Why Blackstone, KKR and Apollo are moving in different directions
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U.S. President Donald Trump's so-called reciprocal tariffs rocked global markets earlier this spring. And during that time,

My colleague Antoine Guerra was watching closely to see how three of the biggest firms on his beat would respond. Blackstone, Apollo and KKR are the three leading private capital firms on Wall Street. And within about a month of Trump's tariff announcements, the ones that sent markets into a complete freefall, each of these firms had to report quarterly earnings. And they also had to hold conference calls with their shareholders.

These firm's stocks had been battered by the announcement. Each one's share price suffered losses of roughly 10% in the immediate aftermath.

But later on those investor calls, Antoine noticed something different. They were making very distinct cases on how each of these firms individually were best positioned to handle the coming market turmoil. They were really making pretty forceful cases on why they were going to do better than their rivals across the street. And this was pretty novel.

Antoine was basically hearing some firms call each other out, explaining why their strategy was best. It's something that doesn't typically happen.

But Antoine told me it says a lot about the moment we're in right now. These earnings calls came as private capitals really digesting what's really possibly going to be a broad slowdown hitting an industry that's grown almost uninterrupted for many decades. What management was saying really gave a clear sign of how they were going to potentially handle a much tougher environment than they've seen in a long time.

And Antoine says this really points to what he thinks is an underreported story on his beat. Which is that these three firms, which have been treated as very similar, you know, basically one morass, they're actually beginning to pursue what can be seen as radically different strategies. And there's an open question on which camp is going to be more resilient. I'm Michaela Tendera from the Financial Times.

After decades of relentless growth, the private capital industry is facing an uncertain market environment. Today on Behind the Money, we're taking a closer look at how three major firms are navigating this and what challenges lie ahead for them. Hey, Antoine, welcome to the show. Hi, thank you for having me. So to start off, I want to lay some groundwork. These three firms that we're going to be focusing on in this conversation are Blackstone, Apollo, and KKR.

They all have their origins on Wall Street in roughly the late 1970s to the early 1990s. And they each kind of started out pursuing the same sort of business, which was leveraged buyouts. But now you're saying that's totally changed as they've grown into these massive financial institutions that they are today.

So tell me more about that. Yeah. These firms carried the evolution of the private capital industry. They all went public around the same time. After going public, they all became corporations to become part of the S&P at the same time. They're all now part of the S&P 500. But now this is all changing. They're all going down different roads. And even though, you know, there's Trump and there's tariffs and markets are a little volatile,

There's been no recession for almost 20 years. There's been no long market panic. But I'll be really interested to see when there is something that really hits, which model performs better. Right. And so that's why we're going to talk about these firms and their challenges one by one.

To start, let's begin with Apollo Global Management. What's their strategy? So Apollo, you know, has this great reputation on Wall Street as, you know, probably one of the most feared people. You don't want to be on the other end of the negotiating table. They've always been seen as having great returns and being able to scrounge profits from even the most distressed deals. And they can make money in almost any market. But under Mark Rowan, and Mark Rowan is chief executive of Apollo Networks,

What's been going on inside of Apollo is essentially a new vision of the interplay between private capital and insurance. And it's sort of the idea that

private capital managers have a level of sophistication that can be brought to the insurance marketplace, which is seen as sleepy and often somewhat complacent. And they can go manage these hundreds of billions or trillions of dollars in policies better than traditional insurers manage.

make more money from the portfolios and can really turbocharge profits at their private capital firm. OK, sure. So owning this insurance firm, it's allowed them to make more money. But how has it changed the way that Apollo operates? Well, it's sort of turned them more into a bank. And it's really made Apollo an increasingly powerful and central force company.

in lending markets globally. So if you're a company like Intel or you're a company like Boeing or any large company that needs new capital, you may call J.P. Morgan, you may call Citigroup, you may call Goldman. But now on your list of calls is Apollo. And for some companies, it might even be the top of the list. Yeah. And that sounds promising. Yeah.

So Apollo runs like a bank and it's in the insurance business. So what's the main risk in this model then, say, if markets really go sour? Yeah, it's just your classic banker and insurance company risks, right? When you underwrite a policy, you're guaranteeing a certain payout in the future. So that's a liability. So if you say,

to a retirement saver and an annuities product, I will guarantee you five or 6% annually for the next 30 years. You have to pay that out no matter what. So you're accepting risks on, you know, you will be able to exceed the promises you've made.

And you're also sort of accepting the risks of, well, the people who have assets with me could change their mind over time. I can pull my money from JP Morgan or any other bank whenever I want. And that tends to happen during downturns. To a much lesser extent, the same thing can happen at an insurance company. So if rate environments were to change or the economic conditions were to change, you

There are some ability among policyholders to ask for their money back. And so you always have to be wary of those two factors. Is Apollo doing anything to insulate itself from those factors then?

