Apollo: Connoisseurs of Complexity - [Business Breakdowns, EP.208]
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This is Business Breakdowns. Business Breakdowns is a series of conversations with investors and operators diving deep into a single business. For each business, we explore its history, its business model, its competitive advantages, and what makes it tick. We believe every business has lessons and secrets that investors and operators can learn from, and we are here to bring them to you.

This is Matt Russell, and today we are breaking down Apollo.

For this breakdown, I am joined by Hunter Hopcroft, financial analyst and writer based in New York. And if you haven't read Hunter's work, please find links in the show notes. You will enjoy his coverage of how the financial markets are evolving. Now, I reflected on my personal experiences with Apollo for this episode, and I'm going

There's a saying that hard work can beat talent when talent doesn't beat hard work. Well, Apollo has talent and Apollo works really damn hard. They will do everything they can to protect their capital. So if you're on the other side of the table from them, you never feel fully comfortable. It's like having a 20 point lead in the fourth quarter against a team that, you know, will find a way to come back and you can never take your foot off the gas. So we get into what makes Apollo Apollo.

Hunter shares the backstory of how it was born out of Drexel Burnham and Michael Milken's DNA. We get into some of the early deals. We get into the theme of how they crave complexity and how they differ from some of the alt managers like KKR or Blackstone. And while we could have spent the entire episode covering the history, you could argue that modern day leadership under Mark Rowan is even more interesting. As Apollo evolves, they have the

insurance arm, a theme fully consolidated, and a piece of the operating system today. So we cover what that means for Apollo and the industry moving forward. So please enjoy this breakdown. All right, Hunter, I am pumped. We are finally getting to break down a

Apollo. It's one we have discussed behind the scenes here for a few months and exchanged a lot of work, a lot of interesting research, a lot of framing of what Apollo is and what it means to the financial markets. And you sent me this great quote that I think is perfect for table setting this conversation. So maybe we could just start there with that quote and how it frames the conversation and the breakdown of Apollo that we'll get into.

Sure. So this is a quote, I believe, from Mark Rowan, now CEO of Apollo. And it says, our DNA going back 30 years, and even in our Drexel beginnings, and the Milken School of studying balance sheets, is to find those areas where you're not compromising on credit risk, but you're willing to do something that may have a little more complexity in it, or that has a little less liquidity, but it still has the same investment grade rating.

To me, this quote and really the story of Apollo and its various phases of growth are

Apollo is a fascinating company. It is drawn to complexity. But in so many ways, the growth and evolution of Apollo very much tracks the growth and evolution of financial markets generally. And so as we go through the history of the firm, I think you're going to see these themes about a focus on balance sheet, a focus on liquidity, and an attraction to complexity that really defines the culture of the firm.

And one of the things you mentioned, which is interesting, is not to overstate it, but they have come full circle when you look at Drexel and where they came from in those days to where they are today. So we'll jump forward to today. We'll give a sense of what Apollo looks like, and then we'll trace it back from the beginning. But what is Apollo today? How would you break it down just in the most simple, understandable terms?

Sure. Well, I think on the highest level, Apollo is a global alternative asset manager. It's up there with the echelons of KKR and Blackstone and others. Today, Apollo has around $750 billion of total AUM, $570 billion of fee-earning AUM. That puts it second or third in terms of asset size compared to the others.

Most, if you go through the supplements when alternative managers release, they break down their performance and their fee-related earnings by strategy. And for most of the other alt managers, they do this in an intuitive way where you have private equity, real estate, credit.

Apollo breaks theirs down a little bit differently. They break theirs down into yield, hybrid, and equity. And this is pretty differentiated from the other alt managers. So yield is their largest bucket. That's $480 billion of AUM. And that is a pretty standard credit operation covering corporate fixed income, credit, structured credit, like asset-backed securities and things, real estate debt, as well as direct lending or the in vogue term private credit.

There's hybrid that has $62 billion, which is the smallest bucket. But honestly, it's probably more indicative of what Apollo is known for, which is basically this opportunistic investing through credit where there's some equity upside. And this segment also does some of the infrastructure and real estate equity investing. But again, opportunistic, more special situations.

And finally, there's the equity bucket, which has 107 billion of assets. And this is really your traditional private equity business. This houses their real estate strategies and things like that. Apollo is very interesting to me because before we went into this recording,

I just viewed Apollo more or less the same from a prestige factor as I did in the mid 2000s when I was graduating. And they were this private equity powerhouse known for big deals. That was a very particular era. But if I actually look at some of these numbers, they had 8%.

$8 billion of AUM in 2002, $70 billion when they IPO'd in 2010, 2011. So we're talking about something that has scaled 10x versus what it was at the IPO just a little more than 10 years ago. The prestige still feels as strong. That's something that can go away the more large and oversized that you become. So what are differentiating factors that led to that real scaling of the asset base?

Well, of course, over that time period, you cited private capital and alternative assets in general experienced tremendous growth. If you look at the closest competitors, a Blackstone or a KKR, everyone found a niche that was their powerhouse of growth. I think it's undeniable that for Blackstone, real estate was a powerhouse of growth. For KKR, they stayed very focused on private equity and LBOs, and that's been their powerhouse of growth. Apollo,

focused on credit, which I think if you go back to the 2000s, especially that era where they're IPO rates were very low, it probably seemed like a less attractive bucket, but it looks a lot more fortuitous now. As these alternative managers have gotten so big, there has been a focus that every alternative manager wants to get off the vintage fund treadmill where you have a closed end fund with a fixed life. And so you're always in market fundraising.

And if you go to the filings of any pension fund that publicly discloses it and you look at their investments, they're basically in every vintage of every alternative asset manager's funds.

And so that means that that sponge had been adequately squeezed for all of these managers, and they all started looking at ways to raise perpetual capital. And they've all pursued this in various forms of open-ended vehicles, B-REIT famously. Almost all of these managers have publicly traded BDCs in market. And they've also pushed into the private wealth channel with things like non-traded REITs and other products that don't have that fixed fund life.

And Apollo has some of those as well, but it's really been their focus and doubling down on insurance, more specifically retirement solutions or what we might think of as annuities, that was the strategic breakthrough for Apollo. And today, that perpetual capital bucket is $450 billion of Apollo's total $750 billion of AUM. Apollo merged with Athene in 2022, which was an annuity provider. And since then, the stock has basically doubled dramatically.

But if you go back to the IPO of Apollo, the stocks annualized at around 16% since 2011. But to get there, you really have to go back to the very beginning and understand where that strategic initiative came from and why it was such a cultural product of where Apollo started and the founders of the firm.

