170: The Irreversible Convergence of Public & Private Markets – With Scott Kleinman, Co-President of Apollo Asset Management
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we had a 14 year rate declining and then staying at zero type of an environment that it just brought all sorts of folks out into the woodwork. And so that really changed the nature of private equity. It massively scaled up the size of the industry. It pushed companies that probably shouldn't have been bought out to be bought out. It made it harder for investors to determine who's creating alpha and who is just riding levered beta.

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Apollo is one of the most revered and significant of all the ancient Greek and Roman gods. It was also the name given to NASA's space program. And clearly, with big hopes and aspirations, it was also the name given to an asset management business created in 1990, today with assets of over $750 billion. Now, for mortals, I calculated that this makes the firm close to the size of Switzerland's entire GDP...

I'm sitting here in Switzerland as it happens recording and my guest is in New York and I'm delighted to welcome Scott Kleinman, co-president of Apollo Asset Management. Welcome, Scott. Thank you. Thanks for having me, Simon. Scott, you joined Apollo in 1996. I think that's 29 years ago. We'll talk about corporate longevity a little later on, but let's just rewind. Where did you grow up? So I grew up here in the suburbs of New York. Grew up to a family that was somewhat focused on finance.

You know, my father was an equity trader, and that's probably how I got my first taste of just the financial markets.

And your decisions in terms of education, we were just talking, I know you were at University of Pennsylvania and my son's waiting to hear if he's got in or not from there very shortly, but you attended Wharton as an undergraduate. And then if I'm correct, you studied Russian studies as well. So you need to explain that, although that might show great foresight given Trump's new rapprochement with Mr. Putin. Yeah, yeah, yeah. Well, if you remember that I was in school, you know, the early 90s, and that was a really interesting time.

The wall came down. Russia was opening up. A lot was actually happening at the time. And it just, for nothing else, you know, I knew I wanted to focus on business finance, but I always just had some other intellectual pursuits and wanted something other than finance and math and statistics. And so that seemed like a fun area, you know, mix of politics and history and international relations.

Yeah, it was a great era to be doing that, actually. So you started at Smith Barney, which, of course, was a very well-respected firm. And I wondered what you took from that passage of time before you joined Apollo.

It's amazing. I was at Smith Barney for a little less than two years, but that was dog years because back then you were an analyst in an investment banking. I probably slept under my desk two or three nights a week and I was working well over 100 hours a week. And so you compressed a lot of learning into a relatively short period of time. For me, it was a fortuitous job selection or

or job placement because I was in a financial sponsors group. Back when financial sponsors, private equity was still a cottage industry back in 1996. It's a fraction of what it is today. If private equity represents

12, 13, 14% of GDP companies. I mean, back then it had to be under 1%, right? So it was just a niche business. Smith Barney was one of the few firms that actually had a financial sponsors group, but I had my eyes opened a little bit to really the art of the possible and got to meet a whole slew of the early pioneers in private equity. Let's talk about Apollo. How would you give the short summary to somebody who didn't know your business?

Well, sitting here today, we are a $750 billion alternative asset manager spanning really everything from investment grade to sub-investment grade credit to hybrid and infrastructure, real assets, private equity. So really the whole span of private assets. And I would say our objective in life is really finding excess return per unit of risk in

In a world where there's too much capital sloshing around, chasing pretty much every asset category, our reason for being, certainly for the almost 30 years that I've been at Apollo, has been to find that excess return, use a whole bunch of techniques we've developed across asset classes to extract that excess return per unit of risk that you as an investor are willing to take.

You've said something that has already piqued me because you said too much capital, because I think that we're going to talk a little bit about the US versus the rest of the world, because I think you're right for the former and maybe not quite so right for the latter. But you enter the ground floor and you have a ringside seat to observe and then subsequently to shape the organization. And I wonder just how much, when you reflect back, is opportunistic versus strategically planned?

That's a great question. I reflect on that a lot. I would say in the early days, you know, when I joined Apollo, Apollo was founded in 1990, like you said. Interesting, you gave some of the etymology of Apollo's background. We were named Apollo because he was also the god of healing. And when we were formed in 1990, if you remember, SNL crisis, you know, big mess here in the U.S., and the belief was we can come in with private capital and start to help companies work through that over-levered situation.

situation. And so when I joined in 96, I was actually the 13th employee. So we were still a relatively small firm at the time. We had just raised a billion three fund, which actually made us a particularly large fund at the time, but it was a really small place. And our focus, like I said, was one of

find good companies, pay a reasonable price for them and don't screw them up and operate them better and be prepared to be contrarian. You know, if the market's zigging, be prepared to zag. Now, it doesn't always work. You can't always zag, but have a view and don't be afraid if that's different than the market view. And,

And that combined with this sort of value orientation, this concept that purchase price matters, really is what allowed us to differentiate ourselves early on.

