John Zito - Inside Apollo - [Invest Like the Best, EP.426]

My guest today is John Zito. John is the Co-President of Apollo Global Management. He shares how they've quietly built one of the most important financial institutions of our time, originating over $250 billion annually. John's thesis on the convergence of private and public markets - and Apollo's positioning to capture 100% of client portfolios rather than just alternatives allocations - offers a fascinating glimpse into where institutional investing is heading. We discuss the cultural and strategic elements that drive John, Apollo’s merger with Athene, the idea of artistry at scale, and the evolution of capital markets. Please enjoy my conversation with John Zito. For the full show notes, transcript, and links to mentioned content, check out the episode page⁠⁠⁠ here.⁠⁠⁠ ----- This episode is brought to you by⁠⁠⁠ Ramp⁠⁠⁠. Ramp’s mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to⁠⁠⁠ Ramp.com/invest⁠⁠⁠ to sign up for free and get a $250 welcome bonus. – This episode is brought to you by⁠⁠⁠⁠ Ridgeline⁠⁠⁠⁠. Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Head to⁠⁠⁠⁠ ridgelineapps.com⁠⁠⁠⁠ to learn more about the platform. – This episode is brought to you by⁠⁠⁠ AlphaSense⁠⁠⁠. AlphaSense has completely transformed the research process with cutting-edge AI technology and a vast collection of top-tier, reliable business content. Invest Like the Best listeners can get a free trial now at⁠⁠⁠ Alpha-Sense.com/Invest⁠⁠⁠ and experience firsthand how AlphaSense and Tegus help you make smarter decisions faster. ----- Editing and post-production work for this episode was provided by The Podcast Consultant (⁠⁠⁠https://thepodcastconsultant.com⁠⁠⁠). Show Notes: (00:00:00) Welcome to Invest Like the Best (00:05:55) The Rise of Apollo and Credit Markets (00:08:05) Innovations in Asset Management (00:11:42) The Role of the US in Global Capital Markets (00:15:26) The Future of Asset Management and Investment Strategies (00:21:03) The Impact of Interest Rates on Investment (00:25:27) Apollo's Business Model and Growth (00:25:17) The Changing Landscape of Private Markets (00:46:03) Apollo's Culture and Vision (00:47:54) The Importance of Company Culture (00:52:52) The Future of Private and Public Markets (00:57:50) Building a Great Origination Platform (01:02:03) Exciting Deals and Personal Stories (01:14:47) The Role of AI and Future Opportunities (01:22:16) Maintaining Company Culture Amidst Change (01:24:06) The Kindest Thing Anyone Has Ever Done For John

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:35Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review along with all of our podcasts at joincolossus.com.

• 1:00Speaker 01

  Patrick O'Neal is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

• 1:29Patrick O'Shaughnessy?

  My guest today is John Zito. John 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 $250 billion annually. John's thesis on the convergence of private and public markets and Apollo's positioning to capture 100% 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 John, Apollo's merger with Athene, the idea of artistry at scale and the evolution of capital markets. Please enjoy my conversation with John Zito.

• 2:08Patrick O'Shaughnessy?

  John, I've been really excited to do this with you.

• 2:10Speaker 02

  Me too.

• 2:11Patrick O'Shaughnessy?

  The main reason I'm excited is 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. And to set it up properly, I would love you to talk about the stakes as you see them in capital markets today. Because just the whole world of capital markets, which has been one way, very US dominated for a very long time, is shifting around. And it's not going to move fast, but it's changing and it's really important. And I think you have a very unique seat to see, not only through Apollo, but just the whole global capital markets picture.

• 2:57Patrick O'Shaughnessy?

  And I would just love you to give a state of the union on what you think matters and why.

• 3:01Speaker 02

  First off, thank you for the comments. I think I go back to the beginning of my career when loans were not even going to be something that traded. And all of a sudden, they were all on bank balance sheets and people thought it was just complete lunacy that you would trade a loan. And today, you're issuing 500 billion of CLOs today. I worked my first job out of college. I sat on a trading desk and the guy next to me was launching a $5 million credit hedge fund. And 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, yield, how to calculate bond yield, all on my own. I went to Amherst College and it wasn't really a finance heavy education.

• 3:44Speaker 02

  It was much more about thinking outside the box and be much more liberal arts education. All learned on the job and he ended up hiring me as his second employee to start this hedge fund. And in 2002, 2003, he ended up raising a billion four. Guy's name was Jim Casper, 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 a billion four was massive in credit, just massive. The whole ecosystem of alternatives and going into institutional products. And it was such a new thing. And the design of the CDS market, very new. The design of index products, very new. And this isn't that long ago. That was 22, 23 years ago.

• 4:25Speaker 02

  And you look at today, 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 a billion to 2 billion of annuities per week. We originated 260 billion of investment grade product last year, 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.

• 5:04Speaker 02

  Traditional asset manager is, okay, we take your money, we invest it the best of our ability, we take some sort of fee, but it's not our money, we're investing your money. And 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 service company called Athene. And with that 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.

• 5:45Speaker 02

  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 service 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 A win. There are people who question the model. I think that's one of the big bets we're making.

• 6:29Speaker 02

  The second thing is just how does all of this long, we're about to go through this generational shift in power, infra, 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 is bond, listed bond, equity? Or should that be with matched, longer duration capital? So the beautiful thing about annuities is it's long duration liabilities. Beautiful thing about retirement, 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

• 7:11Speaker 02

  is to go from a more bank funded, shorter duration product. That is how things were historically funded, whether it was a Q SIP bond or a on balance sheet bank loan in Europe, to a more duration matched, more retirement insurance related product and using that capital in a way. And that's what's happening. You see what's happened with us with Intel, with IMBEV, very large transactions that no one in the world ever thought Apollo would be leading. And so we're in the middle of this just generational shift in the way everything gets capitalized. The traditional relationship between investor, asset manager, bank asset manager, S and P 500 issuer and private alternative firm that is deemed to be more of a private equity investor,

• 7:55Speaker 02

  really stepping in and being a more private credit safe lender. So it's been really fun.

• 8:00Patrick O'Shaughnessy?

