John Zito——走进 Apollo——[Invest Like the Best，第426期]

My guest today is Jon Zito. Jon is the co-president of Apollo Global Management. In our conversation, he shares how they quietly built one of the most important financial institutions of our time, originating over two hundred and fifty billion dollars annually. Jon's thesis on the convergence of private and public markets and Apollo's positioning to capture a hundred percent of client portfolios rather than just alternative allocations offers a fascinating glimpse into where institutional investing is heading. We discuss the cultural and strategic elements that drive Jon, Apollo's merger with Athene, the idea of artistry at scale, and the evolution of capital markets. Please enjoy my conversation with Jon Zito.

Jon, I've been really excited to do this with you. The main reason I'm excited is that I don't cover this style of investing all that much: credit. Apollo is one of the emerging, most important financial institutions. I don't think people appreciate how it works, and this is a very cool and rare opportunity to spend hours talking about it, so I think it'll benefit everybody.

To set it up properly, I would love you to talk about the stakes as you see them in capital markets today, because the whole world of capital markets, which has been one way—very U.S.-dominated—for a very long time, is shifting around. It's not going to move fast, but it's changing, and it's really important. I think you have a very unique seat to see not only through Apollo, but through the whole global capital markets picture, and I would just love you to give a state of the union on what you think matters and why.

1. The Capital Markets Retooling

First off, thank you for the comments. I go back to the beginning of my career, when loans weren't even going to be something that traded. All of a sudden, they were all on bank balance sheets, and people thought it was complete lunacy that you would trade a loan. Today, you're issuing $500 billion of CLOs.

I worked my first job out of college on a trading desk, and the guy next to me was launching a $5 million credit hedge fund. I used to get in early. I didn't even know what a bond was, and I would read up and down. I was reverse-commuting to Greenwich, and I was learning the difference between bid, ask, and yield, and how to calculate bond yield, all on my own.

I went to Amherst College, and it wasn't really a finance-heavy education. It was much more about thinking outside the box and getting a much more liberal arts education. I learned it all on the job, and he ended up hiring me as his second employee to start this hedge fund. In 2002 and 2003, he ended up raising $1.4 billion.

The guy's name was Jim Kasberg, who had run Morgan Stanley Dean Witter's high-yield business for a long time and J.H. Whitney's high-yield business for a long time. But $1.4 billion was massive in credit—just massive. The whole ecosystem of alternatives and going into institutional products was such a new thing. The design of the CDS market was very new. The design of index products was very new. This isn't that long ago.

Yeah.

That was 22 or 23 years ago. You look at today, and we're a just-under-$800-billion asset manager. A vast majority of our capital is in credit. We're growing at $150 billion a year. We're writing anywhere between $1 billion and $2 billion of annuities per week. We originated $260 billion of investment-grade and private-asset product last year.

The scale is crazy and hard for people to believe, but it's been a complete retooling of the way that capital markets even function. What we're trying to build is probably something that, first off, no one's really tried before. For us, we have this very large traditional asset manager. A traditional asset manager is, “Okay, we take your money, we invest it to the best of our ability, we take some sort of fee, but it's not our money. We're investing your money.”

Mm.

Three years ago, we really said, “We think the future of asset management is being aligned with our clients in a way that no one else is.” So we merged with our insurance retirement services company called Athene. With that, we brought on close to half our balance sheet—just over $300 billion today—of our own balance sheet, which we're investing every day: 95% investment grade, 5% alternatives.

We'll write an annuity at 4% or 5%. We'll invest that money at 6.5%. So we're guaranteeing you that income, and we're keeping the balance. But we switched the whole model on its head, where we're not only an asset manager as a third-party business—asset-light, capital-light—but we are also a principal investor, and we're creating an alignment that I think, in all times, people know whether or not they believe we're doing a good job making good investments, they'll know we're aligned.

We're aligned with effectively a very large first-loss position in our retirement services business through Athene. We're the biggest investor in a vast majority of our products. That's one big technology shift in terms of how you think about asset management. We're building effectively a more merchant-focused, principal-focused, not agent-focused asset manager, and we think that model's going to win. There are people who question the model. I think that's one of the big bets we're making.

We're about to go through this generational shift in power, infra, and defense spend. In Europe, it's been completely underspent and is needed. Globally, everybody needs more compute. I don't think there's a debate on that. The question is, how should it be funded? Should it be funded through more traditional sources, which are bonds, listed bond equity, or should that be with matched, longer-duration capital?

The beautiful thing about annuities is that they're long-duration liabilities. The beautiful thing about retirement is its long duration in terms of the life—10, 20, 30, 50 years in some cases. That matches really well with long-duration infrastructure projects. So the natural shift is to go from a more bank-funded, shorter-duration product—that's how things were historically funded, whether it's a CUSIP bond or an on-balance-sheet bank loan in Europe—to a more duration-matched, more retirement- and insurance-related product and use that capital in a way. That's what's happening.

You see what's happened with us with Intel and AB InBev—very large transactions that no one in the world ever thought Apollo would be leading. So we're in the middle of this generational shift in the way everything gets capitalized. The traditional relationship between investors, asset managers, banks, S&P 500 issuers, and private alternative firms that are deemed to be more of a private-equity investor is really changing, with private credit stepping in and being a safer lender. So it's been really fun.

I want to come back to Athene and tell that story in detail—

Sure.

—because that's a huge innovation and change in how a firm like yours is structured. But I also want to ask first about your perspective on America's role in global capital markets, maybe over your whole career, and how you see that changing prospectively, with what seems like more of a schism in capital markets, in geopolitics, and in all these sorts of big things.

2. America's Capital Market Advantage

Yeah. Look, right now it's obviously a big focus. I think all of the discussion is around tariffs. I worry much less about tariffs than the public narrative suggests, and I'm hyper-focused on our effectively monopolistic position in capital markets.

We've been the beneficiary of so many things by having the biggest equity market, the place everybody goes to go public, and the best venture capital market. If you want to do a growth company, you're coming to the Valley; you're coming to the U.S. to get a term sheet.

I went and met with a company that actually does pre-seed rounds last week, and they said, “We have all these Europeans who are founders—great founders, really smart founders. They send out a business plan in Europe, they get a term sheet back in 2 weeks, and they send a term sheet out in San Francisco, they get 5 the next day.”

And that's the amazing thing about our entire capital system. We are super entrepreneurial, very hungry, and all of that's a function of several hundred billion dollars a year. Every dollar that left the country in any form was coming back because this is the place to invest your capital.

Mm.

Every retirement market over-indexed the US. Everybody is generally over-indexed in their strategic asset allocation to the US. It's an amazing thing. It creates a growth vector that's higher than any other global company or European- or Asia-based company. Our growth vector is just higher because we have a lower cost of capital, we get better talent, we get better companies to go public, and we have a $50 trillion debt market. Just amazing tailwinds.

That flywheel—we wouldn't want...

It's our most precious asset, yeah.

We don't want to take that for granted. Why does that happen? Rule of law, it's really easy to come do business here, there's an understanding of the rules, and there's a very clear—

Talent density.

Yeah, talent density, but also just very clear rules of the road on how things operate. The thing that worries me a little bit—and there's no place really to put money now, no real capital market big enough—is that, with all the uncertainty going on, you do see new changes in Europe, potentially changes in securitization rules.

We have a $15 trillion securitized market here in the US. There's a $500 billion securitized market in Europe. The economies aren't that different in size. We're $30 trillion here; we're $24 trillion in Europe. That's a multitrillion-dollar opportunity to take assets out of the banks into private credit and create tons of liquidity to fund all these growth projects that Germany, France, and the rest of the eurozone need to do because they've underspent on lots of infrastructure and defense.

We're creating an incentive, and all the global pools want another option other than the US now. We just have to be sensitive to that. We trade at—because of all the benefits of us growing faster and having better companies, with a bigger talent pool—that has resulted in most of our equities trading at somewhere between 5 and 7 turns higher, representing multiple trillions of dollars of value.