Now, over the years, we continue to grow and scale our private equity business. But because we had this orientation of being willing to be contrarian, to move up and down the capital structure, you know, sometimes the best investment isn't always the equity of a company. Sometimes it was in the credit of the company or otherwise. It allowed us to start pushing into other parts of

I would say the financial ecosystem. So we were one of the first firms, in fact, probably the first one in scale to recognize that private credit is just the other side of the coin of private equity. And during the GFC, we started really scaling our lending business, our credit capabilities. Shortly after that, we opportunistically came across

a particular niche of the insurance industry, the annuity market that just seemed like a great opportunity for us and to bring our skillset. So I think you can see this was a very opportunistic based on our knowledge, based on our skills, we pushed into places where we saw holes.

I would say as we sit here today over the last five years or so, we're on the cusp of a whole bunch of other changes in the industry that we have, I'd say, a little bit more methodically identified and are now pushing into, whether that's the private wealth channel, the 401k and DC channel. We can talk about some of these, but really huge markets that have never really been accessed by alternative assets. So

I'd say it's historically more opportunistic, but as we've scaled, we've been able to be a little more strategic about where we push.

Yeah, well, that's good and helpful answer because I think sometimes, particularly younger people, imagine that there's a sort of a linear progression. And in fact, the reality is some of these extraordinary enterprises like yours have pivoted and adapted. And it is exciting and there's a reason to be optimistic, particularly when we come back to Europe in a minute, possibly. But before we talk about the changing shape of asset management, just like to reflect on PE for a minute, because you

You know, as I was just going through some old notes, you know, it was, I think, the Franz Mütterer thing who was head of the SPD in Germany back in, this is 20 years ago, said that private equity was like locusts. Locusts, yeah. At what point did private equity and how do you think it's changed in the last 20 years?

In the 30 years I've been doing it, when I started out, investors gave us a dollar. They expected $3 back four or five years later. They didn't ask too many questions, and they just said, do your thing. And that pretty much was how the market operated up through 2007 or so. Some of us got bigger, but the concept was basically the same because it was not super easy.

there was actually things to do in order to create good returns. And there was a clear differentiation between best in class and not best in class.

I would say post the GFC, something happened, right? What happened? Interest rates went to zero, right? The risk-free rate went to zero. And when money is free, you can do a lot with free money. And you saw this explosion of managers, folks who didn't exist, came out of the woodwork. Small guys became big guys. Big

Everything moved up and to the right, right? Think about any asset valuation formula you've ever used, right? It starts, whether you're talking about private equity assets, real assets, debt assets, it starts with the risk-free rate, utilizes the expected future risk-free rate and discounts back. If the risk-free rate is zero and you believe the future risk-free rate is zero, you can kind of make any valuation you want work.

And that's exactly what happened, right? You had people who literally couldn't lose money. Just go pay whatever you have to pay for an asset. Don't screw it up.

And ultimately sell it for more than you paid for it. And because the cycle lasted so long, we had a 14-year rate declining and then staying at zero type of an environment that it just brought all sorts of folks out into the woodwork. And so that really changed the nature of private equity. It massively scaled up the size of the industry.

It pushed companies that probably shouldn't have been bought out to be bought out. It made it harder for investors to determine who's creating alpha and who is just riding levered beta, right? So it mucked up the works. And so fortunately, we finally made it to 2022 when you had a 500 basis point move in rates.

And as Bob has said, the tide went out and you saw who was swimming naked. And so now these companies that, great companies, but were bought for 15, 20, 25 times EBITDA, those probably are fine companies, good growing businesses, but the investment is going to be a bad investment because people just paid prices that are unsustainable in anything other than a free

cost of capital environment. And so I do think there's a bit of a reset going on. I've been pretty vocal about that over the last couple of years. It takes a few years. It takes a while for private equity portfolios to play out because you have capital structures. You're able to stretch it for a while. But those folks who I think were creating alpha are going to continue to do well. And those folks who were literally just riding levered beta, well, I think the market will move away from them. So.