  I want to come back to a theme and tell that story in detail because it's like a huge innovation and change in how a firm like yours is structured. But I want to also ask first about your perspective on the US's, the America's role in global capital markets, maybe like in your whole career and how you see that might change prospectively with what seems like more of a schism in capital markets, in geopolitics, in all these sort of big things.

• 8:25Speaker 02

  Yeah, look, right now, it's obviously a big focus. I think all of the discussion is around tariffs. I worry much less around tariffs than the public narrative and I'm hyper focused on just our position in effectively a 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, the best venture capital market. If you want to do a growth company, you're coming to the valley, you're coming to the US 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 that are founders, great founders, really smart founders. They send out a business plan in Europe, they get a term sheet back in two weeks and they send a term sheet out in San Francisco, they get five the next day.

• 9:10Speaker 02

  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. Every retirement market over-indexed the US. Everybody is over-indexed generally 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, Asia-based. 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, we have a $50 trillion debt market, just amazing tailwinds, that flywheel. We don't want to take-

• 9:53Patrick O'Shaughnessy?

  It's our most precious asset, yeah.

• 9:54Speaker 02

  We don't want to take that for granted and why does that happen? Rule of law, really easy to come do business here, understanding of the rules and a very clear-

• 10:04Patrick O'Shaughnessy?

  Talent density.

• 10:05Speaker 02

  Just, yeah, talent density, but also just very clear rules of the road on how things operate. And the thing that worries me a little bit, and there's no place really to put money now, there's no real capital market big enough, but- 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. Multi-trillion dollar opportunity to take assets out of the banks into private credit and create tons of liquidity to fund all these growth projects with Germany and France

• 10:49Speaker 02

  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. And so we just have to be sensitive to that. We trade at, because of all the benefits of us growing faster and having better companies, bigger talent pool, that resulted in most of our equities trading at somewhere between five and seven turn multiples higher, multiple trillions 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.

• 11:26Patrick O'Shaughnessy?

  One of the beautiful components of the US system is also innovation in types of financing. And I love your perspective on like 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 like the first notable one to talk about.

• 11:41Speaker 02

  Yeah, we can, we can start there. I think about more distribution function, ETF market. How do people package and consume products? Innovation in products. Where's there been product innovation, where there hasn't been product innovation? You look at the ETF market, started in 93. We got to a trillion dollar ETF market, probably 09. And then we're north of 10 trillion today. Sector focused, every access point, tax advantage, you name it. Every delivery function through ETF has gotten pretty innovative. You look at the fixed income market, I don't think the daily liquid fixed income products have changed once in 25 years, which is pretty stark. And I think for us, a pretty cool opportunity, right?

• 12:22Speaker 02

  I think we look at our business and we always joke, the fixed income croup is the brown suits and bologna sandwiches. This just literally has not changed at all. That's my internal, I created like a brown suits and baloney sandwich picture on AI. And that's like our joke for like, we're not going to be this. And you look at what we've done in our credit business. When I joined Apollo, I was joining Apollo to join Apollo for what Apollo's brand is as the known as just the place. When things are dislocated, we have some of the smartest investors and we're going to figure out a way to win. And just tenacious in terms of underwriting, work ethic, all the great things that if you're competitive, you want to go work at a place that's going to be work really hard and typically be on the right side of things. When I joined Apollo, that was what I was stepping into.

• 13:07Speaker 02

  And really, I was pretty intimidated about that. And over time, what's been unique is we've taken a lot of people that are wired that way, that are super competitive, super smart, know the entire capital structure from a loan to a bond to a pref to an equity, which there's not many people in the market. Typically, people are very narrow. They don't look at the whole capital structure. And we've taken those people who typically worked in opportunistic, high octane, high returning vehicles. And we've taken a lot of the most creative people and put them on investment grade, which you think about innovation is how do you take a deal for like an Intel, $11 billion deal for Intel? And structured in a way that's north of 30 years, really equity type capital,

• 13:52Speaker 02

  but where we feel like it's more debt side protected. You have to have some creativity to do that because it's not something you go to a bank or you go and you just get it off the shelf. It's highly structured, highly creative, working with the company to actually execute on that. And because we put all of our people, we put our best people on that stuff and we have full open architecture. What does that mean? So what is the directive to those people? Is the directive, do the best risk return. Most firms are set up by fund. They're set up by, okay, go buy, go find a company or a preferred or a debt instrument that's going to make 15% rates of return. And we're set up, let's assess the company, let's assess the best solution for that company. And we have pools of capital from 5% to 20%.

• 14:34Speaker 02

  It could be a buyout, it could be an investment grade solution, regular way bond deal. 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 for us to originate 250 billion a year. You have to have a culture of wanting the issuer to do business with you again. And so we have lots of repeat issuers that say, oh, we may give them an investment grade bond today, but in two years, it may be in a different situation. They may need a pref rescue or something, or we're in COVID and it's a totally different environment. But because we were in the capital structure, we did something appropriate before. They're more likely to work with us later.

• 15:14Speaker 02

  This point is, I don't think, as understood that this narrowness by fund, narrowness by business. We have no walls. So our private equity team.

• 15:22Patrick O'Shaughnessy?

  It's a pool of capital.

• 15:23Speaker 02

  There are funds that are different below, but the investment teams, we have discussions across. I'll talk to our private equity team, to our credit team. We can all talk to each other around, okay, maybe we should do this and maybe we should do that. Maybe the company, maybe it would be better to structure it this way for this pool of capital, because that's what makes sense for the issuer as opposed to the.

• 15:45Patrick O'Shaughnessy?

  So there's no hammer looking for a nail.

• 15:46Speaker 02

  Yeah, having that and the flexibility to have all parts of that capital changed our business dramatically. Changed our business dramatically in just five years.

• 15:53Patrick O'Shaughnessy?

  Maybe if you think about the history since you joined in 2012, maybe 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 they get executed? Why haven't others done it to the same degree?

• 16:08Speaker 02

  We were pretty early. Mark and really brought on Jim Bellardi and really 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 in traditional asset management for insurance had not been as sophisticated of going into other things like structured products or just other products other than the traditional Q CIP liquid business. And so the core of the business is originate excess spread, similar. And fund the business with super long duration liabilities.