They actually are. So last year, they put on a $15 billion interest rate hedge. And so that essentially protects them in the short term if rates go down, which is kind of the consensus on Wall Street. So that hedge will kick in and they'll make a bit of money if rates were to go down. It also leaves them on the hook a little bit if rates go up. But actually,

Over the long term, you know, I think when I've talked to private capital executives, they all acknowledge that were rates to be higher for much, much longer, Apollo's machine will really kick in and they'll over earn relative to everyone else on Wall Street. OK, so that's one firm, Apollo. But let's talk about Blackstone. What's going on with them? In short, Blackstone sticking with what can be seen as sort of a classical or pure business

equity approach. They manage money for a fee for institutions and individual investors. And that business is very simple. It's grown spectacularly and it's expanded from basically just corporate takeovers to

All kinds of different investments from digital infrastructure to real estate to logistics to life sciences. But the business itself is really similar to what you would expect out of like a Fidelity or any other asset manager, except that it also earns like significant performance fees. OK, so Blackstone's still your more traditional private equity asset manager. Yeah.

What would you say are the main challenges that they're facing if markets take a turn for the worse? Since Blackstone has no assets on its balance sheet and it's not on the hook for anything if markets were to sour.

It is always given kind of the highest multiple on Wall Street. Highest multiple meaning the most credit by stock market investors, which is why Blackstone always has had the highest market value of all the private capital groups.

The risk that Blackstone is accepting there, though, is that they can just continue raising money in perpetuity and that even as, let's say, institutional investors grow ever more exposed to alternative assets, that they'll still be able to grow, take market share and continue sort of feeding the machine.

Critics say it means fee-based firms have to keep coming back to investors for more money even when they're bad market conditions and it's not a good time to be asking people for money or it's just not a good time to be investing. You should be on the sidelines.

Now, interestingly, you mentioned that you heard Blackstone's co-founder and CEO, Steve Schwartzman, make some interesting comments on the firm's most recent earnings call back in April. Let's listen to a little bit of that. Our experience through many economic and market downturns

has taught us some of the best times to deploy capital are in a risk-off world when sentiment is most negative. And for our shareholders, Blackstone is an asset-light manager of third-party capital with minimal net debt, no insurance liabilities.

We therefore operate with a different risk profile than most other financial firms, giving us enormous flexibility to respond to changing conditions.

What is Schwarzman telling investors here? And I mean, how big of a deal was this statement? Given the context of what markets were doing at the time, I interpreted it as shots fired from Steve Schwarzman a bit. What he was trying to do was point out a growing difference between Blackstone and many of its biggest rivals, predominantly Apollo.

What Schwarzman was saying in even more explicit language was basically a comment he's been making for years in front of shareholders in almost every single forum. And it's really the idea that Blackstone is growing at the rate it's growing and they're doing as well as they're doing, even though they've resisted the urge to turbocharge their growth by acquiring an insurer. So they're growing even without that.

OK, so basically Schwarzman's saying that they don't need an insurance business to get the kind of growth that they're already achieving. Now, to be fair, we should add that one of Apollo's top executives seems to have come out and responded to Blackstone's earnings call comments a little later on in their own investor call in May. So let's listen to that. For some, capital light has become code for heads we win, tails we win, and hopefully our clients do OK.

In contrast, our aligned client-centric model, along with our principle-driven balance sheet, allows our platform a degree of maneuverability that is unmatched. And that is Apollo President Jim Zelter speaking. So help me understand, what is he saying here, Antoine? When I heard Zelter's comments, to me it was him responding directly to Schwarzman. And what he's trying to say here is that

OK, you guys on the other side of the street, you're always out there raising money. You invest it. If it does well, great. If it doesn't do well, you're not on the hook for the losses. But what he's trying to say is we're principals. We're invested in the very same deals our clients are invested. So if something were to go haywire, something were to lose money, we're going to lose money, too. So it's not heads I win, tails I win. That's what he's trying to say.

OK, so we've talked about Blackstone. We've talked about Apollo. But what about KKR? Where do they fit into this? What's their strategy right now? Well, KKR is interesting because you can think of them as having followed the Apollo path. They around the time Apollo bought the insurance operation, Athene outright. They also bought an insurance company called Global Atlantic Insurance.

And that deal, just like Athene, has proven to be an incredible win for KKR. Global Atlantic's value has doubled. Its assets have doubled. So they are like Apollo in the sense that they own an insurance company. They have sort of a bank-like balance sheet. But there's this interesting third leg to KKR, which is that

The founders of KKR and their top executives for years have been studying Berkshire Hathaway, and they've been studying large financial companies. And they've all decided that large finance companies can sometimes lose their way when they get beyond $50 billion in size in market cap, which KKR eclipsed a handful of years ago.