So that's, I'd say, what's transpired there. So before we continue this conversation, we're going to take a short break to have a note from our sponsors.

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Let's look at this changing shape of asset management. The balance 60-40, whether for institutions or individuals, 60 equity, 40 fixed income was

was sort of standard diet and has been evolving into a more nuanced allocation where private assets are taking a permanent feature of institutional and as we're going to get to wealthy folks portfolios as well. Now, lots been written about the marriage between alternatives and traditionals. So Chris Hone has been one of the greatest investors and a guest on the show talked about those businesses having different and requiring different temperaments.

And I wondered how you thought about the cultural combination. There's two aspects at play. One is, what is the role that private assets will play in somebody's historic public portfolio, which is the first part of your question. The second part of your question of, can you put public and private asset managers under one roof and expect success? And they're

There are two different answers to those questions. On the first question, the former, I think you're seeing this, we call it the public-private convergence, and we're seeing it happen. And in order to understand why, you have to take a little bit of a step back.

Whenever kind of the modern asset management handbook, if you will, got put together, you know, for pension funds and institutional investors, you think about a world where folks have split the world between public and private. Private assets were considered illiquid and illiquid is risky. Public assets were liquid and therefore were less risky. And that was sort of the way you did it. And so maybe you had historically,

a 5% or 10% allocation to privates, and your remainder was split between fixed income and public equity. Public fixed income, public equity, right? Over the last 25 years, because of the phenomenon I talked about with rates going to zero, investors had to find ways to earn more return, which meant they had to creep up the risk curve. And therefore, that 5% or 10% allocation to privates or alternatives was

probably on average crept to about 20%. So now a typical pension fund would have 20% alternatives or 20% privates, and then 80% public split between fixed income and equity.

But at some point, really post the GFC, something changed with public securities. You probably remember the days when a big part of a bank's job was to provide liquidity and securities that it looked after, right? It made markets, it held inventory, and it tried to stabilize the volatility of certain traded assets. And

Post the GFC, when regulations told banks, you got to get your solvency ratios up, you got to get your leverage down, you can't have such big balance sheets, shrink your balance sheets. Well, that was one of the first businesses to go. Banks just got out of that. They weren't getting paid enough to do that. And so you've seen a 10x reduction in dealer inventory of

debt securities over the last 15 years. At the same time, you've seen the public debt markets triple in size. So net-net, you've had a 30x reduction in relative inventory, which basically means there's just massive volatility and stuff that historically wasn't volatile, right? Investment-grade debt. Look at what happened in the UK, the LDI crisis a couple of years ago, right? Pension funds got wrong way on the gilt. They levered those things up.

They got margin calls. You know, the guilt move, they got margin calls. They had to start dumping AAA and AA securities at 85 cents on the dollar. That's not supposed to happen, but it just shows that there's no liquidity. When you want liquidity in your debt portfolio, your fixed income portfolio, probably so does everybody else. And everybody hits the door. There's no one on the other side to balance that. And so you get massive volatility. And so this premise that liquid is safe has started to break down.

At the same time, you've seen private credit markets start to really scale to a point where there's actually more liquidity in that than you might think. And so you have these two markets that are actually not that different from a liquidity standpoint. And so now you ask yourself, if you're an investor, if you're a pension fund, wait a minute, I can own the debt of a particular investment grade company.

publicly, or I can buy their private debt at 200 basis points higher than their public debt. The liquidity is not that different. Why am I paying this opportunity cost for liquidity when it's not even really there in a way that I think I need it? And so you're seeing this convergence. And so the lines between public and private are starting to be redrawn. Now,

We're very early days in that. And I think this will play out over the next 10 years probably, but it is a massive, massive opportunity because if you think about those buckets that I talked about, alternatives, everything that Apollo and our peer set sells historically has only been sold to that 20% bucket.

If that other 80% bucket starts opening up, at least partially, there's just huge opportunities for private assets to sort of grow into those markets. On the equity side, I can give you a similar story, right? Right now, a public manager or a pension fund will

We'll have allocations to indexes and to active management on the equity side. Well, both of those are kind of screwed up, right? Active managers have not beat their indexes for 20 years, or 90 plus percent of them have not. So why are you paying extra dollars for an active manager versus the index?