• 16:53Speaker 02

  And that there was no one 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 has been raised in the last, since the GFC, we're over 50% of total equity capital raised in retirement insurance businesses. And we've been the biggest beneficiary of that because we've been very active in growing both our asset side and our liability side. When we started to realize that the business was going to scale, we had to do two things. We knew that we were going to be short origination because how are we going to service our own balance sheet? So from 2014 to 2022, we spent just under $10 billion of our own capital buying our own origination.

• 17:33Speaker 02

  PK Air Aviation Finance, we built our own non-qualified mortgage business called NuFi. We bought the CS warehouse business called Atlas. We built and hired in those businesses 4,000 employees that originated 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's investment-grade, tight-spread collateral. No one would have built a bit, rates were zero. From the financial crisis until 22, 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.

• 18:16Speaker 02

  Finance at the cheapest level possible, term finance. 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. How are you going to build a credit business? You're making no money. You're making no money. And 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 know, you got like on the ship, let's go. It was all in all of a sudden because we were now over-indexed to origination. We never had really built out 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 can actually service our own balance sheet. And that's been the last three years. So now all of a sudden we can build fixed income.

• 18:58Speaker 02

  Products that are innovative that actually invest side by side with our own retirement business. And now you see everybody trying to get in the business. It's very hard to M and A your way into the business. Cause there's a origination culture that's been built here for 15, 20 years, just in credit. And to align yourself in a principal way and to actually, origination isn't just having a bunch of sorcerers finding risk. Origination is also the understanding what fits our balance sheet and how we think about risk and reward. 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.

• 19:41Speaker 02

  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 and A in the last several years. So I don't know, now we have tons of our own origination, market leader and overall spread origination, market leader and liability writing. And that we feel like that business is going to do well for a really long period of time.

• 20:03Patrick O'Shaughnessy?

  Can you just lay out what Apollo looks like today? So if you just 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 like an interesting.

• 20:16Speaker 02

  Yeah. So the surprising thing people like half of our 65% of our balance sheets investment grade. Now, when you look at the business in credit, take credit as a just under 700 billion. You have slightly over 300 billion, our own balance sheet. The other 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 and third-party. We've never really raised any money there. The other half is just our own balance sheet, which is 95% investment grade, 5% alternative, where we're making a spread.

• 21:00Speaker 02

  Our equity business is predominantly our private equity business, but we have secondaries. We have a climate business. We have a hybrid business, which does everything outside of. Performing credit, those businesses are 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. And that's been a really fast growing segment for us at just over $80 billion.

• 21:28Patrick O'Shaughnessy?

  Do you talk about fees and the business model of asset management? Which, as you said in the beginning, historically it's been you give me some money. I charge you some fees, I charge you a percent of the profits, maybe above the hurdle or something very, very forward. These are so interesting because in some cases, these are extremely high margin businesses, especially like the 220 driven ones. What do you think about that model? It's persisted for a long time. Or do we need innovation there? Where do you think it goes?

• 21:54Speaker 02

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

• 22:03Patrick O'Shaughnessy?

  Whatever you want.

• 22:03Speaker 02

  Yeah, and people will do it. You look at some of the multi managers, I mean, they're charging pretty high fee. They can charge it because.

• 22:10Patrick O'Shaughnessy?

  Net returns.

• 22:11Speaker 02

  They've had great high net returns with low vol. And if you can do that over long periods of time with large loss of capital, people will pay 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, take investment grade liquid credit, fees go down a lot. We're really around the more privately originated IG 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 other than unless you own those origination machines.

• 22:44Patrick O'Shaughnessy?

  Yeah.

• 22:45Speaker 02

  So we feel like because we have those 4,000 people just originating assets that are completely diversifiers to the rest of anyone's credit portfolio, we should get compensated in some form where the fee settles out. It'll be somewhat dependent on overall rates and everything else. 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 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, it's you've got to deliver. The artistry, if you don't, if the client doesn't feel like they're getting something opportunistic or special and they don't feel like they're getting either, there's been tremendous push on

• 23:28Speaker 02

  co-invest, which effectively has been a fee reducer, not from headline fee, but effectively a mechanism to fee reduce. You need to partner with clients now in a completely different way than 10, 15 years ago. They've fully built out their own, many of them have built out their own fully capable, very productive, very smart teams that are willing and want to co-underwrite risk with you. And so it's much more of a partnership approach than it ever has been, I'd say. I joke because there's always headline that the banks are getting upset with the alternative managers, 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 LPGP relationship. They've

• 24:10Speaker 02

  built out their investment capacity and so we've had to pivot our business as well. So the whole chain is pivoting their business to be more partner-like and figure out the appropriate Venn diagram on 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 in hybrid. Talk to the hybrid guys, they all want to get in credit. Talk to the credit guys, they all want to get in investment grade. And I'm like, wait, what's going on? I can't actually figure out. I don't know what's happening. I think because markets have been up for so long that these businesses, who's very narrow in whatever they're doing, they're trying to go into bigger asset categories with less binary outcomes and just broader TAMS. And I'm like, but I didn't put it all together till I was like, I don't know what the theme is

• 24:54Speaker 02

  of that, other than like, everyone's trying to go bigger market and broader market.

• 24:59Patrick O'Shaughnessy?

  I'm really curious to understand how you think three different groups think about Apollo today, and then how you would like them to think about Apollo, say, five years from now. So 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 it 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. So maybe starting with issuers.

• 25:26Speaker 02

  Issuers, issuers, we've made some progress. I think we did a deal for INBEV in 2020 and I think I got 10 calls, people telling, John, great. It's COVID, you'll never do a deal for an S and P 500 company again.

• 25:39Patrick O'Shaughnessy?

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

• 25:43Speaker 02

  Investment grade companies really never accessed the 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.

• 25:54Patrick O'Shaughnessy?

  I gotta build a, I need to build a plan or I'm going to go to a bank. I'm going to raise bonds or I'm going to raise equity.

• 25:59Speaker 02

  Yeah. It was very simple, like asset allocation was like, okay, I'm going to do 6040 bond and equity. No privates was involved and still to this day, 401ks don't buy privates, which we can have a discussion about that too. Yeah. But the idea that we would be able to do a multi-billion dollar deal for an S and P 500 company through private credit and through, that was investment grade rated, was something very foreign to the market, very new. And you look now, we've done deals for BP, Air France, Venovia, 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. Doesn't mean it's not a negative connotone anymore. So that's gone away.