Yeah, let's get into that. There's three founders here who each have their own legacies. Can you just bring us back to that period of time and the environment and these three founders put some context around them and who they were when they came out and launched Apollo?

Okay. So Apollo was founded in 1990. And canonically, and the folks that came to be thought of as the founders of Apollo are Leon Black, Joshua Harris, and Mark Rowan. But there's a lot of Drexel alum that were in this group that founded Apollo. Tony Ressler, who would go on to establish Ares, was in this initial group. All of them were Drexel Burnham Lambert alums that came up under Michael Milken.

I really can't overstate how this background is foundational to the firm. So to do a quick history lesson, Milken established the junk bond market. Prior to Milken, bonds were for blue chip, staid, safe companies. Milken

realized that there was a market for lower-rated, higher-yielding debt. And it was this innovation that sparked the private equity LBO boom to begin with. High-yield bonds were such a boon for Drexel that Drexel is tied to the mast of just Milken and high-yield bonds in general. So when Milken goes down, down goes Drexel and down goes the high-yield market. So

If you think of some of the other foundings of alternative asset managers, Blackstone or KKR, it was very entrepreneurial. They wanted to go out on their own. Apollo obviously was entrepreneurial, but it's a little bit different. Apollo was formed opportunistically. There was this vacuum left by the collapse of Drexel after the high-yield bond market collapsed. And Leon Black specifically saw an opportunity to step in to a lot of really interesting situations.

So Black was the most senior of the Apollo founders at Drexel. He was head of M&A and worked really closely with Milken. Mark Rowan, who's now the CEO, was actually just an associate at Drexel, but he was in the corporate finance department focusing on bankruptcies and restructuring.

Josh Harris is the youngest of the three, but he was also an M&A. This has been described as a dysfunctional family for all that means. Leon Black is known as an incredibly tough negotiator. Mark Rowan, much more professorial, much more even-keeled. And then Josh Harris is a dealmaker. And so that is where Apollo comes from. And that's how they get their start, is stepping into this opportunistic opportunity that's left after Drexel Burnham collapses.

Yeah, it's this really interesting contrast you have to something like Blackstone, where they're going out on their own in the mid 80s. And you don't have this vacuum necessarily in the market. You have Peterson and Steve Schwarzman going out and raising, I think it was $400,000 initially to get their fund off the ground. And here, I think you had something like a $400 million initial fundraise for Apollo. Is that the right number?

Right. Here's where we have to caveat this entire discussion with, again, Apollo is drawn to complexity, but Drexel Burnham background obviously gives them a fantastic network. And what really gets Apollo off the ground is basically a mandate from the largest French bank at the time, Credit Lyonnais, to manage through some of the distressed debt situations that arise after the collapse of Drexel.

And so there's this keystone deal that sets Apollo on its course to being one of the largest alternative asset managers. Executive Life is a California life insurance company that's faced with insolvency in 1991 due to their own junk bond portfolio. Credit Lyonnais wants to get their hands on some of the things in that portfolio, but

But there is a law prohibiting foreign banks from owning U.S. insurers. So basically what CreateLayna does is they set up a shell insurance company called Aurora, and they set up a U.S. subsidiary called Altus. Altus provides the financing for Aurora to go and win the bid to buy Executive Life.

And then through a series of transactions, this distressed debt portfolio that was hiding in executive life slowly gets transferred to Apollo's management to fill the mandate from Credit Lyonnais. This, again, speaks to a recurring theme in Apollo's lifecycle. This deal is considered highly controversial. In fact, there's decades-long legal fallout when it becomes apparent that Credit Lyonnais was effectively secretly controlling Aurora.

Apollo is never found of any wrongdoing. Ultimately, Credit Lyonnais pleads guilty to fraud and pays over $771 million in settlements. But the deal is a blockbuster for Apollo and really sets them on their course. Just thinking about that, what it entailed, the distressed debt, again, you mentioned it's very credit-driven in nature.

in terms of what was going on there. Would you say that is the real DNA here? Is the junk bond backstory and everything that was going on with Milken? Where would you say the private equity piece comes into play with that credit background? Was it always hybrid? Just a little bit more about that evolution and when that came into play. Well, I think it goes back to that original quote is...

If you think about traditional private equity, it's very income statement driven. Can you increase EBITDA and can you bootstrap some higher multiples somehow?

Apollo has always been balance sheet focused. And so when they looked at these distressed situations, they saw a way to get at assets that had value. And a good example of that is it's actually through the executive life deal that Apollo ultimately comes to control a brand like Samsonite. So part of this giant executive life distressed debt portfolio were EII bonds, which were Samsonite's parent company. Samsonite itself actually was formerly a KKR portfolio company.

Anyway, EII falls into bankruptcy and Apollo's bond ownership gives them significant control over the restructuring. EII ultimately emerges from bankruptcy as Astrum and refocuses on Samtonite, which spins out as an independent brand. And it's another huge win for Apollo. But again, it's getting at this ownership, getting at these assets through the debt side of the balance sheet.

Yeah, owning through restructuring is an alternative private equity strategy, but one that I think, especially in this era, was ripe for opportunity. And Apollo certainly played into that. One of the things that's notable from their history, and you tapped on it a little bit, is what they've spawned in terms of talent that's gone elsewhere, but also businesses that sat inside of Apollo, like Ares, which is a

another private credit giant today. Can you just get into that? I was always curious about why that was spun out of Apollo, what the backstory is there, because it feels like it would have been a core piece of what they were doing to begin with.

Sure. And actually, the founding of Ares speaks to this credit DNA portfolio. Again, executive life was a California life insurer. Tony Ressler sets up Ares at that time, Lion Advisors, on the West Coast. And it's closely affiliated, though not directly related to Apollo. And it becomes this West Coast company.

satellite for Apollo's credit operations. And ultimately, again, now we're talking about 2002. So this is almost 12 years after this initial executive life deal. One of the things that leads to Ares officially separating from the relationship with Apollo is just the ongoing legal troubles with this executive life deal. And we'll see echoes of that as we get into Caesar's Palace and even some of the more recent deals.

Yes, very interesting. And the legal complexity, I can speak to it and having some dealings with Apollo at all different seats of the table alongside them on the other side of them. They are not shy of complexity. On the deal side, would you point to anything else in the early days that stands out from a deal perspective that maybe was defining or a good microcosm of who Apollo is?

Yeah. So I mean, I think the Vail Resorts deal is another one that certainly a lot of people will be familiar with. Now, that was not part of the executive life portfolio, but it was another situation where Vail's owners, Galay Holdings, files for bankruptcy.