Well, the index, unfortunately, now represents 10 stocks. The S&P up 20-something percent last year, 10 stocks represent 80% of that gain last year. A quarter of the S&P last year was actually down. Nobody talks about that. Nobody thinks about that. But you have such a divergence. You don't have an S&P 500 anymore. You have an S&P 10 and an S&P 490.

And so there has to be a better way. If I told you as an equity investor, I could deliver you a 12, 13% return. So a few hundred basis points over the long-term S&P, which is what active management is supposed to do. But I can tell you, hey, in a bad year, it'll be 8%. And in a good year, it'll be 18%. And you've got a steady Eddie sort of book of performance.

That could be interesting. And so you're starting to see even public equity investors start to think about moving pieces of their allocation into something more, you know, not private equity because private equity is levered equity, but we call it equity that is private. So there's huge opportunities in this public private convergence.

Now, the tricky part is, as you said, can you be both, right? We've seen some traditional asset managers start to acquire, write big checks to buy alternative asset managers. We'll see how that goes. Chris wasn't wrong. Like they are very different mentalities and to try to bring both of those under one roof has not been done successfully in the past. You know, there's a few folks who are making bold bets to try to make that happen. And I don't know that I'd bet against them, but it's not going to be easy.

I think we could almost have a separate conversation about the passive because, of course, there is some interesting stuff being written right now is when you get a recession, which will come at some point, notwithstanding government's desire not to make it happen, and unemployment rises and contributions fall and money comes out, you know, passive, when it goes into reverse, that'll be very interesting. Now, you're shaking your head. Is that because you know, do you believe... Oh, I agree. I agree. Okay. Yeah. No, it's, you know, you have more than 50% of flows in the US equity markets now are...

passive, which means stocks go up because they went up. And so the indexes have to buy more of the things that went up, right? There's no price discovery anymore. Things just go up mechanically. That can work in reverse the same way it can work on the way up. And so I totally agree with you. So before we continue this conversation, we're going to take a short break to have a note from our sponsors.

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I just want to stay with that liquidity piece because I absolutely get why firms like yours see the pool of liquidity that may want a piece of this. And I absolutely understand why the traditional managers who are struggling with high costs and margins under pressure would like some more of the higher margin stuff. But we know there's no free lunch in the world of investing. So the thing that gives is, of course, that liquidity piece. And your point is fair that there is more liquidity than there used to be. But

But if I want to sell 100 million gilts, there's a bid there. Whereas if I want to sell in a portfolio a piece of equivalent size private debt, it is more difficult. So do we accept that the price that will be paid for this next chapter is that the individuals of the world will have more illiquidity in their overall portfolio?

I think that's right. The way to think about it is you may have liquid securities, right? Yes. And if you want to sell $10 of Facebook stock, sure, you can go do that, right? But in a market, in those periods where you need that liquidity, typically lots of people do as well. And so being able to sell investment grade debt 10 points down, okay, well, that's not really liquidity.

or being able to sell your stock down 50 or 100 points because everything's heading south, is that really liquidity? Yeah, sure, I guess. But in a world where

As private assets become a bigger part of people's portfolio and firms like ours find ways to make it slightly more liquid, I think you're going to see they're not that different. Now, the other part of your question, are we going to see more illiquid or less liquid assets in individuals' portfolios? The answer is absolutely, we should be. Let's take 401ks.

So in the U.S., a big part of people's retirement savings come in defined contribution or 401k plans. This is basically where we ask and

employees put aside a few percent of your paycheck every month into an account, save it for the next 30 years, and then you'll have money for retirement. The problem is when you actually look at the statement, where do you get to invest those dollars? Those are all daily liquid options. You have no ability to make illiquid investments in that 401k portfolio right now.

For the most illiquid portfolio that individuals have, we're forcing them to buy daily liquid instruments, which kind of makes no sense. It goes back to the parochial days of public is safe, private is unsafe, and therefore don't do it. We don't want the individual to do it.

