Special edition with Apollo CEO Marc Rowan
 Sharpe Angle Special Edition: Marc Rowan The co-founder and CEO on revving up Apollo's engine again  We are bringing you a special edition of the Delivering Alpha newsletter to present my conversation with Apollo Global Management Co-Founder and CEO Marc Rowan, which marks his first television interview since taking the helm.
Apollo is one of the world's largest alternative investment managers with approximately $472 billion under management. He's been officially on the job for about six months, conducting blockbuster deals and making high profile investments during his short tenure.
(The content below has been edited for length & clarity.)
Leslie Picker: [It's been] the best quarter for distributable earnings, going back eight years, under your tenure and yet Apollo's share price continues to underperform its peers by a significant amount. Many analysts are attributing [it] largely to what happened with Leon Black last year, and it's kind of created this overhang on the stock. How do you move past that, as CEO?
Marc Rowan: Look, I never say everyone, but the vast, vast majority, this is in the rearview mirror. This is now my 36th year in this business. Jim Zelter and Scott Kleinman - not quite as long tenure, but getting very close. The reality is that we have performed for investors in ways that few firms have performed. We have defined our business as one of excess return and we've delivered on that promise. The most recent fund, Fund IX, roughly $25 billion was marked up about IRR-wise 49% growth, high 20s net, truly extraordinary performance. I think investors will be back.
Leslie Picker: Can you explain how everything materialized so that you would be CEO? I ask because you were on sabbatical and then all of a sudden there were headlines, an independent investigation, and now you're CEO. As a recent Business Insider profile described it, you were tasked with lifting a firm out of a crisis. Did you want this job?
Marc Rowan: I rarely get my news from Business Insider, so we'll start there. This is an amazing job. I think about what's going on in our industry. We have a unique macroeconomic backdrop. We have a business literally that gets better every day, whether it's demographics, whether it's low rates, whether it's generational transfer of wealth. The momentum is there in this business. And then you have this interplay of technology coming into alternatives, and really reshaping the financial landscape. So anyone who's not excited about what's happening today is just missing the bigger picture. So now let me go back. So first I was on semi-sabbatical not on sabbatical. The reality is the first half of 2020 was unbelievable. In that period of time, we built our insurance franchise by $88 billion and I worked around the clock like an associate. And so at June 30, in the middle of the pandemic, [I] decided to take a few months off and step back. When Leon stepped down and when problems became clear in the fall, we went through generational transition, and it's something I've been very focused on as an industry. Our industry was all founded the same way as private equity partnerships. Most of the founders are in their mid-to-late 70s and believe it or not everyone is going to go through generational transition, we've just done it first. And it's not just leadership, it's governance, it's an articulation of strategy, and it's acceptance that this is a permanent business that is moving forward. We've just done it as I've jokingly said, more noisily than others probably will. But make no mistake, this generational change, this generational shift is coming to every firm in our industry.
Leslie Picker: I want to get your thoughts on the markets because you have $50 billion worth of dry powder to deploy, at least that was the case at the end of the second quarter. You also are looking to launch Fund X soon, potentially next year. The firm's competitive advantage historically lies in areas of more distressed restructuring type situations, obviously you move beyond that recently. How do you look at the markets right now? Does this feel like a time where it's good to be a net seller because things are frothy out there or is it time to be a buyer because you're seeing actual opportunity?
Marc Rowan: I think you have to take it business-by-business. So I'll start with the largest business which is credit. This is a business where we're matching assets and liabilities. It is not a question of time. We don't time the market, we wake up everyday and we put spread on the books to offset liabilities for either our insurance company affiliates or for our clients. So this is a manufacturing business. It exists whether markets go up or down, whether rates are high or low. It is about spread and capturing of spread and not about market timing. The hybrid and opportunistic businesses, necessarily, are about market timing and I would have to agree that on balance, things are priced for perfection.
Leslie Picker: I want to talk to you about fintech as well because this is not an area that I think most people associate with Apollo. But recently, you took a minority stake in a company called Motive which is a PE firm with a fintech lens and you've also partnered with a blockchain startup called Figure. What's next? Is it an Apollo NFT?