Apollo gets control of the company again through the debt, ultimately brings Vale public in 1997. So between executive life, these first two fund vintages out of the gate absolutely crush it. They return 3.6x on the invested capital, and it works out to an internal rate of return of 47% before fees, 37% after fees. So again, in the vacuum left by Drexel Burnham, Apollo is just awash in opportunities to

Pursue private equity through these distressed debt deals, which they do to great success, and sets them on the course to be one of these top three alt managers as private equity goes and gains adoption from institutional investors through the 90s up to the new millennium. It's certainly interesting just in terms of the origins. You can think of a KKR as having their large buyouts,

Some of those deals, I think, particularly early on in the 70s, were much more friendly. It was actually buying out the equity. With Apollo, it's owning something through restructuring, getting into the weeds of the debt. And while they all have merged to look a little bit more similar or have strategies that all overlap, it's always interesting to know the origins of these. Let's get into the 2000s. Again, this is when I came to know Apollo was

particular point early on in my career where they are in the headlines, they have this prestige associated with them. What went into that evolution for alt managers, for Apollo? And talk about that environment and what it was like. Yeah. So...

Through the 2000s, and I think especially leading up to and right around the great financial crisis, institutional investors really embraced the asset class. And so the numbers are getting really big in terms of what capital has to be deployed. And so the deals are getting really big.

And I think obviously one of these formative deals for Apollo is both in terms of their evolution, although the deal itself was not a success, but certainly in terms of their reputation, has to be Caesar's Palace, which obviously there's an entire book on. And again, this is where we caveat that the complexity of these deals is almost endless. So we're going to try to keep this high level for this. But in any case, Apollo and TPG Capital

trying to do a $31 billion leveraged buyout of Harrah's, which later becomes Caesar's. This starts in December 2006, and it's one of the largest leveraged buyouts in gaming history.

Rowan has this grand strategy of reward points. He's thinking of this like a traditional LBO. They're going to come in, they're going to improve operations, and they're going to make a return by improving Caesars operating. But the deal closes in 2008 with $24 billion of debt and runs right into the jaws of the great financial crisis. So by 2009, Caesars has a debt-to-EBITDA ratio of like 14x.

Apollo immediately sees the writing on the wall and starts trying to protect its equity value by moving assets off Caesar's balance sheet. They're bullying junior creditors into swapping for equity and doing all sorts of aggressive esoteric strategies to try to preserve their investment. And just like executive life, this leads to an incredibly long, protracted legal battle.

And by 2019, Apollo is out of Caesars. But this, and this is to me what really makes Apollo Apollo. 2002, just four years after the Caesars fiasco finally winds down, Apollo partner David Sandberg, who was really central to the Caesars process, is back in Las Vegas speaking with the Nevada Gaming Control Board about Apollo's bid to acquire Las Vegas Sands and a portfolio of casinos in the Las Vegas Convention Center.

And the best part about this is that a giant part of the financing for that deal is effectively a sale lease back with Vici, which was a spin of Caesars real estate assets during that whole process.

So yes, Apollo's in the echelon with KKRs and Blackstone, but it's their appetite and willingness for this complexity. And they're kind of, okay, that went poorly, but we learned and we're going back in with those learnings that I think really sets them apart from somebody who would say, we got burned on that before. It's too much reputational risk. Apollo seems to have a really high appetite for taking on this reputational risk in the spirit of generating returns for their investors. Yeah.

It's interesting here because oftentimes when you hear a scenario like that, it is someone who is a specialist in an industry and it's something where they can move in and out of names along with how the market moves. But let's just take a private equity fund that is purely focused on insurance and they can understand cycles, they can understand moving into different subsegments of the asset class. With Apollo, it feels so much more tied to understanding...

the ways of de-risking your financial investment and then therefore increasing return. Is that selling them too short just in terms of their specialty and operations? Do you think it's fair to say that is where they are experts or masters of the craft? How would you split up the difference between their financial prowess and their operational execution?

Well, there's two things that stand out to me. And one is, again, this focus on understanding that they can create a lot of value through the balance sheet, not necessarily just the income statement. How a company is capitalized, what the sources of the capital is, can really drive returns. The second is Apollo sees...

a hairy or complex or dirty situation. And it doesn't go to their too hard pile. They want to dig in. And I think Apollo is very open about they use a lot of consultants. They parachute people in to understand what's going on. And I think whereas other asset managers, because they have a lot of capital to deploy and because...

There's pulled in a lot of directions that some of those more difficult situations ends up being a pass. And it leaves this great white space for Apollo to come into these really complex situations that again, they're willing to do even sometimes if there's some reputational risk attached to it.

Yeah, I think Apollo might actually operate with a too easy pile or whenever they get involved, they make sure that it is not simple. We worked our way up towards the 2000s. You talked about the financial crisis and some of the fallout, obviously, as it relates to the operations and some of the deals in the portfolio. But coming out of the financial crisis, you also had the big move to IPO the business.

So can you talk about what that means? I think the idea of having an alternative manager with a publicly traded stock is just an interesting dynamic that we've all come to accept and appreciate. But can you get into what that moment defined for Apollo and what it ultimately meant for them and maybe the industry as well? Sure. Well,

In the spirit of these repeating cycles, 2008, 2009 is another one of those situations where the fallout creates a huge opportunity, not just for Apollo, but for all the alternative asset managers. And again, there was already a strong tailwind behind alternatives. And 2008, 2009 just adds fuel to the fire of people looking for what look like uncorrelated returns in private markets. Right.

These firms at this point have gotten really large, both in terms of assets, but in terms of people. And they have these founders that have a lot of their wealth tied up in these basically general partnerships. The GP business at scale starts to become a bit of a liability and it's really talent heavy. So it's driven by people and you want to keep those people and you need to find a way to compensate them and have them participate in the upside. It's also really hard

In general, at least it used to be, now things are changing a little bit, really hard to raise money just for platform expansion. You're getting your fees and carry, but a lot of that's going out the door as compensation, and it's hard to reinvest in the business. So they all go public in this 2010, 2011. They originally, most of them, including Apollo, come public as limited partnerships, but in 2019, they make C-Corp conversion. This helps the founders monetize, and again,

drawn to complexity. The founders set up all sorts of elaborate tax structures to go public and protect their wealth in this windfall of monetization of taking the names public. But I think it also shows that these are becoming, especially post-2008, 2009, post-Dodd-Frank, that these are really becoming full-fledged financial services companies in some ways. They operate differently than banks. They make money differently than banks, but they are a key part of the financial system we have today.

And when you think about the IPO, but then also strategically having a publicly traded equity, I think you mentioned some of the different dynamics and reasons why you would take the business public. But if we were to just isolate on an ongoing basis...