I think as it has become more institutionalized, we are on the cusp and you're starting to see the early adopters. But I would think over the next five years, you're going to see an explosion of private options into 401k and DC plans to allow individuals to capture, even if you believe you can capture an extra client.

couple of hundred basis points over 30 years, right? Think about the compounding math of what that is for a retiree. It's pretty massive. And so I do think you're going to start to find now

Should Mrs. Jones be able to put 100% of her 401k into XYZ private equity fund? No, probably not. That's not a good idea. But should they be allowed to start putting 5%, 10%, 15% into a variety of private assets that can accelerate the growth of that portfolio? Absolutely. And I think you're going to see this happening forever.

fairly rapidly. So the pipes are being put in to facilitate that transmission. London Stock Exchange is working on equally private market facilitation. So I think what's going on in the background is also very interesting as well. Now, you've

You had breakfast, I think, last week with a good friend of ours, Hugh Van Steenis, who's been a guest on the show. And he had a question, which was that private credit has obviously been a huge beneficiary of tightening bank regulation over the last 15 years. How much might that change if the pendulum swings back and Basel III looks like it's going to release capital? How much might the competitive landscape work against you?

Yeah, look, private capital has benefited from tightening bank regulations because a lot of businesses that banks historically were in, it wasn't that banks were told to get out of business X or business Y or business Z. It was banks, you're over levered.

I don't care. Take money from your shareholders. Take money from the government. Take money from Warren Buffett. But bring your leverage down. Shrink your balance sheets, which basically means get out of certain businesses. And so banks rightly got out of what are their lowest positions.

ROE businesses for a bank to manage, but those happen to be some pretty interesting businesses for private capital to go fill in. And so ultimately, while there might be a little bit more competition at the end of the day, I think private capital and the banking system have found ways to create win-win situations, even in the private debt market. You can see we've announced probably over a dozen partnerships with banks that

where we can be partnering with them to issue private credit, private debt, where they're the front end, we're the capital. And quite frankly, that's what banks prefer. Banks want to own the client. They want to own the banking services, the M&A services. They don't actually want the loan. They don't want the balance sheet.

But that's what we want. We don't have the bankers to do the hedging and the FX activity. We want the actual assets. And so it's actually a pretty symbiotic relationship that the banking system and the private credit system has started to work out.

Now, let's talk a little bit about how you see the opportunity set UK, Europe, rest of the world, because the dispersion in valuation, as we know, is immense. There's been bear markets proliferating in all sorts of places of which the UK has won, which is why PE is so active. And that's not going to stop, in my opinion. And the US is richly valued with a high degree of concentration and historically very expensive market. Just tell me a little bit about how you guys are assessing the

these other opportunities? This is a time, I would say, we call this the global industrial renaissance. But I, in my 30 years, have not seen a time where companies have to spend so much CapEx over the next 5, 10, 15 years. I mean, you think about the deglobalization that's happening, right? We spent 40 years moving our manufacturing infrastructure to China. Now we have to bring it all back.

And so the amount of capital that has to be spent, the digital infrastructure from chip manufacturers to data centers to the power and transmission to power all that, like trillions and trillions of dollars, decarbonization, right? We're still on a long-term trend, but that takes dollars to happen.

And then lastly, I hate to say it, but remilitarization, right? Particularly in Europe, there's been a massive underspend of military spend that has to start actually ramping up. So the amount of dollars, literally hundreds of trillions of dollars, companies in Europe just don't have that capital to go after. So putting your forward-thinking hat on,

Do you expect to deploy more assets into the, let's call it Europe and UK sphere? Or do you think you've got so much to take care of back home that it's still a sideshow?

I think there are huge opportunities in Europe and the UK. These companies need capital, private capital, private lending, private equity, right? These are real opportunities that need capital, that need this type of growth and investment. So we are spending a lot of time on the private equity side. Look, we're picking our spots because you can't change the fundamentals.

On the credit side, though, these companies are starving for capital, need borrowing to be able to make investments, build new facilities, build new data centers, et cetera. And so there are actually huge opportunities. We are scaling our European lending business in a pretty meaningful way because we see this vacuum that really does need massive amounts of capital.

So it's really helpful because PE and private debt, for those who aren't practitioners daily, don't necessarily grasp some of these significant transactions that happen. I know you've done a deal with Air France in the credit space. We talked before we started recording about education and your investments there. Just give us a sense of maybe one or two of these really important investment themes that you've pursued and how they manifest themselves.

