Interview
Why investors are leaning into alternatives: Apollo’s Marc Rowan
- Apollo expects to conclude the current year with approximately $550 billion in assets under management, consisting of $400 billion in credit (predominantly investment grade), $75 billion in hybrid risk equity, and $75 million in private equity.
- The credit business is projected to double in size over the next five years, with investment grade yield anticipated as a portfolio component alongside total return alternatives, BDCs, REITs, infrastructure, and hedge funds over a five-to-seven-year horizon.
- A transition of debt capital supply from banks to investors is forecast to continue, potentially scaling the investment-grade alternative fixed-income replacement market to $800 billion, a level at which Apollo would still not be a relevant factor.
- The firm anticipates that the trend of liquidity disappearing from public markets while increasing in private markets will persist, driven by the belief that no alpha remains in publicly traded or broadly syndicated fixed income due to liquidity-driven marginal buyers.
- Equity assets are expected to grow contingent on the firm's ability to provide excess return per unit of risk and capital stewardship, though true retail investors face uncertainty regarding their capacity and patience for 10-year private equity commitments.
- Apollo plans to maintain momentum for five years, adding people to a workforce that reached 2,600 on the asset management side, with 400 hires annually over the past three years, while explicitly pausing new product initiatives ("new toys") until 2026.
- Strategic execution through 2026 will focus on the three initiatives launched in 2022—high net worth business, originating investment grade alternative credit, and Apollo Capital Solutions—alongside six additional initiatives developed during that year.
- The private equity business is characterized as mature rather than a growth business, where inappropriate scaling risks negative outcomes, as the industry may lack capacity to create new products if private equity becomes mainstream.
- Clients are expected to take "a while" to fully embrace alternative investments due to the requirements for trust, education, and product reliability, despite the potential for individuals to obtain hundreds of basis points of excess return per unit of risk by sacrificing liquidity.
- Mark Rowan views the financial services sector as undergoing fundamental changes, noting that investors are currently "fighting the last war" and that the financial sector is receiving insufficient attention regarding structural market shifts.
- The firm expresses confidence in its 2023 outlook following an "awesome" 2022, believing that professional investors are at the beginning of an evolution to step away from public markets to find alpha.
- Beyond asset management, Rowan intends to ensure his philanthropic organization, which runs 44 schools and employs 4,000 teachers, remains in "very good hands" upon his retirement, while he plans to continue personal activities including mountain biking.