Why investors are leaning into alternatives: Apollo’s Marc Rowan

Apollo Global Management Asset Composition:

• Apollo is a publicly traded holding company with approximately $550 billion in total assets under management (AUM) at year-end.
• The portfolio is divided into three distinct segments:
  • $400 billion in credit, predominantly investment grade (alternative fixed income).
  • $75 billion in equity, characterized as hybrid risk with mid-teens returns.
  • $75 million (noted as $75 million in transcript, likely a typo for $75 billion based on context) in private equity, representing the firm's historic core.
• Athene, the retirement services subsidiary, holds $330 billion in assets and is the world's largest retirement services business by AUM.

Strategic Integration and Mergers:

• The full 100% merger between Apollo and Athene achieved complete alignment of interests, transitioning from a 35% stake to unified ownership.
• Athene generates $50 billion in organic new business annually, surpassing major competitors like MetLife, Prudential, and Allianz to become the #1 annuity underwriter in the U.S.
• The merger was facilitated by a decade of prior coexistence, resulting in seamless cultural integration and minimal operational friction.

Investment Philosophy and Market Trends:

• Apollo defines "alternatives" broadly as any asset class offering excess return per unit of risk compared to public markets, spanning from investment grade credit to equity.
• The firm forecasts that alternative investments could constitute up to 50% of investor portfolios over a five-to-seven-year horizon.
• Growth in the investment-grade alternative credit business is expected to double within five years, whereas private equity is viewed as a mature business that will grow but lacks high-growth scalability.
• Average private equity investment size at Apollo is $750 million, representing pure equity risk at the bottom of a levered capital structure.

Capital Markets and Liquidity Shifts:

• The post-2008 era of $8 trillion in global liquidity is deemed non-representative; current market conditions are viewed as returning to a "normal" state of lower liquidity.
• Dealer capital in markets has not increased since 2008 despite market size tripling, leading to reduced liquidity in public markets and increased liquidity in private markets.
• Banks now supply less than 20% of debt capital to U.S. businesses and consumers, with institutional investors (via firms like Apollo) supplying over 80%.
• Alpha generation in publicly traded fixed income is considered largely unavailable due to dominance by indexed products (ETFs, open-ended funds) and correlated trading.

Operational Goals and Culture:

• Apollo aims to reach $1 trillion in AUM by 2026, a goal CEO Mark Rowan notes is already half-achieved.
• For 2023, the firm's strategy focuses on executing existing initiatives rather than pursuing new acquisitions ("no new toys").
• Three core initiatives launched in 2022 are currently underway:
  • Expansion of the high net worth business.
  • Scaling capacity for origination of investment grade alternative credit.
  • Development of the Apollo Capital Solutions business.
• The firm added 400 employees annually for the past three years, reaching a total of 2,600 in asset management.

Leadership and Career Insights:

• Rowan identifies "momentum" as the critical factor for organizational success; a company with momentum can overcome any challenge, while one without it treats every challenge as an obstacle.
• Culture investment focuses on creating "judgment" by retaining talent for entire careers, fostering a partnership model, and encouraging intellectual insubordination.
• Rowan attributes his career trajectory to his mentorship under Mike Milken, who challenged him daily with questions designed to force deep thinking and analogy making.

Philanthropy and Personal Interests:

• Rowan supports a philanthropic initiative in Israel operating 44 schools with nearly 20,000 students and 4,000 teachers, applying business principles to improve educational outcomes in peripheral communities.
• His personal hobbies include mountain biking (rated level 8) and architectural design, having designed and built houses, restaurants, cottages, and ships.
• His core life advice, passed to his children, is "don't be defensive, be curious," advocating for a 10-second pause before responding to disagreeable viewpoints.

Investment Preferences and Reading:

• Rowan names John Bogle as his most admired investor for productizing low-cost index investing.
• He identifies the financial sector as currently under-appreciated by investors who are still reacting to past market dynamics.
• Current reading includes "Smart Brevity" for communication strategy, a book on anti-Semitism by Barry Weiss, and Ray Bradbury's "Something Wicked This Way Comes."