Right now, I mean, the story of the day is data centers and the digital transition going all the way back to the chip makers. And so I'll give you an example on the private debt side, the investment grade debt side, right? Historically, big investment grade companies

wouldn't really think of interacting with the likes of Apollo or our peers because they had the public markets, they had the public bond markets to go access. But in a world where a company like Intel, it has more capex to spend over the next five years than its market cap. It has so much to do. These companies, these big investment companies are having to contemplate for the first time

utilizing all sources of capital and finding creative ways to do that. And so that might be private investment grade. That might be hybrid structures. That might be joint ventures. That might be even selling divisions they might not have contemplated selling, you know, in order to raise capital to invest in the places they want to be investing. And so this is where private capital and particularly being able to go in with a toolbox of

not just a hammer, but all the tools, sit down with a CEO or CFO of a hundred billion dollar corporation and talk to them about what we can do. And this is why folks like Apollo, you know, at the breadth of what we can offer and the scale, right? We did a transaction.

with Intel recently to help them fund a $22 billion fab facility in Ireland. We took $11 billion of that. We took it down. I mean, that is a number that actually can move the needle for big public corporations that historically private capital just couldn't step up and speak to. And now you have folks like Apollo who have the ability and the tools and the skills to be able to come in and do these creative transactions.

Another big bit of your business is your retirement services. I think you're one of the largest retirement services companies in the world, Athene, or Athene, I'm not sure how you pronounce it. But tell me a little bit about what's been the strategic opportunity?

And this goes back to what we were saying, you know, things that start out opportunistic turn into real strategic platforms. And so coming out of the GFC back in 09, one of the fallouts of that GFC was certain insurance companies had just gotten themselves into trouble. And

I should even start by saying insurance is a bit of a misnomer, right? There's lots of categories of insurance, right? Athene, the part of the insurance industry we focused on doesn't insure your house or your car or your life. It insures your retirement. It's the annuity market. So what is an annuity? You give me a dollar and I agree to pay a fixed return over a contractual period of time and then I give you your money back.

Now there's a life insurance component to that, but that's in today's markets, very hedgeable. So we basically looked at this and its component parts and said, this is just a spread lending business. I need to earn an excess spread over the rate I promised to pay you. I hedge out all the insurance-y stuff

And as long as I feel like I can make that return over a, you know, Athene has a weighted average liability life of about nine years. So as long as I think I can make that return over that period of time, then I'm in good shape. And because it's a regulated business, I can't take your premium and just put it all in private equity. In fact, it's a very risk weighted, you know, ratings weighted business.

portfolio, 95% of that portfolio is fixed income. And 95% of that is investment grade fixed income. So I have a very safe asset pool, but I've got to earn an extra 150 or 200 basis points to cover my overhead and make my return on equity. And that makes me a very good insurer. And opportunistically, we saw a couple of these companies get into trouble during the GFC. We bought them. But very quickly, we figured out

We're actually really good at this. As a large alternative lender, this is our bread and butter. And what ultimately meant is that we started building these capabilities. How do you earn an extra 150, 200 basis points on a AA, single A, triple B security? And we started building dedicated businesses, dedicated origination platforms to be able to serve that. And little by little through acquisition at first,

And then ultimately, as we scaled the business and improved Athene's ratings, we became what is now the largest writer of fixed annuities and fixed index annuities. But we wrote about $50 billion of new policies.

last year. These are individuals who are buying these annuity policies. We're an A-plus rated company. We're on pretty much every wealth manager's platform. When you want to go in and buy an annuity, Athene is one of the top products that are being offered. And

At the end of the day, I'd like to say we had this grand vision, right, you know, 15 years ago. But really, it was an opportunistic trade that we figured out we have a strategic advantage in once we really understood the business and were able to scale it. Today, it's got over $300 billion of assets. It's owned by Apollo. And like I said, it generates between the new policies and some of the other structural things it does about

about $70 billion of new liabilities a year, which then we have to manage the assets of. And so that's part of the growth machine of what Apollo is. Now, I'd say for the first decade of us doing that, most of the industry, Wall Street looked at us like,

What's Apollo doing screwing around in insurance? I'd say over the last few years, folks have figured out that this is actually a really attractive way to build low-cost capital that you can then go invest against. And so many of our peers are trying to replicate what we've created here, but it's a long way. I think we've got a pretty decent head start, although I'm certainly not complacent and know competitors can move pretty fast.

Scott, different topic. Help me here. Apollo is a listed company. I think your market cap is a little just under $100 billion. Lots of reduction in the number of companies that are listed. And this always makes some of us smile. Private equity, private asset businesses want to list. How do you see the future, not so much the coexistence, the future of public equity markets that have come under a lot of scrutiny and criticism, US, UK, for all sorts of things?