You have equity, which could be used as a form of primary capital. If you wanted to raise additional equity, use those proceeds within the business. You could make it for secondary purposes, which I'm sure played a major role in the IPO. And then you can use it as a currency for acquisitions or other things along those lines.

Would you say that there's one of those buckets that really stands out just in terms of what it allows these alternative asset managers to do, maybe focusing on post that initial monetization for some of the founders and partners within the business?

Yeah, so they all want to grow. And again, it's hard as private general partners to necessarily raise money for platform expansion. So to your point, access to equity and debt capital markets allow them to go out and spin up new platforms, spin up new strategies. And I think that's a big part of what you see as the growth following the GFC. But I do also think that as a currency for talent, this is a very key element of why it makes sense in some degree for these companies to be public.

So I'll skip ahead a bit here. Towards the end of the decade, the early 2020s, we have the transition of the business away from Leon Black. And we can touch on those headlines, but really get into Mark Rowan being the chosen one, taking the reins of Apollo. So can you walk through that timeline in terms of how this all played out and that shift towards Rowan?

Sure. While Leon Black is certainly seen leading up to this as the key man at Apollo, this triumvirate of Black, Rowan, and Harris are still very much visible characters in Apollo's life. In 2021, news breaks of Leon Black's involvement with Epstein, and right on the heels of that come additional sexual assault allegations, and Black basically accelerates his departure. Even before these stories started coming to the headlines,

Josh Harris is presumed to be the heir apparent.

and the next CEO. But at this point, Harris has already pulled in a lot of disdirections. He's buying the 76ers. He's buying the New Jersey Devils. Eventually, he comes to own the Washington Commanders, previously the Redskins. So Josh Harris is very much involved, but also he's starting to do a lot of stuff on his own. And basically, based on the FT reporting, I don't know if we'll ever know what happened internally in these discussions, but after the allegations and headlines about Leon Black come to light,

Harris becomes a very vocal critic of Black. And apparently that ices him out at the firm and leaves an opening for Rowan to ascend, which ultimately happens. Josh Harris steps down, stays on the board, but Black is out and Rowan ascends to the CEO position.

One of the interesting things about Harris, you mentioned he's buying the 76ers and the Devils well before this all plays out with Black. Would you say that is just normal private equity, major wealth type behavior where we certainly have seen it elsewhere? Milwaukee Bucks had a few backers. So it's not unthinkable.

uncommon to see, I guess, but it felt way more operationally focused, platform focused in terms of what he was doing. So I'm just curious if that felt out of what you would traditionally see in someone who already has at least a portion of their foot out the door, or if I'm looking into that too much. Well, I would just be speculating as well. But I also think some of the reason

Harris ultimately doesn't ascend is if we go back to the personalities of these founders, Josh Harris's reputation was as a real deal guy. And I think his attraction to these sports deals was that this is the type of deal he wanted to be doing. And Apollo was increasingly moving in this credit direction that wasn't really what his background and what his appetite was for.

So as Rowan ascends, it becomes clear that the firm is going to continue to make this shift towards a credit focus. So I think Josh Harris is just the deal guy. He's attracted to these big acquisitions, which Apollo was doing less and less of.

Yeah, he remains a deal guy. It's been fun to watch him negotiate for the new stadium in Philadelphia. And he was bringing some of the Apollo tactics with him. I do think we need to, again, to keep drawing the parallels to these top tier alt managers that were all founded basically in the 70s and 80s. And

have an original old guard that is starting to come to the end of their careers. And again, this is a business that relies so much on reputation and talent and how respectively they've handled succession planning. I think Blackstone probably...

is the exemplar here of really elevating John Gray's profile ahead of that transition. KKR goes with co-CEOs that has seemed to work okay, but again, they have a lot less availability than Gray. And then I think on the other side, you have Carlyle who did not and fumbled their succession planning. Apollo was very close to falling into that bucket. But to me, if you go back to this era, 21, 22,

Yeah.

Yes, he is putting his stamp on the company in a way that feels different. I think the comparisons that you made there are perfect. You take someone like John Gray with Blackstone, where he is leaving his stamp on the company. But to me, it's mostly in the form of creative social media videos, or we're going to be more playful with the general public. Mark Rowan seems to be taking this

almost capital allocator type approach where it's very interesting when you have somebody who's running a business who is also a really thoughtful investor because it turns your presentations and your remarks and the way that you think about the business into speaking the same language of some of the people on the other side of the table. So I always find it's interesting when you get situations like this.

Bring us just into the early days of Rowan and some of the evolution that he's made for this business and what you think entails Rowan Unleashed. And you bring up a good point. John Gray has become a personality that has softened and humanized Blackstone's image to a degree. Especially recently, if you look at how Mark Rowan has taken on the role, he's almost become a preacher, an evangelist for what they're doing in a way that I don't think John Gray has.

So Rowan ascends to CEO mid-21.

Apollo does an investor day in December of 2021 that to me, this investor day and the deck is still available online, really is redefining Apollo, but the industry around this idea of asset origination. This is a five, six hour investor day. It's got a 300 page deck that accompanies it. And it so clearly reflects just decades of thought envisioning by Rowan about what he wanted to make Apollo. Yeah.

It's around this time that Apollo is beginning to socialize the idea of merging with Athene. And this is really where we get into Apollo today as an alternative asset manager with an insurance arm that is fully on the balance sheet.

What that immediately brings to mind with insurance and how valuable that business can be is Berkshire. So with just the very cheap seats take of is Apollo taking the Berkshire approach to running a business and having this float? What does that mean? And just a little bit more backstory, because it goes back well beyond the 2021 timeframe. This is a long historic relationship that they've had.

In fact, in 2022, Financial Times runs a headline, Apollo, Athene, the new Berkshire Hathaway. The headline ends with a question mark. I think we've seen many times where this type of headline can be a curse, but Athene is really a different animal.

This was another opportunistic trade for Apollo that turned into a full-fledged business. And in fact, we were speaking earlier, a lot of Apollo's success seems to come from them getting into a jam and then figuring out a very creative, financially engineered way to get out of it. And I think Athene is really no different. So Athene begins its life as an Iowa-based insurer called American Equity Life.

And here, I think we have to do a quick insurance industry primer, another very complex industry. Please, yes. It has a recent historical role in the alternatives space, and it helps illustrate why Apollo's approach was so bold. Okay, so insurance, everyone's basically familiar with the business model. People

People pay premiums, the insurer invests those premiums, and those investments help support liabilities that come from the insurance product being sold. There is a spectrum of insurance liabilities from somewhat simple to complex. And complex would be things that are very actuarially difficult to underwrite. Things like crop insurance or even some property in casualty.