That is what really benefits our entire system, and I'm hopeful that we make sure we keep that intact because we've really benefited over the last 20 years.

One of the beautiful components of the US system is also innovation in types of financing, and I'd love your perspective on the key hash marks on a historical timeline for these key innovations, going back 50 years or something like this. Maybe junk bonds in the '80s is the first notable one to talk about.

3. Financial Products Need Innovation

Well, we can start there. I think about more of a distribution function: the ETF market, how do people package and consume products, and innovation in products? Where has there been product innovation? Where hasn't there been product innovation?

You look at the ETF market, which started in—

'93.

'93.

Yeah.

We got to a trillion-dollar ETF market probably in '09, and then we're north of $10 trillion today. Sector-focused, every access point, tax advantage—you name it, every delivery function through ETFs has gotten pretty innovative.

You look at the fixed-income market, and I don't think the daily-liquid fixed-income products have changed once in 25 years, which is pretty stark and, I think, a pretty cool opportunity for us. We look at our business and always joke that the fixed-income group is the brown suits and bologna sandwiches. This literally has not changed at all.

I created a picture of brown suits and bologna sandwiches with AI, and that's our joke for saying, "We're not going to be this." You look at what we've done in our credit business. When I joined Apollo, I was joining for what Apollo's brand is known as: just the place where, when things are dislocated, we have some of the smartest investors, we're going to figure out a way to win, and we're tenacious in terms of underwriting work ethic—all the great things that, if you're competitive, make you want to go work at a place that's going to work really hard and typically be on the right side of things.

When I joined Apollo, that was what I was stepping into, and I was pretty intimidated about that. Over time, what's been unique is that we've taken a lot of people who are wired that way—super competitive, super smart, and who know the entire capital structure, from a loan to a bond to a preferred security to an equity—which there aren't many people in the market who can do. Typically, people are very narrow; they don't look at the whole capital structure.

We've taken those people, who typically worked in opportunistic, high-octane, high-returning vehicles, and put a lot of the most creative people on investment grade. You think about innovation: How do you take a deal for, say, Intel—an $11 billion deal—and structure it in a way that's north of 30 years, really equity-type capital, but where we feel like it's more protected on the debt side?

Mm.

You have to have some creativity to do that, because it's not something you go to a bank and just get off the shelf. It's highly structured and highly creative, working with the company to actually execute on that. Because we put all of our people—our best people—on that stuff, we have full open architecture.

What does that mean? What is the directive to those people? Is the directive—

Do the best risk-return. Most firms are set up by fund.

Mm.

They're set up as, "Okay, go buy—go find a company or a preferred security or a debt instrument that's going to make a 15% rate of return." We're set up to assess the company and assess the best solution for that company, and we have pools of capital from 5% to 20%. It could be a buyout, it could be an investment-grade solution, or it could be a regular-way bond deal.

Mm.

But just understand risk-reward across the capital structure, per unit of risk. It's a completely different framing because we have no walls. They're not incentivized by a single fund. They're incentivized by the fact that, for us to originate $250 billion a year, you have to have a culture of wanting the issuer to do business with you again.

We have lots of repeat issuers. We may give them an investment-grade bond today, but in 2 years it may be in a different situation. They may need a preferred rescue or something, or we may be in COVID, and it's a totally different environment. But because we were in the capital structure or did something appropriate before, they're more likely to work with us later.

This point is, I don't think, as understood: there's narrowness by fund and narrowness by business. We have no walls, so our private-equity team—

It's a pool of capital.

There are different funds below—

Sure.

—but the investment teams have discussions across them. I'll talk to our private-equity team and our credit team, and we can all talk to each other around, "Okay, maybe we should do this, and maybe we should do that. Maybe it would be better to structure it this way for this pool of capital because that's what makes sense for the issuer"—

Yeah.

—as opposed to the inverse.

So there's no hammer looking for a nail situation?

Yeah. Having that flexibility, with all parts of that capital available, changed our business dramatically—changed our business dramatically in the last 5 years.

Maybe if you think about the history since you joined in 2012, now it's time to talk about Athene. Why is that such a massive innovation, and how did it happen? Where did that come from? Whose idea was it? How did it get executed? Why haven't others done it to the same degree?

4. Apollo's Principal Model

Yeah. We were pretty early. Marc and Josh really brought on Jim Belardi in the middle of the financial crisis, and the idea at that point was that you had very wide spreads for investment-grade credit because we were coming out of the financial crisis, and you had access to very long-duration, cheaper liabilities because interest rates had gone down a lot.

The spread business was extremely profitable, and the asset-management side of those businesses and traditional asset management for insurance had not been as sophisticated in going into other things, like structured products, or just other products beyond the traditional CUSIP liquid business.

The core of the business is to originate excess spread, with a similar rating, and fund the business with super-long-duration liabilities. No one was really running it as a growth business. They were running it because a lot of the public stocks traded at a discount to book.

But if you look at how much equity capital's been raised since the GFC, we're over 50% of total equity capital raised in retirement-insurance businesses.

We've been the biggest beneficiary of that because we've been very active in growing both our asset side—

Mm.

—and our liability side. When we started to realize that the business was going to scale, we had to do 2 things. We knew that we were going to be short origination, because how were we going to service our own balance sheet?

From 2014 to 2022, we spent just under $10 billion of our own capital buying our own origination: PK AirFinance, aviation finance. We built our own nonqualified-mortgage business called Newfi. We bought the CS warehouse business called Atlas.

We built and hired 4,000 employees in those businesses who originate assets on behalf of our balance sheet with companies that you don't know are Apollo, but they're Apollo Capital.

And with that, we never really were building that on behalf of our third-party credit business, because most of that is investment-grade, tight-spread collateral. No one would have built a BDC when rates were zero. From the financial crisis until 2022, the clear trade for anybody who was managing money was: interest rates are negative or zero everywhere. Get out of fixed income, get out of credit, and get into equity products.

Finance at the cheapest level possible. So what do you do? Go into infrastructure, go into real estate, finance it very aggressively, build other alternative products, but don't build a credit business. Why are you going to build a credit business?

Yeah, make no money.

You're making no money. I joke because I feel like it's not a great analogy, but rates went up 500 basis points, and I felt like Lieutenant Dan on the ship. You're on the ship, let's go. It was all in, all of a sudden, because we were now over-indexed to origination.

Mm.

We never really built out the third-party institutional business on that side. We had done it all for our own balance sheet, and we crossed the Rubicon where, all of a sudden, we're actually originating more than we can service on our own balance sheet. That's been the case for the last 3 years.

So now, all of a sudden, we can build fixed-income products that are innovative, that actually invest side by side with our own retirement business. Now you see everybody trying to get into the business. It's very hard to M&A your way into the business.

Mm.

Because there's an origination culture that's been built here for 15 or 20 years just in credit. To align yourself in a principal way and to actually—origination isn't just having a bunch of sourcers finding risk. Origination is also understanding what fits our balance sheet and how we think about risk and reward.

It's very hard to scale if you haven't worked with those people and really have a clear understanding and clear narrative about what works and what doesn't work. A lot of people can originate lots of bad risk. If you wanted to go buy a bunch of stuff, you theoretically could. Probably not a good long-term strategy.

We've really built it organically, with very little M&A in the last several years. Now we have tons of our own origination, we're a market leader in overall spread origination, and we're a market leader in liability writing. Net, we feel like that business is going to do well for a really long period of time.

Can you just lay out what Apollo looks like today? If you think about the $800 billion, where is that $800 billion allocated in terms of what types of investments, and also through what kinds of vehicles? I just think it's an interesting—

Yeah. The surprising thing people want to know is that 65% of our balance sheet is investment grade. When you look at the business in credit—take credit as just under $700 billion—you have slightly over $300 billion of our own balance sheet. The remaining balance is third-party investors investing in our products.