• 26:45Speaker 02

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

• 27:06Patrick O'Shaughnessy?

  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? What are the variables that matter to them typically?

• 27:21Speaker 02

  Typically off balance sheet. It doesn't go against their existing debt quantum. So it's typically off balance sheet, typically longer duration, typically flexibility in some sort of 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 you. Probably couldn't get through a traditional debt market. So really working with the issuer and saying, okay, what are we trying to solve for?

• 27:42Patrick O'Shaughnessy?

  Customization.

• 27:43Speaker 02

  It's all customization.

• 27:44Patrick O'Shaughnessy?

  Yeah.

• 27:44Speaker 02

  And so we'll work with an issuer, six months, nine months, 12 months to work through exactly the customization. And we have the teams that are capable of doing that, which is just very different than the traditional syndicated market.

• 27:56Patrick O'Shaughnessy?

  So the perspective from companies today, five years forward, would be you evolved as this like personalized lender.

• 28:03Speaker 02

  Yeah, I, I hope that's the case. Look, it's gotten a lot better. The more big branded companies we do and the more they'll do it and the more repeat issuers that we do, the more that it will happen. And we've made a ton of progress in the last five years. But I'll go to certain areas or certain parts of the globe and they're like, aren't you just a equity investor? Aren't you a distressed? That still happens every once in a while.

• 28:22Patrick O'Shaughnessy?

  That's a brand problem?

• 28:23Speaker 02

  It's just by and large, listen, we have an incredible history of generating fantastic returns.

• 28:28Patrick O'Shaughnessy?

  Yeah.

• 28:29Speaker 02

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

• 28:41Patrick O'Shaughnessy?

  Can you comment on just the state of expected rates of return across asset classes today? You mentioned the zero rates for so long. 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 like group of people that have had real long careers that didn't experience that drawdown and have seen nothing but like awesome returns to the S and P 500. What's your assessment of the landscape today? Just looking prospectively, there's all these people, I don't want to talk about like the innovation, 401k, annuities, retirement, et cetera, in a minute. But there's all these people, 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 sort of like state of the union on what returns could or might be, how you're thinking about it for the next 10 or 20 years?

• 29:24Speaker 02

  So we created a whole alternative universe based on zero rates. Most of the product design was based on zero rates and it is still yet up for debate on how much of your return during that 15 year period was from just really low subsidized interest rates? Or actually from operational excellence? And 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 five or six percent, which is infra-real estate related activity and funding at zero. As I mentioned, makes a ton of sense.

• 29:54Patrick O'Shaughnessy?

  It works.

• 29:55Speaker 02

  Funding at six or seven and buying an asset at five, six or seven.

• 29:59Patrick O'Shaughnessy?

  That's good.

• 30:00Speaker 02

  That's good. So, 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 IG long duration product, not levered product because the leverage is too expensive. There'll be other times where the 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% plus rates of return in all different environments. Without the subsidy of effectively zero to negative rates. That seems hard. Seems really hard. Private assets generally, private equity generally has made net returns 13 plus across the board. You've seen packaging and secondaries grow, access points are going to grow. I think that's a pretty good place to be.

• 30:43Speaker 02

  In just generally private assets, I'd say broadly speaking, we have a high level view that all assets are going to get more liquid over time. And so the question is, what's that going to do to returns? And what's that going to do to volatility of those returns and the perceived riskiness of those assets?

• 31:00Patrick O'Shaughnessy?

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

• 31:17Speaker 02

  This is back to the market structure conversation, which is you've historically had a market structure where institutions and actually probably 20 or 30 institutions. Controlled or dominated the private markets and define private markets as private equity in all asset categories, private equity and infra-real estate and true corporate. And now you have the evolution of the wealth business and 91% of private wealth clients don't have an alt. And that's growing at very fast rate where 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 and evergreen. Form versus the traditional drawdown form where you call capital.

• 32:00Speaker 02

  You're going to have lower headline returns IRR versus actually evergreen returns now. I think I told you about this. I told you about this, which is I did this comic where you have the two people at their 10 year reunion. And one person says, I've saved 100 grand and the other girl, Suzie, says, I saved 100 grand. Let's make sure we invest it well. And then they showed the 20 year reunion. You come back and he's got this nice suit on and he says, I've absolutely killed it. I invested in all these private and I made 32%. Next frame, she has this like really sad face and she's like, I invested in all these evergreen strategies and made 13. And she's like, just curious, like, how much do you have? And he says, I have 180 grand. She goes, I have 330. I don't understand. I explained that story to my friends, my in-laws, people who aren't in the business.

• 32:45Speaker 02

  It's still not understandable. It's 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 because of the compounding elements of it. And I know that you get it, but as you go down distribution channel of more evergreen products, you're going to see a much more normal risk reward where equity is making somewhere between high single digits and low double digits. And then credit, depending on where we are in the rate cycle, will make high single digit, low double digit, whether it's levered or unlevered. But the compounding element and the income orientation in a more high rate regime is more valuable. International assets have traded historically at lower growth and lower multiple.

• 33:25Speaker 02

  And 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? Could you see a normalization of multiple and a bit more 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.

• 33:45Patrick O'Shaughnessy?

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

• 33:58Speaker 02

  I think that there's going to be secondaries marketplaces. I think the secondary's business is going to change dramatically. I think private asset exchanges will. Happen, we've obviously started.

• 34:07Patrick O'Shaughnessy?

  Who will do it? Who will build those?

• 34:09Speaker 02

  I think there's gonna be, I think there's gonna be new. 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 we experiment with a lot of different things. And we're experimenting with market making on private IG. We've experimented with doing partnership with State Street and Lord Abbott. We're experimenting with what we listed our first fund on blockchain with five different protocols. And we're tokenizing the fund where I think funds will actually trade. And even though they're quarterly liquid, they'll trade every day, three sixty five, twenty four seven.

• 34:54Speaker 02

  Coinbase 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 of to this three sixty five, twenty four seven.

• 35:07Patrick O'Shaughnessy?

  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.

• 35:21Speaker 02

  It trades in secondary pretty liquidly. There's a pretty big, but you look at the volumes going through the secondary business every year. It's extremely liquid. If you want to get out of it in most market conditions, you can get out of it at some price, not that far from ninety, ninety two, ninety six, 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. And so the more that you can call it diversified beta, the more likely you'll be able to, more that it's deemed to be private markets beta, as opposed to single name underwrite, the more likely you can actually move the risk. And that's happened in fixed income market where portfolio trading is happening.