Simple liabilities are more actuarially certain, something like an annuity where you're promising a stream of payments in the future or even life insurance, where they have a pretty good idea actuarially of what their life insurance liabilities are going to be. Post-GFC, this creates issues because, especially in the annuity business, annuities were struck at higher rates. So someone might be promised a payout of 4%, 5%, 6%. Post-GFC,

Yields come way down and insurers have this giant mismatch of they're no longer making spread because they owe people for, but they can only reinvest it to. Additionally, their bond portfolios are way down and the new assets are not yielding enough to create that spread. So insurers start unloading insurance assets, which really are insurance liabilities,

to alt managers. Alt managers, again, in this desire to get off the vintage fund treadmill, are attracted to this long duration capital that for them is at reasonably low cost. If you think about it, insurance is highly regulated, but basically what you can do with that insurance capital is 90% to 95% has to be invested in investment grade fixed income, AAA or cash.

5% to 10% of that becomes equity that you can take more risk with. And so that's really what these alt managers are attracted to. Yes, they can maybe earn a little bit of spread on that 90%, 95% portion, but this 5% to 10% that drops out is a great source of long-term, low-cost capital for them to grow their businesses, for them to seed other strategies or funds.

And so all alt managers post-GFC make varying degrees of investment into the insurance business. Some are joint ventures, some are equity, some are just management agreements, but they're all playing in this space a little bit. So Apollo buys American Equity Life in 2009, and it's such a great opportunity because they load the balance sheet up with mortgage-backed securities, which the prices have collapsed, but they're paying it out nonetheless. Right.

But by 2010, the fixed income market's normalized, and now Apollo's biggest client is this insurance company that needs to make money from spread, not risky LBOs and buyouts. So a thing goes public in 2016, and Apollo owns 35% of it. And this is where I talk about Apollo-based.

getting into a jam. The stock is struggling because it's seen as just this fee pig for Apollo. It's paying out tons of fees to Apollo to manage its assets. But at the same time, a fee is 30% at this point of Apollo's asset base, so they can't lose the account. And Rowan realizes they have to merge. And this is really risky. And this is what this next Berkshire Hathaway question mark

speaks to is insurance is a highly regulated, capital-intensive business that typically trades at a much lower multiple than alternative managers do. And there's actually a great quote from an unnamed Apollo executive. He goes, I get why this is good for Athene, but I'm not totally clear on why this is good for Apollo.

As a private equity firm, Apollo earned enormous fees by tying up little capital of its own. Now the firm will be in this capital-intensive insurance company overseen by regulators watching for risks that it can pair its hundreds of billions of dollars of assets. So there's a lot of doubt about what this Athene merger means for Apollo at the time.

Yeah, it's interesting to hear that previous relationship where you had two publicly traded companies with a lot of interaction. It's like the real world version of a circular reference that you get in your model when you're trying to adjust for the different dynamics there. One thing I just wanted to zero in on in terms of that initial move, where insurance portfolios, you have these liabilities that you need to basically invest to

to offset. And 90% is going to be investment grade. That other 10% has a little bit more flexibility. Would you say with the alt managers that it's essentially that 10% portion of the portfolio that really makes the difference in their ability to manage those assets, liabilities? They could be both, but

In terms of where the difference is made in terms of Apollo managing that versus it being on the insurance balance sheet, is there anything in that 90% where they can make a difference? This is really where Rowan has his big breakthrough and the genius of what he decides to do. So you're right. That 90-95% for most alt managers or insurance companies is basically a commodity. Investment-grade fixed income management is basically a commodity.

You can earn spread on that with a little bit of creativity. And Rowan realizes that he needs to be in the spread generation business. And his big breakthrough is using the equity, that bottom 5% to 10%, to acquire or otherwise seed asset origination platforms. So these are people that are going to be basically mini banks, not banks, but people that are originating de novo debt, what we might think of as

private credit or asset-backed debt. And this is a big differentiator for Apollo because for most of the other alt managers, they're in the flow buying business. They have to buy what comes out of investment banks or what comes out of the broadly syndicated loan market. For other alt managers to realize spread on that 90-95%,

All they can buy is what's for sale on the market. Rowan realizes that he needs to be in the asset origination business.

And so he uses this 5%, 10% of equity that's at the bottom of the insurance capital stack, and he starts building, acquiring, and seeding asset origination platforms. And there's lots of stuff in here. There's a company, MidCap, which has a publicly traded BDC, which specializes in lending to midsize businesses and mostly healthcare companies. There's Merck's Aviation in Ireland that provides financing for aircraft leases.

All of these are generating fixed income assets that can feasibly be fed back into the top of the balance sheet and drop new equity down. But what's really genius is using this private equity structure. So he's seeding these platforms, but he's raising outside capital for them as well. And so all of these little origination platforms are getting basically private equity economics with fees and carry while they're feeding the insurance business on the other side.

Yeah, it's really interesting to think through. It might just have to do with market dynamics. But is there any reason why they wouldn't just be in-house? You might be able to explain where the fee structure and that type of relationship is more beneficial than just housing it on the balance sheet. But is there anything that immediately stands out as to why the relationship is better in that form than being in-house? Right. So let's say it was all in-house.

You would have your 90% of investment grade. You'd have your 10% that dropped down. So basically for every $100 of insurance assets you bought, you would get $10 of equity to do your alternative manager strategies, to do LBOs or private credit or whatever you were doing.

But what Rowan's decided is he's going to take that $10 and he's going to see these platforms take that $10. He's going to use $5 to put into an origination platform and raise another $5 of outside capital. And now that $5 is getting GP economics or sort of private equity structure on the returns and carry from that originator. And so whereas...

Something housed entirely on the balance sheet, you buy $100 of insurance asset, you get $10 of equity. Rowan has figured out a way to buy $100 of insurance assets and basically turn it into more like $30 of equity by running it through this private equity structure. They get fees and carry on the origination platforms that he's seeding.

Yes, I think we have arrived again at the theme of complexity and finding creative ways to generate returns. That's really honestly the tip of the iceberg because there's a whole other level of financial engineering that's going into these balance sheets too. If we think of the traditional private equity structure,

LP Capital is really a form of leverage in some sense. It's equity, but it's leverage for the GP in the sense that they're participating disproportionately in the upside over these certain hurdles. And so...

Through very complicated structures, Rowan is taking this $10 of equity that's dropping out of insurance assets he's buying and using it as their GP stake and all of these other origination platforms that can generate private equity-like returns. Yep, that makes sense. And I guess just on that point you mentioned, it is essentially a form of leverage. In many ways, it's a form of a liability in the sense that when a fund is retired, you

When it reaches the end, that capital theoretically goes back to the investors and Apollo keeps some percentage based on the return profile and the fees that they earned. Yeah, I've likened this and people will certainly push back on this, but private equity is a way of bootstrapping a call option. Let's say that you're getting...