Almost all of the investors investing in our products are in sub-investment-grade, high-returning credit strategies, direct lending, asset-backed, and high-returning credit strategies. We're going into the more fixed-income-replacement, investment-grade solution business in the third party. We've never really raised any money there.

The other half is just our own balance sheet, which is 95% investment grade and 5% alternative, where we're making a spread. Our equity business is predominantly our private equity business, but we have secondaries, we have a climate business, and we have a hybrid business, which does everything outside of performing credit.

Those businesses have done well for a long period of time. Our private equity business has had top returns for over 35 years, and our hybrid business is effectively the space between performing credit and private equity—everything in between. That's been a really fast-growing segment for us, at just over $80 billion.

Can you talk about fees and the business model of asset management? As you said in the beginning, historically it's been, "You give me some money, I charge you some fees, I charge you a percentage of the profits, maybe above a hurdle or something." Very straightforward.

Fees are so interesting because, in some cases, these are extremely high-margin businesses, especially the two-and-twenty-driven ones. What do you think about that model? It's persisted for a long time. Do we need an innovation there? Where do you think it goes?

Yeah, I think it depends on the asset category. I think it's really specific to the asset category and the ability for you to show outsized returns. If you show outsized returns, you can charge—

Charge whatever you want.

Yeah, and people will do it.

As long as you charge—

You look at some of the multi-managers—

Yeah.

I mean, they're charging pretty high fees. They can charge it because—

Net returns.

They've had great high net returns with low volatility. If you can do that over long periods of time with large swaths of capital, people will pay a fee because they feel like it's differentiated.

As you get into products or other things that get more commoditized—and you've seen that happen in parts of the really investment-grade market, take investment-grade liquid credit—fees go down a lot. We're really focused on more privately originated investment-grade credit that you can't get elsewhere, and the reason that we've created this platform business is to control all that collateral, where no one else can really get it unless you own those origination machines.

Yeah.

So we feel like, because we have those 4,000 people just originating assets that are complete diversifiers to the rest of anyone's credit portfolio, we should get compensated in some form. Where the fee settles out will be somewhat dependent on overall rates and everything else.

Mm.

When rates were zero, it felt like fees were going to collapse. When rates go higher, as a percentage of your aggregate return, if you're making 10%, you can charge a fee. When credit was making 4%, fees collapsed because the net excess relative to the total return ended up being a lot.

In alternative products, you've got to deliver the artistry. If the client doesn't feel like they're getting something opportunistic or special, and they don't feel like they're getting either one, there's been tremendous push on co-investment, which has effectively been a fee—

Fee reducer.

A fee reducer—not from the headline fee, but effectively a mechanism to reduce fees. You need to partner with clients now in a completely different way than you did 10 or 15 years ago.

Many of them have built out their own fully capable, very productive, very smart teams that are willing to and want to co-underwrite risk with you. So it's much more of a partnership approach than it ever has been, I'd say.

I joke because there's always a headline that the banks are getting upset with the alternative managers because they're stealing deals from each other. On one hand, we've built out our own origination, but we're still partners with them in so many ways that it's still working.

The same thing's happening with the LP-GP relationship. They've built out their investment capacity, and so we've had to pivot our business as well. The whole chain is pivoting its business to be more partner-like and figure out the appropriate Venn diagram for how we work together.

I don't know why this is happening, but I laugh that you go meet with venture guys and they all want to get into private equity. Talk to private equity guys, they all want to get into hybrid. Talk to the hybrid guys, they all want to get into credit. Talk to the credit guys, they all want to get into investment grade. And I'm like, "Wait, what's going on?" I can't actually figure out—

It's upside down.

I don't know what's happening. I think because markets have been up for so long, these businesses, whose focus is very narrow in whatever they're doing, are trying to go into bigger asset categories—

Mm.

—with less binary outcomes and just broader TAMs. I didn't put it all together until I thought, I don't know what the theme is other than everyone is trying to go into a bigger market and a broader market.

I'm really curious to understand how you think 3 different groups think about Apollo today, and then how you would like them to think about Apollo, say, 5 years from now.

The groups are companies—issuers, I'll call them; I don't want to say retail, but people that might think about accessing equities through ETFs. It's not just retail; institutions use them too, but people that want to put money in and earn a rate of return on the money; and then shareholders of Apollo, the business.

Maybe starting with issuers, how do you think—

Issuers—

How do you think they see you today?

Issuers—we've made some progress. I think we did a deal for AB InBev in 2020, and I think I got 10 calls from people telling me, "John, great, it's COVID. You'll never do a deal for an S&P 500 company again."

Set the stage for that. Why was that? Why does that represent such a change from what the history was prior?

Investment-grade companies really never accessed private credit in that way. If you were an investment-grade company, you accessed capital through the bank channel. It was a very narrow view of the world.

I need to build a—

I'm going to build—

I need to build a plant or a—

I'm going to go to a bank, I'm going to raise bonds, or I'm going to raise equity.

Yeah.

It's very simple. Asset allocation was like, “Okay, I'm going to do 60/40, bonds and equity.” No privates were involved, and still to this day, 401(k)s don't buy privates.

Yeah.

Let's talk about that.

Yeah.

Yeah. But the idea that we would be able to do a multibillion-dollar deal for an S&P 500 company through private credit, and that it was investment-grade rated, was something very foreign to the market, very new. You look now: We've done deals for BP, Air France, Vonovia, and Intel. The pipeline there is very large because people are realizing that they can get—first off, if you have $100 billion of debt and you're an investment-grade company, doing a $5 billion deal with Apollo is just a diversifier. It doesn't have a negative connotation anymore.

And, 2, there's more flexibility in what we can do with our funding. We can give more flexibility, go much longer duration, and attach it to a certain asset or some sort of structured transaction. So it's just a little different. It does not by any means mean that the traditional funding sources are going away or that it will completely change and all go private, but it's another option. It's here to stay.

If you take one of those examples—Intel or BP or whatever—they have options for how they're doing their financing. They chose you. These are big deals. What are the features of the financing from Apollo that are attractive to them relative to the traditional way of doing things?

Yeah.

What are the variables that matter to them, typically?

Typically, it's off-balance-sheet. It doesn't go against their existing debt quantum.

Yeah.

So it's typically off-balance-sheet, typically longer duration, and typically flexibility in the coupon and when it ramps. If it's a project that's ramping, we may give them a couple of years at the onset that they probably couldn't get through a traditional debt market. So we're really working with the issuer and saying, “Okay, what are we trying to solve for?”

Customization.

It's all customization.

Yeah.

We'll work with an issuer for 6 months, 9 months, or 12 months to work through exactly the customization, and we have the teams that are capable of doing that—

Mm-hmm.

—which is just very different from the traditional syndicated market.

So the perspective from companies today, 5 years from now, would be that you've evolved into this personalized lender.

Yeah, I hope that's the case. Look, it's gotten a lot better. The more big branded companies we do, the more they'll do it, and the more repeat issuers we have, the more it will happen. We've made a ton of progress in the last 5 years.

Mm.

But I'll go to certain areas or certain parts of the globe, and they're like, “Aren't you just an equity investor? Aren't you a distressed investor?” That still happens every once in a while. But by and large, listen, we have an incredible history of generating fantastic returns—

Yeah.

—which are sometimes in more difficult situations and sometimes from stepping into situations that no one else would step into. So people still have that perception of us, despite the business being in a completely different place from where it was 15 years ago.

Can you comment on just the state of expected rates of return across asset classes today? You mentioned the zero rates for so long. The expected return was nothing, and so people weren't interested in it.

Equities have come off a period of extremely strong returns since 2009. We now have this group of people who have had really long careers, didn't experience that drawdown, and have seen nothing but awesome returns to the S&P 500.

What's your assessment of the landscape today, just looking prospectively? There are all these people and all these pools of capital that want a rate of return. They're interested in credit again because there's a yield. What's your state of the union on what returns could or might be, and how you're thinking about it for the next 10 or 20 years?