We started to touch on this a little bit earlier. Long-term predictions in the financial markets are always dangerous because things cycle, things change. But on the trajectory we're on now, I think we're in real trouble. It's funny, I talk to regulators across the globe on a fairly regular basis. And for the last couple of years, all the regulators have wanted to talk about private credit. What are the risks embedded in private credit? But I'm

But I point out the biggest single systemic risk we have right now is the fact that 40% of the S&P is held in 10 stocks. We've never seen a level of concentration like we've seen right now. And so you think about a typical pension fund that goes through all of this trouble putting together a strategic asset allocation, all these different asset classes, et cetera, et cetera. Okay. But the

Their pension fund is 40%, 10 stocks. And so the entire US pension system, the entire US retirement system is being whipsawed around by 10 stocks. It feels good for the last few years, but at some point that turns around. But the problem is I don't see what changes the trend of more and more consolidation into the largest stocks. Because as the US capital markets become even bigger relative to the rest of the world,

Dollars continue to flow into the U.S. equity markets. Those dollars have to go somewhere. They're going into the biggest funds, which, as we talked about, because these are passive funds, there's no price discovery. It just keeps self-perpetuating. And ultimately, you have a very non-diversified portfolio, which is why I think

Private capital will eventually be part of the solution. How do you diversify your portfolio? The number of public stocks has halved over the last 15 years. So even if you want diversity of geography, of sector.

size, you're getting harder and harder to get that in the public markets. And if you do, you're buying stocks, right? You know, the 490, right? The 10, the S&P 10 are up, you know, high double digits. The S&P 490 was up 6% or 7% last year. And so private assets are going to have to play a part in helping solve that.

And yet the irony, inescapable irony, is the public markets allow firms like yours to have a currency with which they can facilitate all sorts of things from investors to employees. So there is hope. I guess so. I guess so. I do think, certainly in the financial sector, this is the most interesting, exciting part of the financial services industry right now. Because of what we talked about, we are so underpenetrated into huge swaths

of the investor dollar that I just think there's a decade of embedded growth, certainly for the largest managers who can go capture it.

I'm going to move to some more general questions. You started at Apollo only six years after its inception. You've been there, I think, 29 years. Actually, we had Microsoft's head of AI and cloud computing, Scott Guthrie, on, and Rob Rooney, who was the CEO of Mongstani International, both of whom were at their respective firms for over 30 years. Tell us a little bit about how you managed to stay there so long.

I usually answer that with just a failure of imagination. No, in all reality, every day has been an adventure. It really has. Like I said, when I started, I was the 13th employee. Today, I'm the second most tenured employee after my CEO. And we have invented and reinvented ourselves over and over again. We've really taken this investing culture to heart. If you love investing and...

are really focused on how do we move into businesses that are underserved, underpredicated, and bring our skill set to do that. That's what's kept it so exciting. And so ultimately, as a longtime investor in our cyclical industrial sectors, I eventually came to lead our private equity business right after the GFC, led that for a bunch of years, ultimately became co-president across all

all of our investing businesses was able to push into new areas that we just saw

opportunities that Apollo could do a good job. We've never wanted to be an alternative asset supermarket where we just have one of everything, right? You as an investor come and say, can I have X? And we say, sure, here you go. If we didn't think it was a good place to be investing, we didn't want to be selling you that product. And so, for example, for the last 15 years, we've been a relatively small player in the real estate equity market.

Because after a 40-year cycle of declining interest rates, real estate equity became a proxy for corporate debt. But real estate equity is not corporate debt, right?

as we've now seen. And so I'm sitting here in my office across the street is the Plaza Hotel. I remember a few years ago, I had the opportunity to buy the equity of the Plaza Hotel for a 3.5% cap rate, but I could go buy P&G bonds for 3%. So the investment grade senior bonds of a company or the equity of an operating hotel, it just made no sense. So we stayed out of it.