20% of the returns above 8%, that is effectively a call option that's 8% out of the money. So LP capital is a very special form of leverage where the GP benefits if it works out, but it has very little risk if it doesn't. And so by Rowan layering on an insurance balance sheet on top of this that has really long duration, low cost capital, you start to see the wisdom of what he's building here.

How much does the duration play into this? I think it's something that is certainly a theme in the markets right now, whether it's in venture, whether it's in private equity, you have funds that reach 10 year mark.

12-year mark, you get all of your extensions in, and they have these prized assets that might be sitting there, but the market multiple, the IPO is not that attractive. They end up selling at some discount to some public peer that trades at a significantly higher multiple. And it feels like it's leaving crumbs on the table in terms of the return profile. This is getting brought up a lot where you'll need to see things trade hands.

Do you think that plays much of a role just in terms of that theme today? Or is this a much bigger evolution for the business beyond that?

Well, I think as you see Mark Rowan's public profile increase, especially in his recent interviews and the way he speaks at conferences, he's really proselytizing this idea of private and public markets converging. He really focuses on liquidity. And again, it goes back to that original quote about the early days at Drexel of understanding this trade-off between risk, liquidity, and credit.

Rowan's argument is basically, if you're a retiree or a future retiree that is 20, 30 years from retiring, if you are a pension or endowment that doesn't need money till long in the future, why are you so concerned about having daily liquidity? And Rowan's vision is really to see these public and private assets converge and that wall between the two to come down. And that's getting very literal here, I think, in the past two weeks or so.

Apollo and State Street have launched a private credit ETF, which holds some listed credit and then some private credit. So Rowan is at least walking the walk in terms of trying to make a case for this private and public divide coming down to decondition investors from expecting daily liquidity. And the way he set up Apollo today really speaks to that.

Yeah, he's a great spokesperson for the private markets. I heard him on an interview mention that 80% of companies generating over $100 million in revenue are private. And I don't know that you can really take that 80% and apply it to the size of the market because there's a certain scale factor of the biggest companies in the world. But he brings up some strong points just in terms of

the evolution of where these businesses can operate and be a hybrid of the two. But you also see them making announcements like having private credit trading desk, which implies that liquidity is something on their mind, I would imagine.

So this brings up a really important point, especially about what we might consider the future of Apollo and really the future of markets generally, is the problem of capacity. Annuities specifically are on pace to have one of their best years ever in terms of sales. 2025 is expected to have around $400 billion of annuity sales.

All those annuity sales demand basically new credit creation. And Rowan and Apollo realized that private credit can no longer be simply the purview of

high-yield junk bonds or highly levered companies. In fact, I was at the Grants private credit conference last year, and Apollo's CIO, John Zito, had a great opening monologue where he talks about French fries. He notes that the Wikipedia page for French fries has a word count of nearly 4,000, and it's been edited over 1,400 times, while the private credit, which is, as we've seen, undoubtedly more complex, has just 500 words.

And Zito's point is that they want to make private credit more like French fries. There's a million ways to prepare French fries. And they want people to stop thinking of private credit simply as this replacement to high yield or levered loans. They want private credit to be able to do investment grade origination. They want private credit to be an option for the largest companies on the planet. They want GE to consider a private credit versus an unsecured bond offering. And I also think they want to look at

The asset-backed market, in fact, they've been very explicit about that. And the reason they want to do this, especially with asset-backed or these larger companies, is because they want an investment-grade rating on this stuff. They want to be able to originate investment-grade credit that they can feed back into the top of that balance sheet. And they know that private credit needs to evolve dramatically.

beyond this private equity sponsored borrowing to lever up small companies. They need to move private credit upmarket. Yeah, we're just proving out Moody's and S&P's stronghold and moat when there's so much focus on the ratings of these credits and how much of a role that plays in mandates. And just important to mention that. But on that point, in terms of this shift where the alternative managers are

can make a bigger push up market into investment grade. I think what you mentioned there at the end, especially with the asset-backed securities, if you have a portfolio of aircraft leases, that is something that's very easy to see how that could fit into an investment grade portfolio. But that feels very different than lending...

to Apple or to pick your A-rated credit that's out there in the market. How is their effort to move into large corporate lending? Is that something that is reasonable to think that they can bite into in terms of taking market share? And what would be the drivers of that happening and banks losing that business if it were to happen? Well, this really speaks to what private credits are.

pitch and appeal is to borrowers, which is this one-to-one negotiation that allows for more creative structuring, which as we've seen is really Apollo's bread and butter. So

Whereas a large company might want to go to a bank and let's say they want to do a broadly syndicated loan offering. That's going to be somewhat of a rigid structure for that. Certainly, if they want to do an unsecured bond offering on the public markets, that's going to be a rigid structure. Apollo wants to be at the table and say,

Hey, can we structure this? Let's move these assets over here and lend against those. And then we'll take that and we'll tranche it out and we'll have an investment grade sleeve that can be fed into the insurance market. And we'll have a B piece that can maybe go to some of these evergreen vehicles or maybe even our ETFs.

Their ability to originate in more creative ways and then to take that debt and structure it and basically feed the various tranches to the pools of capital that it meets their requirements is really what Rowan's vision is here.

In some ways, it makes a lot of sense just in terms of the bespoke nature. In other ways, when I think of that rigid structure, I also think that's what allows for scale to understand when you're looking at a traditional IG unsecured issuance. You probably know the terms without even needing to look up the bond indenture and you have some sense of it. So it's going to be interesting to see how that scaling goes because the bespoke nature can sometimes slow things down.

Apollo is not involved in this deal, but you'd want to think about how creative things are getting is to look at the CoreWeave deal, which is basically a $12 billion private credit deal secured by NVIDIA chips. So things are getting very creative on the debt side. And

Rowan is very explicit about this demand for credit and their ability to scale up credit origination being the biggest constraint. In fact, he said at a conference in September, quote, the biggest single constraint on growth is not capital formation. It's not how many people you have.

is really built, can you originate enough attractive assets to meet your need? And that's why I've been so focused. And in fact, some might say maniacally focused on making sure we are building the right type of origination in volumes, looking at the right places to be because that's our whole business is about, quote, delivering excess return per unit of risk, which is a phrase that Rowan evokes time and time again.