5. Private Markets Find New Liquidity

We created a whole alternative universe based on zero rates. Most of the product design was based on zero rates, and it's still up for debate how much of your return during that 15-year period came from really low, subsidized interest rates or actually from operational excellence. We'll see that over the next couple of years as we start to try to monetize some of these assets.

But buying an unlevered asset at 5% or 6%, which is infrastructure- and real-estate-related activity, and funding at zero, as I mentioned—

Yeah.

—makes a ton of sense.

It works.

Funding at 6% or 7% and buying an asset at 5%, 6%, or 7%—

That's good.

—that's good. So I think it's going to be harder. I think it's going to be harder. You're taking more risk. It's a different risk profile. I think those assets should be matched more with investment-grade, long-duration products, not levered products, because the leverage is too expensive. There'll be other times when leverage is cheap, but right now it doesn't make all that much sense.

But we've raised all these pools of capital under a construct that all of these alternative products should make 15%+ rates of return in all different environments, without the subsidy of effectively zero to negative rates. That seems hard, really hard.

Private assets generally—private equity generally—have made net returns of 13%+ across the board. You've seen packaging and secondaries grow, and access points are going to grow. I think that's a pretty good place to be. Generally, in private assets, we have a high-level view that all assets are going to get more liquid over time. The question is, what's that going to do to returns, and what's that going to do to the volatility of those returns and the perceived riskiness of those assets?

Can you say a lot more about that? I think that is such an interesting topic. It also seems to be the topic of the moment with some of the stuff going on with endowments. There's an incredible amount of money in private credit and private equity, and lots of it has been illiquid for a really long time. Off-ramps and liquidity are really interesting questions.

Yes. What do you think's going to happen? This is back to the market-structure conversation. Historically, you've had a market structure where institutions—and actually, probably 20 or 30 institutions—controlled or dominated the private markets and defined private markets as private equity in all asset categories: private equity, infrastructure, real estate, and true corporate.

Now you have the evolution of the wealth business, and 91% of private-wealth clients don't have an alternative, and that's growing at a very fast rate. People are trying to get access to private assets because most companies have gone private and don't go public until they get access to the whole economy. You probably need to own private assets.

The structure of those vehicles in evergreen form versus the traditional drawdown form, where you call capital, is going to have lower headline returns—IRR versus actual evergreen returns. I think I told you about this—

People love IRR.

I told you about this. I did this comic where you have 2 people at their 10-year reunion. One person says, “Oh, I've saved $100,000,” and the other girl, Suzy, says, “I saved $100,000. Let's make sure we invest it well.”

Then they show up at the 20-year reunion. He has this nice suit on, and he says, “I've absolutely killed it. I invested in all this private equity and made 32%.” The next frame, she has this really sad face, and she's like, “I invested in all these evergreen strategies and made 13%.” And she's like, “Just curious, how much do you have?” He says, “I have $180,000.” She goes, “I have $330,000. I don't understand.”

I explained that story to my friends, my in-laws, and people who aren't in the business. It's still not understandable to them that somebody could say they made 32% a year and someone made 12%, and somehow one of them has more money than the other—

Mm.

—because of the compounding elements of it. I know that you get it, but as you go down the distribution channel with more evergreen products, you're going to see a much more normal risk-reward, where equity is making somewhere between high-single-digit and low-double-digit returns. Credit, depending on where we are in the rate cycle, will make high-single-digit to low-double-digit returns, whether it's levered or unlevered.

But the compounding element and the income orientation in a higher-rate regime are more valuable. International assets have historically traded at lower growth and lower multiples. If some of this foreign direct investment changes, could you see, with Germany really powering the printing press for the first time in a decade, a normalization of multiples and a somewhat higher-growth regime in Europe? Everyone has a hard time betting on that, but it feels like the stars are aligned that potentially you see a higher-growth regime in Europe for the first time in a decade.

So how do you think we get pricing, liquidity, and interesting new ways for people who have put all this money into these vehicles and want to get it out but can't contractually because the fund lives are whatever they are? Or do you think that changes?

I think that there's going to be secondary marketplaces.

I think the secondaries business is gonna change dramatically. I think private asset exchanges will happen.

Who will do it? Who will build those?

New companies?

First off, I think there’s gonna be a need. Two, I think that the more that wealth wants equity product and private equity-type products, the more that they’re gonna need a liquidity lever and a need for this private marketplace.

And so how that’s designed is a question. You see us experimenting, and one of the things I love about our place is that we experiment with a lot of different things. We’re experimenting with market-making on Private IG. We’ve experimented with doing a partnership with State Street and Lord Abbett.

We listed our first fund on the blockchain with 5 different protocols, and we’re tokenizing the fund. I think funds will actually—

Trade.

And even though they’re quarterly liquid, they’ll trade every day, 365/24/7. Coinbase is saying that they’re going to list a token that’s backed by their stock. You can see what’s happening, which is this evolution to 365/24/7.

It’s such a strange thing to imagine—I don’t know, an LP interest in a normal private equity fund trading when the amount of information available on the fund, let alone the underlying companies and holdings and all that detail—

It trades in the secondary market pretty liquidly.

Yeah.

There’s a pretty big bid. You look at the volumes going through the secondary business every year; it’s extremely liquid. If you wanna get out of it, in most market conditions, you can get out of it at some price—not that far from 90, 92, 96, depending on the fund, depending on the design of the fund, the sector, the size of the manager, and the brand of the manager—but by and large, you can transact in that.

The more you pool assets, the more likely you’ll get more liquidity, to your point. The more that you can call it diversified beta, the more likely you’ll be able to move the risk. The more that it’s deemed to be private-markets beta as opposed to a single-name underwrite, the more likely you can actually move the risk.

That’s happened in the fixed-income market, where portfolio trading is happening. You can trade a pool of investment-grade bonds at 3 basis points, but if you want to trade a single-name bond, it’s half a point to a point wide, which is just vastly different in terms of cost of execution.

What do you think happens in the wealth market? That seems to have become a huge driver of new capital coming into infrastructure.

It’s hard to say it doesn’t grow. People are just under-indexed to private. It’s not that dissimilar to the story I said about 2003. A billion dollars was a really big credit fund. By the way, I was 24 years old going to Geneva. I’d go over there, and I’d read off my list. I’d prep myself for what the marketing pitch was for a long-short credit fund, and we would raise $50 million to $75 million in one meeting.

Now, I’m at Apollo with close to 25 years of experience, and it takes us 2 or 3 years to raise a dollar sometimes. People wanna know I’m right, on repeat. The gestation period to raise money has completely gotten out of control. It’s so much longer than it ever was.

In wealth, it’s the early days. They need product, they need to get more indexed, and they wanna go with big, high-quality managers. They wanna go with someone they know and trust, et cetera. But there are only a handful of brands that can do that, and they’re all short on product. So the tailwinds there are gonna be hard to see not continuing to grow.

I wanna ask about the third category, which is how shareholders of Apollo have historically thought about you.

6. Apollo's Culture Of Ownership

Let’s talk about its legacy. For any shareholders listening, I hope they love us. At our core, we are generally pretty unsatisfied. We try lots of different things. We have probably one of the smartest, most strategic leaders in the marketplace, and that really powers the culture of the place.

We have a set of people, and it’s pretty flat still. You’ll have principals and associates, and analysts are not afraid to talk to me or anybody else, and we like it that way. If you have a good idea, bring it up. We don’t really have all the hierarchical stuff of a traditional—what you think of as an $800 billion manager. To me, it still feels pretty flat, and we wanna keep that feeling.

I played football at Amherst, and there was this game that we lost my senior year against Wesleyan. We lost 24–17. We were definitely not supposed to lose. And at Wesleyan, you weren’t supposed to win. It was Sunday, the day after the game, and we were all sitting there when the coach came out. He was like, “Thumb guys, finger guys. Don’t blame anyone else. Don’t be a finger guy. We’re all thumb guys.”