But guess what? The world's changing, you know, rates have moved. And all of a sudden you're actually seeing interesting returns in the real estate market. And so that's an area we're probably going to be pushing back into, right? So part of our job has always been offering perspective and the ability to actually say, I don't like these investments. I'm not going to put it on our own balance sheet. And so I'm certainly not going to ask clients for money to invest in that space. And that freedom and that creativity, it

I think has kept Apollo an incredibly exciting place to grow. I said I was the 13th employee. Today we have about 5,000 employees globally. So it's been an amazing initially ride and now drive

to where we're going. Well, your comments on real estate remind me, we had Mike Milken on last year and he talked about some of the continued over-expectations about real estate as an asset class and because the cyclicality comes to bite, et cetera. I've got a few rapid fire closing questions for you, Scott, put you on the spot here right now. What's your most important advice for youth thinking about careers? Scott,

There's no escaping hard work. You know, unfortunately, like Mark Zuckerberg changed everything, right? You know, hey, I'm going to sit in my dorm room, create something and become a billionaire by the time I'm 20. That's not how the real world works, you know, and the real world is an apprenticeship world. You know, it's put your head down, work hard for a long time and become a master of your craft.

And that's what leads to success. Intellectual curiosity, also a huge part of it. You never stop asking why. Don't get so pigeonholed in one area that you stop learning about lots of other things because you'll be shocked at how much interconnectivity there is. I'd say read. I see this with my own kids and their friends. Like,

Young people don't read as much as we read in our generation because everything is so used to, you know, have chat GPT give you a two paragraph summary or Google something. It goes back to that hard work, putting in the time and going through the long form reading of something. You really learn a lot.

And perhaps the most important, I was just talking about this with my wife the other day, the art of storytelling, right, is so misunderstood, right? In a world where kids only text or social media or what have you, the ability to not only have a good idea, but be able to explain it to someone in a compelling way and keep them engaged and keep them interested is so critical.

If I was running a school, I would swap out foreign language. Foreign language is now Google Translate, right? You can get real-time translation. I would make every student have a storytelling class every year of their high school careers because that is such an important skill set that I think we've just lost or losing as a society. Yeah, well, we're trying to write a book right now on the reflections and the stories told by nearly 200 guests over five years. So I'm with you.

It's a bigger project than I anticipated. What's the skill that you don't have that you'd like to wake up with tomorrow morning? This is going to be goofy, but I spend so much time on a plane. I wish I just had teleportation ability because I spend probably every week on the road somewhere. And a lot of that is just, you know, stuff on planes. And it was fun for the first 20 years of my career. Now it's just

I mean, I love doing it because I love being in front of clients and I love actually touching, you know, Zoom is great, but nothing substitutes being face to face with folks. But the world is a smaller place, but not that small. And it still takes a long time to get around. And what is whether you're traveling or not? What's your most important daily habit?

I try to read a lot. I read enormously, you know, obviously for business, you know, memos and other things I have to, but I try to get a lot of other reading, you know, for pleasure, whether it's history books,

a business book, you know, just, I really just find that keeps me thinking and up to date. And so I try to find at least 20 or 30 minutes every day at night before I go to bed to just read or certainly on a plane. I haven't, I haven't allowed myself to get sucked into television shows, these series that you can watch on Netflix. So when I'm done with my work on a flight, I will always have a book with me and try to be reading on a plane. And what book are you reading right now?

So I just finished An Oldie But a Goodie Shogun by James Clavel. It's been on my list for 20 years, but it's a thousand-page tome, and I finally got through it. It's amazing. I see why it's always on people's top lists of historical fiction. It was just an amazing story of pre-industrial Japan. And Scott, finally, you meet lots of intriguing people. You've met lots of intriguing people. Who's the one person you'd like to meet and share a glass or two of wine with?

Who's still alive? Let's go with still alive. At this point, I'd love to sit down with, I listened to your podcast with Scott Besson, and I think I need to go make an appointment to go visit with him because obviously an incredibly smart guy. And I'd love to just hear what he's thinking and hear how he plans to sort of navigate the coming, you know, I'd say years, but I'll call it weeks, you know, weeks or months.

He was a great guest and has been a charming man to know as we get to know some of our guests. And we've broken bread and drank some wine with him and wish him all the very best. Scott, I'm going to stop there. I've been really looking forward to this because until I started the research, I really didn't know Apollo other than the name and the extraordinary success. So I've written down a few things. We always run to a few conclusions. Number one is that the public and private asset convergence is huge.

irreversible and the capacity for it to become much more significant in whole new pools of capital creates enormous opportunity. And when it comes to advice, I've written down the two things because I have three children and because they hear me boringly go on, it'd be nice to have it from somebody else. No escaping hard work, but I also like never stop asking why. So Scott, it's been super having you today. Thank you so much for being on the Money Maze podcast. Yeah.

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