• 36:04Speaker 02

  You can trade a pool of investment grade bonds at three 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.

• 36:15Patrick O'Shaughnessy?

  What do you think happens in? The wealth market like that seems to have become a huge driver of new capital coming into.

• 36:23Speaker 02

  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. And by the way, I was 24 years old going to Geneva. I'd go there, they'd send me, I'm like, they should not be marketing this product. I'm like, not prepared to do this. I'd go over there, I'd read off my list, I'd prep myself for what the marketing pitch was for a long short credit fund. And we raised 50 to 75 million dollars on one meeting. Now I'm at Apollo with close to 25 years of experience. It takes us two or three years to raise a dollar sometime. People want to know, I'm right on repeat, the gestation period to raise money. It's completely gotten out of, it's so much longer than it ever was. In wealth, it's the early days where they need product.

• 37:06Speaker 02

  They need to get more indexed. They want to go with big, high quality managers. They want to go with someone they know they trust, et cetera. But there's only a handful of brands that can do that and they're all short product. So the tailwinds there are going to be hard to see them not continue to grow.

• 37:24Patrick O'Shaughnessy?

  I want to ask about the third category, which is how shareholders of Apollo have historically thought about you. Talked about its legacy.

• 37:31Speaker 02

  For any shareholders listening, I hope they love us. We are extremely generally at our core. We are pretty unsatisfied generally. 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 who are really, 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 dollar manager. To me, it still feels pretty flat. We want to keep that feeling. There's the played football Dammers.

• 38:13Speaker 02

  And there was this game that we lost my senior year against Wesleyan. We lost 24 17. We're definitely not supposed to lose. Anyone on Wesleyan, you weren't supposed to win. It was like Sunday, the day after the game, we're all sitting there and 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. And the point was, take the accountability yourself. Stop trying to blame everything else. And when things go wrong, or we're trying to create something, people take it on themselves. And we have that just embedded culture of just owning that ownership of both successes and mistakes. But 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 the whole place.

• 38:55Patrick O'Shaughnessy?

  Such a cool, amazing concept. If everyone did that, I think a lot of companies would be a lot better. I have sort of like 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. And the second part of the question is, how you navigated what has been, you're fairly young, like a fairly like meteoric rise inside of Apollo from managing 130 million to the position that you're in now. Thinking back on that, why do you think that happened? What did you do to do that? Everyone wants to do that.

• 39:29Speaker 02

  Part of it, you always have to bifurcate seat versus person. Part of it, I was like, Mark drove a theme, credit became powered by an internal pool of capital. Our team's an incredible job of navigating, creating new asset classes, 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. But we have an incredible team, incredible people, but also the leadership across the board. They've always let, if we have an idea, they've let us run with it. You know, in 2018, 19, we did a billion A deal, direct lending deal, when no one was doing multi-billion dollar deals. And we did it with not a very big direct business.

• 40:12Speaker 02

  When we wanted to go to the Middle East and partner with Mubadala to raise a $12 billion balance sheet, no one had raised a large cap direct lending. This is 2019. No one had thought of really raising a balance sheet to commit, to distribute, and hold, and have our own balance sheet that were 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, pure meritocracy and pure just engagement. Engagement with the entrepreneurial spirit, despite us getting bigger, we haven't lost that. And that starts with Mark and goes down to Zelter and climate and just an acceptance across the board. And the team has just been amazing. And so that part has been fun.

• 40:54Speaker 02

  I'm definitely oddly over indexed to change, so I like it a lot. So I have to work on that because I, 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, fee, an asset category, and really question how to disrupt ourselves. I'm okay with that discussion. There's many people who are not okay with that discussion. I love that discussion because I'm like, okay, well then let's do it. I want to go, someone's going to disrupt them. 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 I oversee a really big private credit business.

• 41:39Speaker 02

  That's how it's viewed from the outside. And really now I oversee a big private markets business. But I grew up in a 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. And that's like 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 create with very little capital. I worked at a 500 billion, $3 billion fund. What you had to do in that is you had to design the skill of having the idea, going and creating the idea, getting other people to believe it's another good idea, having the banks in some cases finance that idea. And so I was constantly training ourselves and our team with small pools of capital with no brand.

• 42:23Speaker 02

  We were small brands, Brand Court, these places were small, not in Apollo, where I learned how to do things without that business card, that seat. I learned to do it with very little resources. And so now when you have the resources, all of a sudden you're just like incredibly empowered to do things and you can do the whole deal yourself. Having that public's market DNA in the context of a big private's manager, that really differentiates ourselves. From a lot of different people out there.

• 42:51Patrick O'Shaughnessy?

  I also love this idea you've talked to me about before, that historically Apollo and firms like it are attacking the alternatives sleeve of someone's portfolio, maybe the 20% allocation they have to alternatives. And that 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.

• 43:13Speaker 02

  First, you have to agree that privates and publics become one overwhelming thesis that most assets get more liquid over time. So let's just assume that assets get more liquid over time. So what was seemingly perceived to be less liquid before will be more liquid and more accessible and more acceptable into those portfolios. There are certain states today which will take a rated private asset and a rated IG private asset. And it eats against their private equity bucket because it's deemed private. So by definition, we are all wired and we've talked about this a lot. We were wired 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 Q7 bond? And you're attached to the asset.

• 43:57Speaker 02

  So you actually have a double claim in some ways. So that part we think will over time go away, particularly for start with private IG. Let's just start with credit to start, which is you have a third party saying that this is rated X. S and P is saying this is rated triple B. S and P saying this other assets 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? And will that then go into sub investment grade and that will go into equity? Will that go into equity pools, both private and public? Should there be diversifiers to the S and 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.

• 44:40Speaker 02

  And 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?

• 44:47Patrick O'Shaughnessy?

  Just return.

• 44:47Speaker 02

  And by the way, we're organizing our business with no walls. So the earlier comment on risk reward, it's the same thing when you talk to an issuer. What are you solving for here? All the things you can do in credit, public, private. We do all those things. By the way, we Do them on our own balance sheet. Let's compare notes. Okay, equity. What are you looking for? Public, private? Okay, we do all those things. We understand exactly that. Okay, 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 and which I think, again, early days, but I think the broader, bigger, scalable businesses that have more touch points across the economy, particularly when the economy is going more private than public.