Mm.

The point was, take the accountability yourself. Stop trying to blame everything else. When things go wrong or we’re trying to create something, people take it on themselves, and we have that embedded culture of owning both successes and mistakes.

Really, on the mistake side, people aren’t always looking to blame other people, and we’ve surrounded ourselves with those people. We do that with our people, but that just emanates through the whole place.

Such a cool, amazing concept. If everyone did that, I think a lot of companies would be a lot better.

I have sort of a two-part question. In addition to the fingers-versus-thumbs thing, I’m curious how you think about the culture, first as a participant in it and now increasingly as a steward of it.

The second part of the question is how you navigated what has been—you’re fairly young—a fairly meteoric rise inside Apollo, from managing $130 million to the position you’re in now. Thinking back on that, why do you think that happened? What did you do to do that? Lots of people want to do that.

I think part of it, you always have to bifurcate the seat versus the person. Part of it, I was lucky. Marc drove Athene. Credit became powered by an internal pool of capital. Our teams did an incredible job of navigating, creating new asset classes, and being innovative.

But listen, when you have tailwinds like that, and you’re one of the leaders of those businesses and help architect that business, that obviously helps. We have an incredible team and incredible people. Also, the leadership across the board—they’ve always let us run with it. If we have an idea, they’ve let us run with it.

In 2018 and 2019, we did a $1 billion direct-lending deal, when no one was doing multibillion-dollar deals, and we did it with not a very big direct-lending business. When we wanted to go to the Middle East and partner with Mubadala to raise a $12 billion balance sheet, no one had raised large-cap direct lending. This was 2019. No one had thought of really raising a balance sheet to commit, distribute, and hold, and have our own balance sheet that was effectively 50/50 with Mubadala.

No one thought about those things. Creating asset-backed businesses, our platform business—all of these things into products. If it was a good idea, it was pure meritocracy and pure engagement with the entrepreneurial spirit. Despite us getting bigger, we haven’t lost that. That starts with Marc and goes down to Zelter and Kleinman, and there’s just an acceptance across the board. The team has just been amazing.

And so that part has been fun. I’m definitely oddly over-indexed to change, so I like it a lot. I have to work on that because even when things aren’t supposed to change, I like the change.

But the industry has changed a lot. I have tried to be really market-oriented around what is the appropriate equilibrium of where the market should sit, both in product design, fees, and asset category, and really question how to disrupt ourselves. I’m okay with that discussion. There are many people who are not okay with that discussion. I love that discussion because I’m like, “Okay, well, then let’s do it.”

If someone’s gonna disrupt it, I’d rather just do it ourselves before letting anything else happen. And I think you build trust by having that mentality.

The other thing is that I oversee a really big private-credit business. That’s how it’s viewed from the outside. Really, now I oversee a big private-markets business. But I grew up with public-markets DNA, in a job that was literally, “Here’s a draw of very small nominal dollars. Eat what you kill. If you lose money, you won’t have a job.”

That’s a different thing. It’s a different thing. You have to be all over all of the risk all of the time. That’s hard to untrain. Part of that training, though, was creating with very little capital. I worked at a $500 billion, $3 billion fund.

What you had to do in that was develop the skill of having the idea, going and creating the idea, getting other people to believe it was a good idea, and having the banks, in some cases, finance that idea. I was constantly training myself and our team with small pools of capital and no brand. We were small brands—Brencourt, AIG, these places were small.

Not in Apollo; I learned how to do things without that business card, that seat. I learned to do it with very few resources. So now, when you have the resources, all of a sudden you’re just incredibly empowered to do things, and you can do the whole deal yourself.

Having that public-markets DNA in the context of a big private-markets manager, that really differentiates us from a lot of different people out there.

I also love this idea you've talked to me about before: historically, Apollo and firms like it are attacking the alternatives sleeve of someone's portfolio, maybe the 20% allocation they have to alternatives. The future might be much more about attacking all 100% of a portfolio. How do you think about that shift—making that happen, making that possible? It's a very different approach.

7. Private And Public Become One

First, you have to agree that privates and publics become one. The overwhelming thesis is that most assets get more liquid over time. So let's just assume that assets get more liquid over time: What was seemingly perceived to be less liquid before will be more liquid, more accessible, and more acceptable in those portfolios.

There are certain states today which will take a rated private asset and a rated IG private asset, and it eats into their private equity bucket because it's deemed private. By definition, we're all wired—and we've talked about this a lot—to think that private is risky. But if it's an Intel bond with a 20-year guarantee from Intel, is it riskier or safer than the Intel CUSIP bond? You're attached to the asset, so you actually have a double claim in some ways.

That part, we think, will go away over time, particularly to start with private IG. Let's just start with credit, where you have a third party saying that this is rated X. S&P is saying this is rated triple-B, and S&P is saying this other asset is rated triple-B, so you have guideposts. If you have the guideposts, when you look at your credit allocation in a 60/40, shouldn't you just be optimizing for return with your credit allocation?

Mm.

Will that then go into sub-investment grade? Will that go into equity? Will that go into equity pools, both private and public? Should there be diversifiers to the S&P 500? These are, I think, real questions. If you look at market structure, if you look at how capital pools are growing, they're telling you that's what's happening.

When we talk to a client in the future, I don't think we're going to be talking about the 20. We're going to be talking about, okay, what's the best risk-reward—

Best risk-adjusted return.

And by the way, we're organizing our business with no walls, to the earlier comment on risk-reward. It's the same thing when you talk to an issuer. What are you solving for? Here are all the things you can do in credit, public and private. We do all those things. By the way, we do them on our own balance sheet. Let's compare notes.

Mm.

Okay, equity: What are you looking for, public or private? We do all those things. We understand exactly that. Here's the solutions we can provide you, and by the way, let's put it all together.

There's a whole other ecosystem around private assets and data, and exactly who owns what information you get from your data set versus public markets data sets. I think, again, it's early days, but the broader, bigger, scalable businesses that have more touchpoints across the economy—particularly when the economy's going more private than public—hopefully can use that data to make better investment decisions.

If I'm an equity investor, I'm a private equity investor, or a long-short hedge fund investor, or a pod investor, or something—

Mm.

What is the value to me of understanding the most important parts of your world to do my job better?

For someone who grows up on the capital structure side, where you have to understand all parts of the capital structure, as a credit investor, you need to understand the structural dynamics and flexibility of loans, converts, bonds, and prefs.

When you're a purely equity investor, typically when you talk to them, they're focused predominantly on one thing, which is top-line growth. If you get the 3-year top-line growth number right, you typically get the stock right. When you go to California and ask about debt, no one wants to talk about debt.

But now you have venture companies actually building defense companies that are going to be super asset-heavy, and now you have hyperscalers that have never had any debt but need a lot of it and are becoming more capital-intensive. The powering of this stuff is more capital-intensive.

But when you're investing in businesses and optimizing for ROE, if you're running a business and you understand all the different flexibility points at different parts of the capital structure, on balance sheet and off balance sheet, you're going to optimize and have better shareholder returns over time because you're going to give yourself a lot more flexibility—

Mm.

—and in some cases have much cheaper growth capital than you think you probably do than just raising equity. If you understand credit and you're an equity investor, typically you understand all the option value you are long when you issue debt, and you just create lots of optionality for yourself that maybe, if you didn't understand that, you wouldn't price into your stock.

If you were teaching a Harvard Business School class or something on “How to Build a Great Origination Platform”—you work with a lot of origination platforms, and you've bought a lot of them historically. It's a really key feature of everything that you do. You have to originate these things. What would be the curriculum or syllabus of that class?

8. Building A Great Origination Platform

Number 1: Have a very clear credit box, very clear rules of the road on what you buy and what you don't buy. When you're not clear on that, it can create lots of issues. The more clear you can be upfront—if you're clear with someone about what you're willing to buy and what you're not willing to buy, what the parameters and bookends are of what you're willing to buy and not buy—that empowers your origination machine.

