U.S. markets or European markets. The Asian hybrid availability of capital is non-existent. He is there primarily with a tool box that is yield and is hybrid and retirement services. And I step back and I look at the landscape in the US. The banking system is 25 percent of all corporate capital. In Europe it's 65 percent. In Asia I think it's 90 percent. So I've told my partner Matt NIKKEI who runs this business. Your job is to get market share in Asia from ninety to eighty nine. That's all you need to do to be successful and grow about China. Are you worried about China as a place to invest these days. We have not been big investors in China because we have not been big growth investors. We have not been out doing venture or not doing growth. We want growth but we historically have not been prepared to pay for it. What about Japan. Japan we've been very active in I sometimes say if I have any free day anywhere in the world I would spend it in Japan. It is a wonderful equity market in that corporations are maturing. They are selling off businesses but equally as important. It's an amazing yield market. This is an older population that needs guaranteed income where yields have been low for so long that there is no source of guaranteed income and very comfortable investing in the US. What is your view of cryptocurrency. Is that a good area in which to invest. For me personally no. But the ecosystem that's being built around crypto nothing short of amazing. And do offer those crypto related investments to your clients. Not not to clients but we make use of them tremendously internally. Our pivot to fintech given what we do as a large financial institution has been a very deep one buying into an entity called Motive Partners where we purchased a third of motive. But increasingly we are moving our securitizations onto block chain. We're taking stakes and backing challengers to the financial system. FinTech is here to stay. BLOCK chain is here to stay. Crypto. I think jury's out. So people are familiar with fintech. They're familiar with watching now. What's the next big thing beyond that. I think we're we're watching it take place and we're laughing at it in front of us. So I look at the whole NFTE market and we can look at art or all manner of crazy things trading hands as an FTSE. But then I bring it back to real world examples. If you ever sold a car I imagine you have. We sign cars usually fall apart right. They're not saleable but we sign a piece of paper called a title. If we can find it why do we do that. Shouldn't that be identified with us. We buy a house we buy title insurance. Why do we need to do that. Many of the rails or the technology or the platforms or the systems that support what's happening in NFTE I think are actually the precursor to changes in our financial system. And we ignore them at our peril. I look at what we do as traditional asset managers even in the alternative sphere and I think we ignore changes in financial technology fintech really at our peril. I think as a pure investor rather than speculative. Hybrid is the best risk for. Now for the average investor who says I'd like to get into the alternative investment business in terms of getting some money managed by good firms let's say like yours what do you recommend that people do if they want to put their money in alternative investments. Do they pick a buyout fund growth fund a venture fund or go to a money manager and say pick for me. I think this whole notion of retail is actually fascinating. So in response to your question I think there are not great choices today. But I also think we're in the first inning to use a sports analogy. We are we as an industry are currently offering high net worth and retail investors products that we created for other reasons in other markets. We've just offered them for the first time with institutional fees. And you know what. It's working. They've realized that there's not great alternatives in the public markets. But if you look forward a year and I can just think about our platform a year from now a retail investor will be able to buy an alternative. An investment grade alternative a stable value alternative a total return alternative a below investment grade alternative a BDC a rate a hedge fund and a fully diversified alternatives portfolio off one platform off one piece of paper. And I do think we we are in the process of creating this next generation of products which will meet the needs for retail. They don't want capital calls. They can't get diversified buying one fund here or there. They need diversification. They need low fee. They need alignment. They need liquidity. These things are not impossible. We as an industry just we've spent 35 years solving problems for large institutions and all that creativity is now being turned to this marketplace. So let's say somebody listens to this interview and says okay Apollo's got a great culture. They have a great CEO. He cares about the culture. I want to work there. What are the qualities you're looking for when you hire people and what are the mistakes that you often make when you hire people and it doesn't work out. There's no one type here. So we hired four hundred and twenty four people last year on a base of sixteen hundred. That's a lot of people. And we're building a lot of different