And they've been fearful of that bloat and drift that can happen. Just too big, hard to change tack. The Citi Group or GE, you know, you become a conglomerate and there are too many different things going on. But what they decided to do was they had a pot of cash from past funds and they

Over time, they've decided that they're essentially going to turn that stockpile of assets into a Berkshire-like investment portfolio that compounds over time. And so it's invested in about 19 private companies. And their belief is, well, if the investments sort of return what –

KKR investments traditionally return, that pot of cash should generate hundreds of millions of dollars in profits annually. And they expect that to grow pretty much in perpetuity in coming years. And so it's the idea of being a private capital firm that, like Blackstone, manages investments for third-party individuals for a fee.

Then, like Apollo, they also own an insurance company and they capture a spread if they manage those policies well. And then now there's this third leg of the stool, which is essentially this giant investment portfolio that if it's invested well should grow over time and generate a lot of cash flow for them.

And now KKR having a mixture of kind of both the Blackstone and Apollo strategies, what does that mean for them in their kind of risk profile in the future? Well, KKR's is pretty simple. If you have that $20 billion pot invested in companies, every quarter you have to mark where it is, right? And let's say in 10 years, it's a $50 billion pot, right? So here you have a $50 billion pot. All of a sudden, markets go down 20%.

And so that would, in theory, lead to a big hit to your earnings. And so that creates this kind of cyclicality to the value of the pot. And so people could grow fearful if markets went down really severely. Oh my God, here comes some big write-down that's going to come.

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This is so nice. Had a feeling you'd want 3% cash back on dessert. Ooh, tiramisu. Earn unlimited 3% cash back on dining and entertainment with the Capital One Saver Card. Capital One, what's in your wallet? Terms apply. See CapitalOne.com for details. All right. So we have the three leaders in the private capital space whose origins are similar, but are each taking more and more disparate paths as we move into more uncharted markets territory.

Now, the other thing to say here is that these firms, while being leaders in their sector, they're also massively influential for the rest of the private equity and private capital world. So, Antoine, how do you see these strategies trickling down and influencing smaller firms?

Will we see more Apollos that act like a bank or more Blackstones that are following the more classic PE model? That's what I'm watching for is which model do the next tier of players adopt? Because you now have a growing number of private equity groups who are now publicly traded. And there's a number of private companies who are considering going public.

And it's really the open debate. Do you take the Blackstone approach or do you take the Apollo approach? And my hunch is that people are going to try to replicate the Blackstone approach because it gets the best multiple on the stock markets. It's very clean and easy. The real question is how many Blackstones does the world need and –

Can people have the same success that Blackstone has had in sort of growing in every market environment, which they have thus far? So we focused a lot on potential challenges that could come up if there is a major market downturn. But there does seem to be another opportunity for these firms that could be around the corner.

And that is that the White House is currently aiming to make it easier for 401k plans, which are a major U.S. retirement savings vehicle, to include private assets in their customers' portfolios.

So I'm wondering, how important is this potentially for these three firms? That's actually a great question. I think all three firms think this is the holy grail for them. And it's an opportunity unlike they've seen in decades. They think there are trillions of dollars in new money coming into the industry and even potentially into their firms themselves.

Wow. So what might that actually look like then for a future retirement saver here in the U.S.?

It's actually going to play out differently at the different firms, and it's going to reflect a little bit about the DNA that they're starting to build internally. So Apollo, like I said, is this gargantuan lending operation, and they've increasingly focused their business on investment-grade rated loans. And my sense is when they go to the 401k market, that's going to be their focus, your sort of fixed income replacement to your traditional bond fund.

A 401k saver in five years from now very well could turn to Apollo for that debt allocation thinking, well, I'm getting just a little bit more return from Apollo than I would from the people I've traditionally used, let's say a PIMCO or whatever. By contrast, Blackstone and also probably KKR.

They're going to really probably offer more of the entire firm and more of equity products. Blackstone really pioneered bringing real estate products

private equity deals to the individual marketplace. You know, they've expanded into places like digital infrastructure, all the hot areas of finance, data centers, AI. So when Blackstone goes to the 401k marketplace or even KKR, I sort of fully expect over the next decade, you really will see more and more of your traditional corporate buyout really start to make its way into some form of a 401k plan.

And to wrap up, so as market conditions remain uncertain in this moment and seem likely to continue, at least for the near future,

Which firm do you think is best placed to come out on top? So I was just talking to an analyst yesterday about this. And what's interesting is stockholders don't really ascribe any distinction to the three top firms in their business model. So this year, they're all down kind of 20 percent uniformly, which is interesting to me because I've just laid out one firm is a bank. One firm is not a bank. You know, it's just a radically different structure.

So I would say my view is that these differences are really, really underappreciated. And I think the distinctions will become more borne out. If there's another 2008, I don't know if it's better that you're going to be Blackstone or Apollo, but I think there's going to be a really big difference between how those two perform. Got it. Well, I guess we'll just have to wait and see. Andron, thanks for coming on the show. Thank you for having me.

This episode of Behind the Money was hosted and produced by me, Nicola Tendera. Sound design and mixing by Sam Giovinko. Original music is by Hannes Brown. Topher Forges is our acting co-head of audio. Thanks for listening. See you next week.

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