Just going back to the shift, the transition to bring something like Athene in-house, again, very high level view would be you took something that is in some ways very asset light with other people's money, and you transition this into something that is way more asset heavy with an

an operating business, something that has to manage an insurance book, that's going to transition this business model quite a bit. What is the perspective from a business analyst perspective, but also from an investor perspective on how that changes the dynamics of Apollo?

If you go back to that 2021 Investor Day with that massive deck and those six hours of presentation, one of the last presentations is Apollo's CFO. And he basically says, here's how to think about the business now.

In Apollo's supplements, they break out their earnings now in fee-related earnings. So this is things like asset management fees. This is your traditional alt manager business. Spread-related earnings, this is that difference between their liabilities and what their assets are earning on this retirement services and insurance sleeve. And then there's principal investing, which basically houses the carry that they're earning. And

Despite that initial skepticism, spread-related earnings is now larger than fee-related earnings for Apollo. And last year, Apollo originated something like $200 billion of credit, $222 billion of credit. And that's credit that they are originating, not going out and buying. That's $220 billion of credit that Apollo is originating in-house to feed that spread-related earnings business. To talk about where the firm is today in terms of this business plan, Apollo now either has

owns, has a role in 16 different origination platforms. And there's something like 4,000 employees spread across those various origination platforms. And they're all relatively niche with aircraft leasing. It's music royalties. It's these very niche subsectors that Apollo feels like they can stand up or acquire teams that have a real specialty in those areas to originate this credit.

Honestly, when I think about those categories, there are some obvious ones in private credit, which have really transitioned away from the banks. And they are high quality. They're asset backed. They have some type of cash generating business underneath them all. It'll be interesting to me to see that $220 billion transition.

if that can continue to grow at the same pace, sticking to those traditional asset classes, or if they get continuously creative. Would you say there's any bucket that makes up a significant percentage of that spread portfolio? Is that something that they disclose? The issue that credit origination has today, and it speaks to John Zito's comments, and it speaks to this desire to move up market, is that

Up until, let's say, 2022, the private credit market was supported by private equity sponsor-backed lending to pursue LBOs. And that market, for a variety of reasons, has been effectively closed or at least a lot less active.

So a lot of the demand that was coming on the private credit side has tapered off. So they've had to get more creative and they've had to go farther afield to look for basically lending opportunities. I think a big open question for the industry is if private equity and sponsor-backed lending does not make a hard rebound, what fills that gap? Because

What Rowan's created here, and I do think it's unique to Apollo, is he's created a bit of a financial perpetual motion machine where you sell an annuity. It creates equity. You use that equity to see an origination platform that originates debt that goes back into the top of the balance sheet and creates a new dollar of equity to do it again.

So the more annuities you sell and the bigger your insurance balance sheet grows, it just creates more and more demand for credit. That's why Rowan's so explicit about the single biggest constraint on their growth is now not the ability to form capital, which that was how most of these companies are judged. That's where their multiple comes from is at least in large part based on, let's say, people's perception of Blackstone's ability to go out and raise another $30 billion fund and

Rowan is saying we're off that treadmill now and our constraint is can we find and originate the credit we need to meet the demand that we're generating?

Yeah, I think you gave a very good distinction between the growth of private credit. And I think there is so much focus on the sponsored backed market, which in reality was fairly straightforward. And I don't want to say easy, but that was something where you were part of a growing TAM. It is more difficult to find the higher quality deals that are not sponsor backed, that require a relationship with the businesses directly.

And when you describe that perpetual motion machine, I think listening to that, you hear about several forms of dollars creating leverage in the system. And what that can often lead to through financial complexity...

Is inherent risk in the system, whether it's leverage or whether it's something that once you have some break in the dam, it creates a ripple effect through the organization that's not felt once, but it's felt multiple times and can bring things down. I think that is probably not the right way to categorize this. But just thinking about risks with the leverage portfolio or what is inherent, both from a standard perspective.

company perspective in terms of how much traditional debt they have, but also just the liabilities that exist within the system. Are there hidden things here that are worth paying attention to when you run something that has that complexity?

So I'll perhaps editorialize a little bit here. Please do. Which is basically what you're asking me to do is, I think there is a special because of the muscle memory of 2008 to believe that there is this building systemic risk, that there's going to be this Minsky moment, as they say, where all of those credit dominoes start falling. And I actually disagree with that. I think the...

Regulatory response following the great financial crisis has, in fairness, made risk far, far more diffuse than it was prior, where it was housed in a very somewhat concentrated banking system. And now it's spread across these many, many asset managers and these many, many structures with many, many underlying investors in them.

I think the bigger risk here, again, is not fallout. It's that this really self-perpetuating demand for debt leads to basically a degradation of returns over time, where there's a great definition of financialization, where it's the demand for debt securities and the absence of productive uses for that debt. And we have this

Structure here, in fairness, annuities are still a very small slice of the global markets pie. But I do think they speak to something where we are heading for an era where fewer and fewer people want to take equity risk.

They want to feel higher up the capital stack. They want to feel they're in some sort of secured position. And that creates a tremendous demand for assets that can check the credit box. And there is only so many lending opportunities out there that meet those requirements.

The bigger risk here is not some fallout, not some Minsky moment, not some dam breaking event. It's just a slow degradation of returns as debt eats more and more of the benefits of asset ownership or the activities of these businesses. And it's a little bit of an ongoing dance in terms of what the cost of capital will look like. But a big piece of how I think about

certain markets is you have banks who are getting deposits. Their cost of capital is incredibly low, which allows them to make loans at fairly low interest rates, still collect an attractive spread. Once you start bringing in players that don't have that same deposit base or have a very different profile in terms of their capital structure,

And their attempt to compete is going to be more challenged, just in the sense that if they don't have that same cost of capital advantage or equivalent cost of capital, the spread calculations, the math is going to look different. So I imagine that number has come down significantly as you brought something like Athene onto the balance sheet. So that changes dynamics. But where would you say that stands today in terms of

Apollo's cost of capital and their ability to compete in that world of investment grade and still generate attractive returns? Well, again, private credit is not now nor has it ever made a cost of capital argument for itself. It's made an argument for itself on the basis of

a one-to-one lender-borrower relationship and an ability to be creative. And I think that's continuing, especially as some of these companies need a creative solution. CoreWeave, again, is a great example of this about lending against GPUs for a business that probably would not have checked many other credit boxes on its own.

It's worth noting this interaction with the banking system, though, because while banks have largely been forced out of a lot of these higher octane lending relationships, they're still very much providing back leverage to private credit funds and to the Apollos of the world. So they found a way, I mean, they've explicitly found a way through things like

like synthetic risk transfers and things like that. But banks have found a way to coexist with private credit and with this private capital lending market in a way that probably raises some additional regulatory questions, but they've fallen into symbiosis, not necessarily into competition.