things. There are high octane equity businesses. There are Yale businesses. There are platforms. There's technology. There's marketing. There's all manner of things. So there's no one skill set. I think people come here because they appreciate that we're entrepreneurs. It does not have the same structure of many of the institutions that we recruit from because we do recruit from large banks. Large banks have by far been the biggest source of our talent. We've built something where people can take a skill set that they've learned in another organization and come here imply it in an entrepreneur away. How do you make certain that all the people you're hiring the 400 plus each year have a strong sense of ethics. As you know it's impossible to do that. All you can do is model that behavior. They see you how you make a decision how you weigh the decision what your North Star is. We're very transparent in our decision making and how we make decisions and how we deal with these points of intersection or points of conflict to make sure our clients come out on top. What's the best investment advice you've ever received. I don't know if it's investment advice but it's the two best pieces of advice. And they're both really simple. One is accept change before it's visited upon you. And the second a little more nuanced. It really is. Don't be defensive. Be curious. We work with really smart people. We think we're right. But when we are confronted with people who disagree with us rather than immediately trying to turn them around I'm curious why you think that I learn something every time I catch myself and ask them what they think and why. And I always stress Madison. I'm so glad I did that. I really heard another point of view that I can then incorporate into my own. I may still be right but often I'll turn around. So what about mistakes. What do you say is the most common mistake that investors make. Look there's there's no one mistake. The one I see again and again and again for our institutional investors is the need for liquidity. Most of our institutions whether you're a pension fund an endowment a sovereign wealth fund or retirement services business or any other form of institution you do not need the large portion of your assets to be liquid everyday. By stepping back from that need for day to day liquidity you can produce excess return. I often say you can take equity risk. You can take credit risk. The risk these institutions should always get paid for is liquidity risk. They don't need liquidity every day and they have the opportunity therefore to earn excess return just by stepping back from public markets. But it's not how they were brought up. I don't think people yet understand how much beta there is in publicly traded markets. Now if somebody came to you say the cocktail party member cocktail parties are set on back at the cocktail party circuit OK. So they came to you and they said look I'm not that wealthy but I have an extra hundred thousand dollars. I don't know exactly what to do with it but what would you recommend that I do with it. What would you tell them. I think the best risk reward today is hybrid. You are stepping back from the publicly traded market. So you're getting the benefit of a liquidity. You're getting downside protection because the world is uncertain from a geopolitical and economic point of view. You have enough equity upside that you should have pretty good returns but you've given up that bit of craziness in case things go the other way. I think as a pure investor rather than speculator hybrid is the best risk reward. If you were able to talk to any investor in the world for some investment advice who would you actually like to talk to. I probably want to get the two bookends certainly to understand what's happening with Masa at Softbank. That is one bookend and probably Buffett at the other bookend. When you're the CEO of a company people can come to you all the time and tell you how great you are. I'm sure you have some people probably to do that. How do you keep your ego in check. How do you manage to kind of tell people you're not as great as they tell you you are. I tell them right away. This is actually. Very humbling job in some way as I am. This is as you know CEO is is not a learned job. This is not a job. You just know how to do. This is a job you learn. And I am told that I follow a service model. I actually do it. My job is just to make their job easier. The only thing I can do here is create an environment where everyone else can succeed. And it's not for my benefit that they're succeeding. It's for the totality of the thing. And I try not to make it about me. I've been very fortunate to do this for thirty seven years. Thirty two of them at Apollo. And I have a responsibility to them. More than almost 4000 people are here and to our investors to make sure this is in good hands and carried forward. Usually people in the investment business for 37 seven years and now the CEO of a major company have some gray hair. You have no gray hair. What is the secret to that. I don't know. I don't know if there's any secret to that. I think I'm getting plenty of gray hair recently.

Channel: Bloomberg Television

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Length: 23min 55sec (1435 seconds)

Published: Wed Apr 20 2022