Marc Rowan: In the fintech landscape, you basically have challenger firms up and down the list of opportunities. There are challenger firms for MasterCard and Visa, there are challenger firms for brokerage, there are challenger firms for banks and all form of asset origination. One of the interesting things about those challenger firms is almost none of them have a balance sheet, nor do they want a balance sheet. And so I started to look at this and I think fintech is a multi-pronged opportunity for Apollo. We want the assets, provided these challenger firms originate quality assets. Therefore it's our opportunity to partner with them, take an equity stake, help them be successful and supply massive credit firepower as they take on the more traditional institutions. We also have a role as [a] validator. You pointed out Figure. We are ourselves a large financial services enterprise, we have a massive position in the securitization market. The initial deal with Figure will be about bringing our securitization to Figure's blockchain. We're validating what Figure does, and by the way, Figure does an amazing job. Not only is it more secure, it's 30% costs saved, plus the information that we get in real time by using Blockchain rather than paper really is a game changer for the business. And yes, for validating and for moving, we're going to take a stake in Figure as well. And I would expect that we will continue to do this. We are at our core, a big financial services enterprise, we have always been a big financial services enterprise. And if you look underneath at what Apollo's done over its 31-year history, FIG and fintech have been among the most dominant themes across our investment landscape.
Leslie Picker: What about crypto? When we hear the term blockchain, sometimes people automatically look at crypto. It sounds wild even asking you about this.
Marc Rowan: I think the early days of crypto have been very, very difficult. Not that it hasn't been adopted, but it has been adopted in many ways because it is a way around, a work around of the financial system. Whether the U.S. government, the Chinese government, other governments allow that to continue, I think we're already seeing the pushback. We're seeing the investigations, we're seeing the noise around stablecoin, we're seeing the noise around bitcoin. But as I get out of my area of expertise, I'll stop there.
Leslie Picker: I want to get your take on the credit markets in particular because we talked earlier about the spread and the fact that markets go up, markets go down [and] it doesn't really impact the spread. Does a change in monetary policy regime impact that business at all? In other words, as we see the recent inflation numbers, as we see the recent print, does that translate into anything with regard to your business if interest rates were to go up, say in the next year or two?
Marc Rowan: I don't think directly, but we have to be mindful that government intervention, QE around the world in all its various forms, is a huge part of the credit markets. But I think there's something that's even bigger. What's happened over the last 20 years is like the equity markets, credit markets have commoditized. There is a wall of money that wants return and spread return in credit markets is the lifeblood of banks, of insurance companies, of finance companies, of retirees on pension plans. Every investor wants spread. And what's happened is the advent of open ended, mutual funds, ETFs and derivatives have really driven spread out of the public credit markets. So, yes, rates may be higher if we end up with less QE. It is unclear to me that spread will return at all other than in times of crisis to the credit markets. And so, our bet is not that spread is coming back, our bet is that the way to achieve the kind of spread that we want, safe spread, is through origination. When you originate an asset, you control its diligence, you control its documentation, you control its structure, its underwriting and ultimately the economics.
Leslie Picker: Are you seeing inflation popping up in your portfolio companies?
Marc Rowan: Everything we once did now costs more - lead times, pressure on inventory, pressure on supplies, pressure on employment. I mean our experience in our portfolio is really no different than the broader economy. We have a portfolio that in many ways is representative of the broader economy. And we're seeing it everywhere.
Leslie Picker: Is that something that you as portfolio managers, are you able to get that under control? Do you believe that this is, given what you're seeing on the ground, that it is transitory as some Fed officials believe, or do you think it's more permanent?
Marc Rowan: It's very hard to know and I'm not sure it's our job to get it under control. Our job is to prosper in the environment that is in front of us and we prosper in the environment that is in front of us. Whether it's transitory or not remains to be seen. As a personal belief, I do believe it's transitory. If you step back, we in the U.S. are just a slower growth economy, slower population growth, slower productivity growth, and it will not surprise me to see some of these pressures ease off as the pent up spending retreats subject to what the government does.
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