Just bringing this all together with an investor hat on, with all of these changes with the business, I think we have certain rules of thumbs or frameworks in terms of banks. You look at an ROE and use that to instruct what the multiple on book value should be. That's just, again, loose framing. But is there an approach today in terms of how the market goes about

evaluating and valuing these businesses, whether it's separating fee-based earnings and putting a multiple on that versus everything else. Do you think there's a general framework that's being used by the market today?

Well, there's certainly a framework that was established up to today, and these have typically traded on a multiple of fee-related earnings. For these companies, earnings per share is pretty noisy, and fee-related earnings, a multiple market cap, a multiple on how much they were earning from fees, was the way the market was pricing their growth in assets. And

The biggest driver of their growth in assets was their perceived ability to fundraise new and larger funds. There was some degree to which it was the carry that was accruing from performance, but for the most part, those multiples were a projection of future fundraising ability.

Apollo has really broken the mold here by basically saying that fundraising is no longer an issue. And so I think the way that they are going to be valued is closer to a bank, albeit an unregulated one, in terms of the spread-related earnings and how much spread

the market is offering them and for Apollo specifically, how much spread they're able to originate. And then I think in the fullness of time to known unknown is where credit losses settle out for this type of activity. And so Apollo has really changed the mold in terms of how at least they are being valued as they've successfully found the exit ramp from perpetual capital raising.

I think those are two simple valuation frameworks for a business that is born on being complex. If you're an analyst that covers the name, you just have to come up with a complex valuation methodology to give them their proper due. It's certainly interesting to see evolution of industries and now these things shake out. And everything you mentioned is based in this foundation of logic, which makes a lot of sense in terms of what you have visibility on versus what you don't.

and the potential for upside. But I always enjoy monitoring these things as they're evolving. I think the biggest theme here, and Rowan is finding his way to speak to this, is we have been referring to this entire episode as alternative asset managers. But increasingly, they're not so alternative. And I think that these businesses that started out that were going to occupy...

A niche part of the market have come to dominate a growing and growing, perhaps even plurality of the market. And their business models are in the period of evolving from being something that was an alternative to something that is the financial market.

One thing that we've touched upon, but I would love to get your view of, is the reputation of Apollo. And I can speak firsthand to talking to investors where Apollo was a part of the transaction. And when they realized that, they basically just...

screamed profanity and said, I need to spend a lot more time on this. And there was this inherent belief that you might want to build in some additional risk factor and you might need to check the docs extra strong and your lawyers weren't going to be able to go up to bat against their lawyers. So there was, in the credit world, a lot that came along with the reputation of Apollo. Where do you think that stands more broadly in

And do you think it has any impact on their business? And it's so interesting to contrast relative to Blackstone and what's happening over there. So I had that in mind as I asked this question. Sure. Yes. I think for most people that were participants in financial markets for this area, you're right. Apollo has this reputation of they're going to roll up their sleeves and fight. I think that's something else that

the Rowan era is trying to determine and trying to work through how much of that to work on sloughing off and how much of that to retain. Because Apollo still very much has this reputation of being very smart, again, drawn to complexity, willing to take on a difficult situation, which makes them

very competitive in this current lending environment. At the same time, they need to be seen as a partner now to a lot of these businesses, not as an adversary, especially if they want to go up market and start accessing investment grade. So I think you're seeing an evolution of that image, a softening of that image. I mean, I can't imagine 10 years ago,

maybe even five years ago, of seeing an Apollo Christmas video. So I think you're beginning to see that, or at least attempted transformation of public image. But I do think they want to retain this reputation for being able to take on difficult situations.

Yeah, sometimes the PR and the outward communications can have a material impact and you still retain the ability to roll up your sleeves, get a little litigious, get some extra juice from the banks when you need it. So it's an interesting one. And we're seeing PR evolution around the marketplace in all different segments and sectors. So no surprise to see it there. Just quickly on that point, to draw the comparison with Blackstone, is I've noticed

how proud Blackstone is of their Jersey Mike's acquisition. They keep finding ways to bring up the fact they bought Jersey Mike's. And that's, to me, a really... They're trying to speak to the everyday American that private equity owned is familiar and normal. And you love Jersey Mike's and that's owned by Blackstone. Yeah.

It's a risky endeavor, in my opinion, because what do I think of private equity is we're going to be paying some type of subscription service just to buy Jersey Mike subs. And they're going to dangle some rate of getting a $4 sandwiches if you sign up for the monthly rate. But yes, I have noticed it too. It's interesting to witness and they are trying to get the message out there.

So to bring it all together, we like to wrap up these conversations with the lessons that you can take away from this business. I really liked how we got into the history and the evolution, but what would you point to as lessons from Apollo? I don't mean this pejoratively, but I think in a lot of ways, especially as they pursued Rowan's vision for the business, they've effectively remade a lot of what made Drexel successful in terms of

around these capital structures, innovating around sources of capital and innovating around how the market functions. And so just like how Caesar's Palace didn't work and they went right back and did Las Vegas Sands, I think they have internalized these lessons all the way back from the beginning of their career and they saw what worked and they saw what didn't. And they have really come full circle into being this huge player in debt markets that is really reshaping

how financial markets operate. I think the other thing that is becoming more and more important, especially in this environment, is an understanding that the balance sheet is a huge value driver for businesses. And for Apollo,

how that balance sheet can be self-perpetuating. There is a focus in markets on the income statement. How much earnings are you driving? What multiple can you get on those earnings? And for Apollo and for the market at large, I think there's a lot more realization that a lot of value gets created in asset conversions, in refinances, in M&As, in changing the capital structure and allocating through the balance sheet, not necessarily just

having a really rapidly growing top line that gets a multiple applied to it. And then finally, I think APO's own history charts the evolutions of markets at large probably better than a lot of the other alt managers do. They started in this debt collapse in the late 80s. They were opportunistic then. They were set on the course that they're on today following the collapse of the great financial crisis and what that did to insurers.

Now, they have moved into the debt-centric market we have today as a leader. Apollo's rise and fall and becoming who they are today really charts how markets themselves have evolved in terms of the growth of private capital and the focus on credit and yield as being growth areas relative to certainly public equity, but maybe even now private equity.

You summed it up nicely there. It's interesting to think about that original quote in the DNA that's still in the business. And it's fun because there's a great history, but it's also going to be a lot of fun to watch how this evolution goes and plays out over time. Thank you for sharing the knowledge. This lived up to my high expectations for an episode. Appreciate it, Hunter. A lot of fun. Thank you, Matt.

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