Mm.

If you're not clear on your decision-making, if there's not a clear point of accountability, it creates way too much noise in the channel because you're not delivering to the clients because they think they can do X, and that actually is brand-degrading. The number 1 rule is to make sure you spend all the time in the world to define the credit box—

Mm.

—and be very quick, if you don't want to do stuff, to redefine that credit box and be clear with your communication—

Mm.

—to anyone who's originating on your behalf. That's rule number 1. It sounds pretty simple, but you'd be surprised how hard it is to execute at scale.

Do you have a favorite example of what you view to be a great origination platform? Just tell a little story about what one of these things might look like.

Credit Suisse was going through some changes and was ultimately bought by UBS. Atlas was the structured-products business at Credit Suisse. It was the number 1 profit center for a decade, generating a big percentage of Credit Suisse's earnings for a long time with effectively no losses.

They had a $45 billion balance sheet, and what they did was provide warehouses to originators all over the world. They would let those originators write a bunch of small loans, and when they got to a certain quantum, they would securitize those loans and distribute them through a distribution mechanism.

Because Credit Suisse stock was trading at such a discount to book, they needed to sell it. If they could sell it at book value, it was actually accretive. This was the classic Apollo deal. It had mortgages, solar, commercial real estate, and consumer.

To underwrite all of those things was almost impossible for anyone in the market other than us because you had to have the full suite of the team, and you had to bring on the full opex of the business. So you're talking about 300 people. In 2022, when rates moved, they sent 2 million wires for margining. So you have to have—

Structure.

—the scale to actually do it. You have to know all these asset classes, and you have to have the experience of being able to take on a team culturally, integrate the team, and do all those things, and then execute on a plan.

It got down to the wire. I remember sitting here. We were sitting here at midnight or 1:00 a.m., and I was eating Chinese food with one of the analysts and the deal partner, and I was like, “This is fun. I love this. But we're back. Let's do this again.” That's what it's like. We're all on the floor having fun, and we ended up winning that deal.

We ended up taking on $28 billion of assets. We brought in 3 partners, including MassMutual, to partner with us on the equity, and 2 sovereigns as well. Now we're on pace to grow that to, I think, $50 billion, and our long-term goal is to grow that to a $100 billion warehouse business.

Mm.

We hired 180 people into that business. We had to completely restaff it with its own CFO, CRO, and entire operations as a real company. We rebranded it Atlas, and now we control 280 separate warehouses. We're one of the go-to places to provide across all these different asset categories, and we control the front end.

That's just right down the middle of the fairway, where everything about Apollo works.

What deal that you've been an intimate part of has been the most fun for you at Apollo?

9. Apollo's Distressed Deal Playbook

I'd say the deal that took the most time and attention over the last 5 years was probably Carvana, and I know you know Ernie. That situation went from us being down $500 million to up $1 billion, probably in a matter of 6 months.

It went from us being a lead order in a JPMorgan syndicated deal in 2022 to all of the bonds, a year later, trading at 30, having bought another $750 million to $1 billion of bonds on the way down, and being questioned about the whole investment, I think, in every single investor meeting I went into.

I was like, “I will never do this again.” Every single meeting I went into, I was getting questions like, “Well, what’s Carvana?” It sounds like it was a big position for us, but in the context of all of our funds, even with it at 30, we were up 8% or 9%, so we took a 100- or 150-basis-point loss per vehicle. But just because it was in the news—

So much headline, yeah.

It was so much of a headline for me, the whole thing. I sensed that there was going to be an issue, probably in November of ’22, about 6 months after we did the original deal. Every time I started going out to California to go to the Athene offices, I would email Ernie and say, “Hey, I’m going to be in Phoenix. We need to catch up.” He’d be like, “Okay.” I’m sure you could tell he was thinking, “Who’s this guy? First off, who’s this guy from Apollo?”

Yeah.

“And what does he want? There’s not a problem yet.” Then the bonds kept going down. I was texting him. I was looking at my texts last night, and I thought, “Wait, how am I going to tell this story?” You look at the texts from the beginning, and he wouldn’t respond. He wouldn’t engage. He just wouldn’t, and it was like, “Sure.” You could tell he was thinking, “Who is this person?”

Yeah.

I think in November, we caught wind that they were going to try to— By the way, I probably did 20 calls and 2 or 3 dinners with him. He heard what I was saying, but he didn’t; he was just worried that I was trying to do something that was not in his best interest—

Yeah.

Which I understood. You can get that. They hired Moelis, and I caught wind beforehand that they were going to launch a super-coercive exchange. This was before the idea of co-ops. Co-ops are where you actually partner with other creditors and agree that, no matter what, we’re going to take the same deal so that they can’t take other lenders and give them a better deal versus us.

So we say, “Listen, guys, we’re the lenders, there’s the company. We’re going to figure out a good deal together, but it’s not going to be because they pin us against each other.” There was $5.5 billion of outstanding debt. Coalescing $5.5 billion of debt requires you to have known these people for a long period of time, and the credit markets, whether or not you accept it, are a cottage industry.

It’s a handful of people. I’m friends with most people in the market. I’d like to say I’ve not done anything wrong to anyone in the market, and I generally have real personal relationships that have gone on for a long period of time. They’re deep, real relationships, because in credit, it’s not zero-sum. The equity markets are more zero-sum: You win the deal, I lose the deal. You’re typically in the same bond with them or the same loan, or maybe we’ll be on the other side, but I know I’ll be on the same side again.

Yeah.

It’s a very different dynamic. We were able to get 90% of the bonds on board. They launched this exchange, and the exchange got blocked.

What is the exchange? Just describe the block, the blocking effect.

The effect of the exchange was effectively, “Hey, if you roll into this bond at a steep discount, we’ll give you security, but you have to take a big haircut to par.” All of us said no. They launched it, they extended it, and there was no deal.

People don’t know this part of the story, but I’m sitting on vacation—my first vacation in probably a year—in the South of France, and I’m sitting there with my wife. Guess who’s sitting next to me? Ken Moelis and his wife. I’m like, “Ken, I’m on vacation,” and it’s one of these places where you have to stay a minimum of a couple of nights or whatever. Ken’s there sitting at every meal. He’s there, and I’m like, “Ken, can we somehow get to an agreement on this other thing?”

His famous quote from the whole thing is, “Co-ops are made to say no.” Meaning that once you guys all get together, you’re never going to get to a deal. I’m like, “We can get to a reasonable deal. Just get everyone together—

Mm.

“Send us over something.” I was just encouraging them to do it, and eventually we ended up flying out to Phoenix as a group. We went back and forth, and finally you realize, first off, that getting these deals done is incredibly hard. They’re very rare to get done.

Second, it was probably the only co-op where everything worked. We cut a deal. We had bought stock at $4, and the stock went from $4 to over $280 in the next 12 months. The bonds went from 30; you exchanged at 90, and those bonds were trading at 120 a year later. Everybody won in this.

Very rarely do you have, in that short a time period, a deal that’s effectively a fair deal—not where we’re taking the equity or anything—and a year later, everybody’s won. Now, we sold the stock at around $15, and it went to $290, so we’re the idiots. Here, I’ll pull it up now, because I was laughing.

He wouldn’t reply to anything before, and now we’re personal friends. I sent him “Evening Gown” by Mick Jagger about a year ago. I don’t know why. We’re both into music, and he goes, “If the FBI had to profile you based on your music, they would say you were a 60-year-old from West Texas with an optimistic form of depression.”

So you go through the channel, and you’re like, “Okay, how did this deal get done?” It got done because I just kept going back. I kept being super-brutally honest, and despite his lack of trust—I think part of it was institutional, or what we were doing in the credit markets—he just didn’t want to.

Smart people just see through it, and he actually heard me for the content. Once he got there, if you talk to him now, he’ll tell you there was no deal without us having spent all that time before, and without the whole process of me going to Phoenix all those times and actually engaging with him and continuing to give him feedback. That’s what ultimately got our deal done.