• 45:33Speaker 02

  Hopefully, we can use that data to make better investment decisions.

• 45:35Patrick O'Shaughnessy?

  If I'm an equity investor, I'm a private equity investor or a longshore hedge fund investor or a pod investor or something. What is the value to me to understand what's the most important parts of your world to do my job better?

• 45:48Speaker 02

  For someone who grows up on the capital structure side, where you have to understand all parts of the capital structure, but as a credit investor, you need to understand the structural dynamics and flexibility of loans and converts and bonds and preps. When you're purely equity investor, typically when you talk to them, they're focused predominantly on one thing, which is top line growth. And if you get the three-year top line growth number right, you typically get the stock right. And when you go to California and you 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 that need a lot, that are becoming now more capital intensive. So the powering of this stuff is more capital intensive, but investing in businesses and optimizing for ROE.

• 46:33Speaker 02

  You can, 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. 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 it in to your stock.

• 47:07Patrick O'Shaughnessy?

  If you're teaching like a HBS class or something. On the class was called how to build a great origination platform. You work with a lot of origination platforms. You buy, you bought a lot of them historically. It's like a really key feature of everything that you do. You have to originate these things. What would be the curriculum of, or the syllabus of that class?

• 47:25Speaker 02

  Number one, have 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. And so 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 are the parameters and bookends of what you're willing to buy and not buy? That empowers your origination machine. If you're not clear, 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. So the number one rule is make sure you spend all the time in the world to define the credit box and be very quick.

• 48:05Speaker 02

  If you don't want to do stuff, be quick to redefine that credit box and be clear with your communication to anyone who's originating on your behalf. That's the rule number one. It sounds pretty simple, but you'd be surprised how hard it is to execute at scale.

• 48:18Patrick O'Shaughnessy?

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

• 48:26Speaker 02

  So CS was going through some changes, then ultimately bought by UBS. Atlas was the structured products business at Credit Suisse. It was the number one profit center for a decade, generating a big percentage of CS's earnings for a long time with effectively no losses. They had a $45 billion balance sheet. And what they do is they provide warehouses to originators all over the world. And they would let those originators write a bunch of small loans. And when they get to a certain quantum, they would securitize those loans and distribute those loans via through a distribution mechanism. Because CS stock was trading at such a discount to book, they needed to, if they could sell it at book value, it was actually accretive.

• 49:09Speaker 02

  But what was this had every, this was the classic Apollo deal. It had mortgages, it had solar, it had commercial real estate, it had.

• 49:20Speaker 02

  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 22 when rates moved, they spent, they sent 2 million wires for margining. Okay. So you have to have 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, all those things, and then execute on a plan. So it got down to the wire. I was, I remember sitting here, we was, we were sitting here, it was like midnight or 1am and I was eating Chinese food with one of the analysts and the deal partner. I was like, this is fun. Like I love this is, but we're back. Let's do this again.

• 50:05Speaker 02

  And that's what it's like. We were 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 three partners, including Mass Mutual to partner with us on the equity, two sovereigns as well. And now we're on pace to grow that to, I think, 50 billion. And our long-term goal is to grow that to a hundred billion dollar warehouse business. We've hired 180 people into that business completely. We'd have to restaff it with its own CFO, CRO, 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 fair where everything about Apollo where it's working.

• 50:50Patrick O'Shaughnessy?

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

• 50:57Speaker 02

  I'd say the most time and attention the last five years I had to deal with was probably Carvana. And I know you know, Ernie, that situation went from us being down half a billion dollars to up a billion dollars, probably in a matter of six months. It went from us being a lead order in a JP Morgan syndicated deal in 22 to all of the bonds a year later, trading at 30, having bought another 750 to a billion of bonds on the way down and being questioned about the whole. Investment and I think every single investor, every meeting I went into, I was like, I will never do this again. Every single meeting I went into, I was getting questions like, what's coming?

• 51:41Speaker 02

  And 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 had, we were up 8% or 9%. So we took 100 or 150 basis point loss by vehicle, but just because it was in the news, it was so much headline for meme, the whole thing. And you know, I kind of sensed that there was going to be an issue. I think probably in November of 22, about six months after we did the original deal. Every time I started going out to California to go to the Athena 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 like, who's this guy? First off, who's this guy from Apollo? Yeah. And what does he want? There's not a problem yet. And then bonds keep going down. I'm texting him. I was looking at my texts last night and I was like, wait, how am I going to tell this story?

• 52:24Speaker 02

  And you look at the text from the beginning and he like, wouldn't respond. He wouldn't engage. He just wouldn't. And it was like, sure. And you could tell he was like, who is this person? Yeah. I think in November, we caught wind that they were going to try to, and by the way, I probably did 20 calls and two or three 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, which I understood. You can get that. They hire mollusks and I catch wind of it prior to it, that they're going to launch a super coercive exchange. And this is 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

• 53:06Speaker 02

  take other lenders and give them a better deal versus us. So we said, listen, guys, we're, it's us for, it's, we're the lenders. There's a company, we're going to figure out a good deal together, but it's not going to be because they'd pin us against each other. So it was a five and a half billion of outstanding debt, coalescing five and a half 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 or not, it's a cottage industry. 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 generally have real personal relationships that have gone for a long period of time. They're deep. Real relationships that because in credit, it's not zero sum. The equity markets are more zero sum. You win the deal, I lose the deal. You typically are in the same bond with them or seem loan or maybe we'll be on the other side.

• 53:51Speaker 02

  But I know I'll be in the same side again. And so it's a very different dynamic. So we were able to get 90% of the bonds on board. They launched this exchange. The exchange gets blocked. What is the exchange? It's a scratch. The exchange is 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. So all of us said, no, they launched it, they extended it and no deal. And people don't know this story, part of the story, but I'm sitting in vacay, like my first vacation, probably a year in the south of France. And I'm sitting there with my wife and guess who's sitting next to me? Ken Mullis and his wife. Okay. And I'm like, Ken, I'm on vacation and it's one of these places where you gotta stay like a minimum couple of nights or whatever.

• 54:35Speaker 02

  And so 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? And he's, his famous quote of 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 deal, reasonable deal. Just get everyone together, send us over something. I'm just encouraging them then to do it. And eventually we end up flying out to Phoenix as a group and we back and forth. And finally, you realize that first off, to get these deals done incredibly hard, very rare to get done. Two, it's probably the only co-op where everything worked. We cut a deal, the stock and we had bought stock at four. The stock went from four to over to 280 in the next 12 months. The bonds went from 30, you exchanged at 90, those bonds were trading at 120 a year later.

• 55:20Speaker 02

  Everybody won in this. There's very rarely do you have in that time, shorted time period. Do you have a deal that's effectively a fair deal? Not where we're taking the equity thing. And a year later, everybody's won. Now we sold the stock at like 15 and it went to 290. So we're the idiots. Here, I'll pull it up now because I was laughing. Ernie and I are both into where he wouldn't reply to anything before. Now we're like personal friends and I'm like reading through the text and I sent him this song. I sent him Evening Gown by Mick Jagger. I don't know why. I sent him this song like a year ago. 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

• 56:03Speaker 02

  depression. So you go through the channel and you're like, okay, how did this deal get done? It got done because I was just kept going back. I kept being super brutally honest. And despite his lack of, he didn't want to trust. I think part of it was like institutionally or what we were doing. He just didn't want to. Smart people just see through it. Smart people just see through and they actually were, he heard me for the content. And 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 the whole process of me going to Phoenix all those times and actually engaging with him and just keep giving him just feedback. That's what ultimately got our deal done. And in most cases, that situation would have ended up in some sort of bankruptcy or some sort of aggressive thing where no one probably

• 56:48Speaker 02

  would have went honestly. That one was fun because I feel like Ernie and I are great friends now. And I think we both learned a lot and you realize that you have to have flexible capital. You have to be willing to actually commit to having a personal trusting relationship with whoever the decision maker is. And 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 one plus one is three. It's not zero sum.

• 57:16Patrick O'Shaughnessy?

  And that 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, hear you talk about is Hertz, mostly just because seems to tell the story of what Apollo does and why it's interesting and differentiated. Can you tell that story as well?

• 57:32Speaker 02

  Yeah. So that story was like 2016 annual meeting. I said that Hertz would file for bankruptcy. I was dead wrong for three, four years. It was like, because I was of the view that Uber, people would rent fewer cars, pricing would collapse, used car prices would go down. That was kind of thesis in 2016. COVID hits. I talked to the management team a month later. They're like, we don't have any plans for anything. EBIT does fine. And I'm like, this is like locked up in my house in Bedford. I'm like, what are you guys talking about? And we bought several hundred million of June insurance and company filed in May, literally a month later after they told me everything was fine. So that was like the start of the Hertz

• 58:12Speaker 02

  journey. From there, we bought the term loan at 60. We thought that we'd probably own the company at a up sub billion dollars. It was very different with our company when we hated it was 10 billion dollar company. We were buying the company effectively at a billion. And you go over the life of the journey from mid 20 to when we were buying the term loan at 60 as a distress for control, which is again, not really what we do historically, but it was COVID times. And we're like, if we own it here, we don't think it's going to be distress for control. But if we own it at this valuation, it's worth this. We refinanced to think about the story of Apollo and how it can actually provide solutions, right? From that point forward, we became the largest secured lender. We provided the dip. We refinanced $4 billion of in that summer, $4 billion of their entire

• 58:56Speaker 02

  used car vehicle financing because they had to they because the used cars were collab, they needed a refi. We refi $4 billion. The term loan went up. Then we, 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 of Hertz that they wanted to sell before they exited. We bought it in our platform business and have merged it with Wheels, which is a specialty lending fleet finance platform business. Then when they actually, it ended up being a solvent company where there was value to the equity. Night Head ends up winning the bid. We provide the two and a half billion dollar exit financing, which six months later, we get

• 59:37Speaker 02

  taken out at a 130. We put in $10 billion into the ecosystem across dip, secured, securitized product, pref, buying a business out of the platform. Nobody could have navigated that whole over a 12 or 18 month period. You have to have tons of flexibility, creativity and agility. You can't, you have to think up and down the capital structure. That was the first time I saw the whole platform at work, working together from our platform team to our senior team to our hybrid team, all working in the whole ecosystem. That was a pretty special thing and hope to do a lot more like that. You need a combination of market ball and single name ball for that to happen. But when it happens and you can execute on it.

• 1:00:21Speaker 02

  And showcase everything. Again, being close to the decision maker, the more we did, the more we were get the first call, right? By providing the four billion of securitized probably not, it's not that that's a plus 300 business, meaning it's not high returning. But because we did that, guess what? We got the first call on the platform. Then we did that. We were the call. We got a call last minute on that pref from Nighthead. And in 30 minutes, because we knew the company so well, I said, okay, we'll do two and a half billion of pref. Because we could react that quickly at scale, big and fast, very few firms can move big and fast like that. And when we move big and fast like that, because we know the businesses so well, we follow them well. We have a big balance sheet to be able to commit fast. And we do it in a way that it's because we have,

• 1:01:04Speaker 02

  we've invested in five that we're invested in all these companies for so long. I O companies don't, they never go away. They either get acquired, they either refinance their debt. So they're back in market every two or three years, or they file. It's never like you do the loan and hope you're going to get paid enough in cash. So they're, these are companies that you follow for a long period of time.

• 1:01:22Patrick O'Shaughnessy?

  I love to talk about some of the future categories that you think you'll be most focused on. The obvious one is like US infrastructure build out around AI. AI is of course, like 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 like 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 in compute infrastructure. How do you think about something like that? How do you approach it? What do you know like the right time is? Do you wait and let it settle out a little bit? Do you approach something like that?

• 1:02:00Speaker 02

  My wife's banned me from talking about AI dinner because I think it ruins a dinner party. So we don't talk a lot.

• 1:02:04Patrick O'Shaughnessy?

  Why is your doomer about it?