In most cases, that situation would have ended up in some sort of bankruptcy or some sort of aggressive thing where no one probably would have won, honestly. That one was fun because I feel like Ernie and I are great friends now, and I think we both learned a lot. You realize that you have to have flexible capital, and you have to be willing to actually commit to having a personal, trusting relationship with whoever the decision-maker is.

If you don’t have that trusting, personal relationship with the decision-maker—not only the decision-maker, but also your peers—because in credit, you have to be able to agree that sometimes 1 plus 1 is 3. It’s not zero-sum.

That is an amazing story, and I love having heard it. It’s obviously one of the most fascinating capital market stories of the last 20 years. Another story that I’ve loved hearing you talk about is Hertz, mostly just because it seems to tell the story of what Apollo does and why it’s interesting and differentiated. Can you tell that story as well?

Yeah. At the 2016 annual meeting, I said that Hertz would file for bankruptcy. I was dead wrong for 3 or 4 years because I was of the view that Uber would mean people would rent fewer cars, pricing would collapse, and used-car prices would go down. That was the thesis in 2016.

COVID hit. I talked to the management team a month later, and they were like, “We don’t have any plans for anything. EBITDA’s fine.” I’m literally locked up in my house in Bedford, and I’m like, “What are you guys talking about?” We bought several hundred million of June insurance, and the company filed in May, literally a month after they told me everything was fine. That was the start of the Hertz journey.

From there, we bought the term loan at 60. We thought we’d probably own the company at a sub-billion-dollar valuation. It was very different than with Carvana, when we hated it—it was a $10 billion company, and we were buying the company effectively at $1 billion. You go over the life of the journey from mid-2020, when we were buying the term loan at 60 as a distressed-for-control investment—which, again, is not really what we do historically—but it was COVID times.

We were like, “Hey, if we own it here, we don’t think it’s going to be distressed for control, but if we own it at this valuation, it’s worth this.” Think about the story of Apollo and how it can actually provide solutions. From that point forward, we became the largest secured lender. We provided the DIP. We refinanced $4 billion that summer of their entire used-car vehicle financing—

Mm.

Because the used cars were collateral, they needed a refi.

Yeah.

We refinanced $4 billion. The term loan went up, and when the company ultimately ended up exiting bankruptcy, they took out the term loan. In November of that year, they had a lease business—a platform business that actually did fleet finance inside Hertz—that they wanted to sell before they exited.

Mm.

We bought it in our platform business and have merged it with Wheels, which is a specialty-lending fleet-finance platform business.

Mm.

Then, when Hertz ended up being a solvent company where there was value to the equity, Knighthead ended up winning the bid. We provided the $2.5 billion of exit financing, which 6 months later we got taken out at 130. We put $10 billion into the ecosystem across DIP, secured, securitized product, pref, and buying a business out of the platform.

Nobody could have navigated that whole situation over a 12- or 18-month period. You have to have tons of flexibility, creativity, and agility. You have to think up and down the capital structure.

That was the first time I saw the whole platform at work, from our platform team to our senior team to our hybrid team, all working across the whole ecosystem. That was a pretty special thing.

I hope to do a lot more like that.

You need a combination of market vol and single-name vol for that to happen.

Sure.

But when it happens and you can execute on it and showcase everything, again, being close to the decision-maker, the more we did, the more we were getting the first call. By providing the $4 billion of securitized product—not that it's a +300 business, meaning it's not high-returning—we got the first call on the platform.

Then we did that. We got a last-minute call on that pref from Knighthead, and in 30 minutes, because we knew the company so well, I said, “Okay, we'll do $2.5 billion of pref.” We could react that quickly, at scale, big and fast. Very few firms can move big and fast like that.

Hmm.

And we can move big and fast like that because we know the businesses so well, we follow them well, and we have a big balance sheet that allows us to commit fast. We do it because we've invested in all these companies for so long.

These companies never go away. They either get acquired, they refinance their debt and come back to the market every 2 or 3 years, or they file. It's never like you do the loan and hope you're going to get paid enough in cash. These are companies that you follow for a long period of time.

I'd love to talk about some of the future categories that you think you'll be most focused on. The obvious one is U.S. infrastructure build-out around AI. AI is, of course—you have to ask about it. It's the thing everyone's talking about.

I know you've spent some time meeting with some of the young companies, which is so cool. We've met with some of the same companies. It's pretty wild to imagine where the world's going. But when you think about Apollo's role in all of that, one of the things happening is just a massive outlay of capital to update compute infrastructure. How do you think about something like that? How do you approach it? When do you know the right time is? Do you wait and let it settle out a little bit? How do you approach something like that?

10. Financing AI's Compute Boom

My wife's banned me from talking about AI at dinner because I think it ruins the dinner party, so we don't talk about it as much.

Why? Because you're a doomer about it?

I'm less of a nihilist. I'm more excited about it, but I want to talk about it a lot. I think there are 3 segments of our business that we have to think about.

One is aggregate data: taking tons of unstructured data and structuring it. How do we use that in a way that's attractive? How do we use that in a way that's potentially predictive? Two is all the operations of a financial services company, which I think will just get better.

Everything from custody to cash transfer to trade settlement will get more optimized and more efficient. Whenever you do a transaction, there's a whole host of workflow that I think will get more optimized and more efficient.

And three is the investment process. For us, it's really: How do you co-pilot? How do you create copilots to make our risk decision-makers better? I think that's going to happen. You have to have people who are very proficient at that to actually train the computer and the system and create the system the way you want.

You can create a system that gives you bad advice, too, so you want to make sure that it's creating it under the framework that you acknowledge will suit the product's needs, the fund's needs, or the investment process's needs. That stuff's pretty exciting for us because we're very large, which means we have lots of information and lots of optimization that we can do that we haven't done yet.

So I'm pretty excited about our future in that regard. I'm really excited about doing it. Obviously, when you talk to people in the ecosystem, they get a little nervous about what that means for everybody. I think that we're just going to be doing our jobs better and more proficiently and be able to do more, which is exciting.

Do you think it affects where you put your dollars? So much money is being spent on all this stuff and making it possible. Everything you just described, you're going to spend money on. That's flowing through a whole new set of infrastructure. Do you think you'll be involved in that part of the equation?

Yeah. Compute is the center of all of this, and the demands for compute will go up. The sizing of these mega data centers is astronomical. Frankly, there are only a few investors that can finance them with matched liabilities at the scale, and we're fortunate to be one of them.

I think we'll be a leader in that. Intel was just the start of that. There'll be a handful of us that lead that charge. The most important thing is that we work with high-quality counterparties, because the hyperscalers and others that want that compute are typically very well capitalized and growing their earnings really quickly.

The more that we can partner with them to create the most flexible type of capital structure, duration-wise, that matches exactly what they need, I think the more likely we are to be the service provider for that. I think we are positioned, given the org design of the liability structure of our business. We're designed to be the provider—one of the largest providers—of all that capital.

It feels like that and, probably, defense are our largest sectors that are growing really quickly.

If you think about young entrepreneurs interested in capital markets amidst this entire shifting, changing landscape that we spent a lot of time describing, where do you think the most interesting opportunities are to start new finance firms, new capital markets firms, or new asset managers?

I mean, look, I always think there's going to be some level of the core—let's say, core credit and core equity businesses—that are going to get consolidated. So if you're big, you're going to become mega, and you're going to distribute and produce products. I think there'll be consolidation there, and you're seeing that.

But there'll always be the family office or the endowment that wants the small artist. I started here with a $130 million fund. No one paid attention to me for at least 5 years. “What the hell is this guy doing over there with this long-short credit fund?” And I did that for 10 years before coming here.

Those businesses require you to wake up every day super risk-managed, whether in the liquid business or elsewhere, managing every line item and every risk every night. You're living and breathing the artistry of that business, whether it's buying small businesses, investing in small businesses, or venture. These are just artist businesses, and I think there's always room for the artist in the aggregate asset allocation.

So my thing is: Find something that you love doing. Find something you're super interested in. Create a product around that, and get yourself excited about what you're doing every day, because if you do that, you're probably going to design a pretty good product and a pretty good investment process.

The clients see through this stuff. They either feel the authenticity of whether or not you care or whether or not you're interested in the product that you design. They know, and whether or not they know on day 1, they'll know.

Do you think there's a future for Apollo in sports—financing teams, doing anything like that?

In a world of AI abundance and 7 nights a week, we just backed Ari and his Miami Open and Madrid Open, and hopefully some other events. Their thesis is that the events business went from 2 nights a week to 3 or 4 nights a week because working from home turned it into that. There you go: AI abundance. It's a 7-night-a-week business.

People will be enjoying a GDP that's 5 to 10X, and we're all just getting serviced—

I will.

—by robots. Let's go there. AI abundance. And if we do that, the events business is pretty cool.

What happens in asset categories that go up in value really quickly? Take sports teams, for example. When they go up so fast, it's not so much cash flow; it's more enterprise value.

Yeah.

There's not a ton of lending, so there's this huge gap in specialty finance.

Mm.

And so I think you could see us lending against teams more actively—not so much buying teams, but I could see us doing more things like we did with Ari, where we provide financing, own a little bit of it, and back them through some sort of hybrid instrument.

Yeah, it'd be really cool to imagine you applying this to literally every single sector as it matures over time.

Yeah.

As you do that, what are the things in the Apollo culture that you hope either stay the same, grow, or become more true?

Just a willingness to try new things. I think everyone realizes the world's changing pretty quickly, and if not, then they're going to realize it's changing fast.

Yeah.

It feels like it's changing faster than any of us can even accept, and the people who are closer to it even say, “We can't even predict this stuff.” So just a willingness to try new things, an openness, and a flexibility around that.

I prefer Gumby. We want people who are willing to test some of those norms and be outside-the-box thinkers. Just because something worked in the past doesn't necessarily mean it's going to work in the future. And just have fun doing it.

We have our Olympics. I try to keep things pretty fun. We do, like, an Olympics. Last year, at the end of the Olympics, we had this standard corporate Olympics. It was going to be fine; it was fun. We go out to Randall's Island.

But to mix it up, I always do something a little different. I had the team meet us at the fish market at 5:00 a.m. We got 3 50-pound greased cods, because when I was growing up in Maine, we'd have this annual greased cod race where you had to get in a fireman's outfit and carry a 50-pound greased cod back and forth.

I didn't tell anyone what the finale was for the finalists. I said, "The winners, the finalists, you guys get to race for the winning thing." Then I pulled out the 3 50-pound greased cods, and it was the relay race for who would win. But we're still trying to have fun here. I'd like to think that most of us—you've got to have fun coming to work and enjoy doing it.

Where do you find the meaning in all this stuff? The reason I ask this question is that my wife and I are watching this new Jon Hamm show on Apple TV.

A couple episodes in, yeah.

I find it to be both really fun to watch and also maximally depressing. It makes me hurt, and it's all these guys who are incredibly rich whose lives could not seem emptier or worse.

Yeah.

I think this is a true thing that happens in finance, where the product literally is money, and therefore the world is money, the incentives are money, and the market system is incredibly powerful. Capital markets are the centerpiece of it. We talked about that at the beginning, how powerful an asset this is for the U.S.

But it seems like there's a chance that you get really distorted by the incentives and the structure of the system as a human. And so I'm curious where you find meaning in it—

Yeah.

—and why you've chosen to do it.

I wanted to be a football coach, and I was screaming not to come down to New York. It all hit the peak when I drove down from Amherst to New York to move into my one-bedroom with 3 guys at 38th and 1st.

I lived right there.

I'm coming in the Midtown Tunnel, and my tire pops going into the Midtown Tunnel, moving all my stuff, because I had so much stuff in the back of the car. I was like, "I cannot believe I'm doing this." Then, getting on 4:30 or 5:00 a.m. trains up every morning to beat my boss to work—because my stepdad would say, "You've got to be first in work"—actually got me a job.

Funny story about that: I'd try to get there first every morning, and my first boss, Jim Kasberg, would get there super early, and I couldn't beat him there. He was going to have his fourth kid, and the fourth kid ended up being triplets, so they had 6 kids.

Oh, my God.

Now that I have 3 kids, I realize, okay, he wanted to get there first before anyone woke up, so he—

He's getting out of the house.

Yeah, I was competing with the 6-kid household. So that was too hard.

But I went up there, and my stepdad was like, "Just try it." I met with the founder of the firm, and he's like, "Look, are you competitive?" "Yes." "Are you good at math?" "Yes." "Do you like new things?" "Yes." He's like, "Your blood's gonna turn green. Just come up here and do it."

For me, it was always about having a really good product and making good returns versus other people. I wasn't so outcome-focused. I've always been about authentically feeling like I have an idea or a product or something that's very original and very much what we believe in. You can use a fund as, effectively, a mechanism to actually take that view.

And the thing I loved about it, too, is that I've always had the view that if you have good performance over time, for long periods of time, that just means you will have clients forever. They trust you, and you do what you say you're going to do. It's a pretty good framework for how to operate.

If you can do that consistently for long periods of time, you'll always have it. I didn't realize how much I was going to love the business from the beginning. Where else can we be in the middle of compute, oil and gas, software, and healthcare, being in the middle of all these conversations globally?

It is the eternal learning center, and I don't think I could do anything else. Then people ask me, "You ever gonna stop?" I don't think I'm gonna stop. I don't know how I stop.

Mm. How about some blueberries?

All right. My wife is incredibly healthy. She also has a great way of finding very special things, and as with anything that is special, I love to be a part of building something special, something unique, and I like sharing things that are unique.

First, every time you order an avocado in New York from Instacart or Order In, half of them aren't great or are bad. There's this guy called Da Avocado Guy, and he—"

Yay, Avocado Guy.

Yeah, Da Avocado Guy. You guys can go get it right now. It's probably 50% or 100% higher than a regular avocado.

But what—

Every avocado is perfect.

Yeah.

So, no matter what, back to your idea on young ideas, anything that is unique or special or solves a problem, you can have a business. Da Avocado Guy.

My wife found this farm down in Florida that makes blueberries once a year. At harvest, you can order 5 pounds once a year. You have to order it that day. You just missed it, everybody. I actually don't know the name of the farm, but the farm harvests them once a year.

Da Blueberry Guys.

Da Blueberry Guys. We got them the first year, and literally, you can't eat other blueberries because they're so good. Now I started sending them to people on the floor, so I sent them to Zelter. The people on the floor are all getting—

Blueberry, 5 pounds of blueberries—

And then they're like, "Why are you sending me blueberries?" Just a message that it's really unique, really special. That's how you build relationships with stuff like that.

Anything good.

Anything good is around that, and I give all the credit to my wife, obviously, on anything health-related. But these jobs are impossible if you don't have someone at home who's supportive and gives you full trust all the time, always making the right decision for you and looking out for you. I'm pretty lucky to have that.

It's been so cool learning from you over many conversations because Apollo is this sort of monolith that you might think was a private-equity firm. Maybe if you thought it was in credit, it was doing just mid-market sponsor-backed deals, and it's obviously turned into something much different.

It's been cool for me to learn about. I'm glad that everyone else listening gets to learn about it as well. When I do these, I ask everyone the same traditional closing question: What's the kindest thing that anyone's ever done for you?

My stepdad, who went to West Point—we were talking about him earlier. I was with my mom and stepdad for most of my life, but he set a ton of structure and really always treated me like his own. Now that I have 3 kids, it's hard to thank someone enough for that.

Amazing. Great place to close.

Yeah.

Thanks for your time, John.

Thank you.