• 1:02:06Speaker 02

  I'm more, I'm less nihilist. I'm more excited about it, but I want to talk about it a lot. I think there's three segments of our business that we have to think about. One is the 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 potentially is predictive? Two is all the operations of a financial services company, which I think will just get better. Right? The way that just everything from custody to transfer cash transfer, trade. Settlement, 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. And really for us, it's how do you co-pilot? How do you create co-pilots 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

• 1:02:51Speaker 02

  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 to be the framework that will suit the product's needs or the funds needs or the investment process needs. That stuff's pretty exciting for us because we're very large, which means we have lots of information and lots of optimized stuff 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. It's obviously 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 proficient and be able to do more, which is, I think, exciting.

• 1:03:35Patrick O'Shaughnessy?

  Do you think it affects where you put your dollars? Meaning like so much money is being spent on all this stuff and making it possible. Like 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?

• 1:03:49Speaker 02

  Yeah, so 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. There's not, frankly, there's 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 which will lead that charge, which, again, the most important thing for that is that we work, first off, the counterparty risk typically is high quality because the hyperscalers and others that want that compute are typically very well capitalized and growing their earnings really quickly. So the more that we can partner with them to create the most flexible type of capital structure duration wise that matches with exactly what they

• 1:04:33Speaker 02

  need, I think the more likely we're going to be the service provider of that. And I think we are positioned, given just the org design of the liability structure. Of our business were designed to be the provider, one of the largest providers of all that capital. It feels like that and probably defense are probably our largest sectors that are growing really quickly.

• 1:04:53Patrick O'Shaughnessy?

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

• 1:05:08Speaker 02

  I mean, look, I always think there's going to be some level of the core, let's say, core credit, core equity businesses 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. And I think there'll be consolidation there and you're seeing that, but there'll always be the family office, the endowment that wants the small artist. I started here with a hundred and thirty million dollar fund. Like I, no one paid attention to me for at least five years. What the hell is this guy doing over there with his long short credit fund? And I did that for 10 years before coming here. So those businesses are wake up every day, super risk managed or in the liquid business, super risk managed. And every line item, every risk, every night, and you're living and breathing the artistry of that business.

• 1:05:53Speaker 02

  Whether it's buying small businesses, investing in small businesses, 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 fine. 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 going to probably design a pretty good product and a pretty good investment process. And the clients, again, the clients see through this stuff. They either feel the authenticity of whether or not you care or not, or whether or not you're interested in that or not. And the product that you design, they know. And whether or not they know day one, they'll know.

• 1:06:32Patrick O'Shaughnessy?

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

• 1:06:37Speaker 02

  In a world where let's go AI abundance and let's go seven night a week. The Ari, we just backed Ari and his, the Miami open and Madrid open. And hopefully the, some other events, their thesis is the events business. From two nights a week to work from home, turned it into three or four nights a week. There you go, AI abundance. It's a seven night a week business. People will be enjoying a GDP that's five to 10x and we're all just getting serviced 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, but it's not so much cash flow, it's more enterprise.

• 1:07:21Speaker 02

  There's not a ton of lending, so there's this huge gap in specialty finance. 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 and own a little bit of. And we back them through some sort of hybrid instrument.

• 1:07:38Patrick O'Shaughnessy?

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

• 1:07:44Speaker 02

  Yeah.

• 1:07:45Patrick O'Shaughnessy?

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

• 1:07:52Speaker 02

  Just a willingness to try new things. I think everyone realizes the world's changing pretty quick. And if not, the thing they're gonna realize, it's just changing fast. 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 and openness, a flexibility around that. I prefer Gumby. We want people who are willing to test some of those norms and just be outside the box thinkers. And not just because something worked in the past necessarily is it gonna 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 we had last year at the end of the Olympics, we had this like kind of standard corporate Olympics.

• 1:08:34Speaker 02

  It was gonna 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 5am. We got three 50-pound grease 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 a 50-pound grease cod back and forth. Didn't tell anyone what the finale was for the finalists, the winners, the finalists, you guys get to race for the winning thing. And then I pulled out the two, three 50- town grease cods and it was the relay race for who would win, but we still are trying to have fun here. I'd like to think that most of us, you gotta have fun coming to work and enjoy doing it.

• 1:09:10Patrick O'Shaughnessy?

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

• 1:09:17Speaker 02

  A couple of episodes.

• 1:09:19Patrick O'Shaughnessy?

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

• 1:09:32Speaker 02

  Yeah.

• 1:09:33Patrick O'Shaughnessy?

  And I think this is a true thing that happens in finance where like the product literary is money. And therefore like the world is money, the incentives are money. And the market system is incredibly powerful and this is capital markets are the centerpiece of it. We talked about that at the beginning, how powerful an asset this is for the US. 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 and like why you've chosen to do it.

• 1:10:03Speaker 02

  I wanted to be a football coach and I was screaming to not come down to New York. It all hit the peak when I was coming in through the, I drove down from Amherst down to New York to move into my one bedroom with three guys on 38th and first and I'm coming in, 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 shit in my, so much stuff in my bag. And in the back of the car and I was like, I cannot believe I'm doing this. And then getting on four 30, five AM trains up every morning to beat my boss to work because my stepdad would say, you gotta be first in work, actually got me a job, but funny story on that is like when I'd get up there, I try to get there first every morning.

• 1:10:46Speaker 02

  And my first boss, Jim Casberg, he'd get there super early and I couldn't beat him there. And he had just had a fourth kid, he was gonna have his fourth kid, the fourth kid was, ended up being triplets. So they had six kids and now that I have three kids, I realized, okay, he wanted to get there first before anyone woke up. So he, so I was competing with, yeah, I was competing with the six kid household. Yeah. So that was like 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, making good returns versus other people. I wasn't so outcome focused.

• 1:11:28Speaker 02

  I've always been about trying to make sure like authentically feeling like I have an idea or a product or something that's just very original and very 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 if you have good, I've always had the view that if you have good performance over time, for long periods of time, that just you will have clients forever. They trust you and you do what you say you're gonna do. It's like a pretty good framework for how to operate. And if you can do that consistently for long periods of time, you'll always have it. I didn't realize how much I was gonna love the business from the beginning, which is like, where else can we be in the middle of compute, oil and gas, software, healthcare?

• 1:12:13Speaker 02

  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. And then people ask me, you know, you ever gonna, I don't think I'm gonna stop. I don't know how I stop. I love some blueberries. All right, so my, my, my wife, she's incredibly healthy. She also has a great way of finding very special things. And as like anything that is special, I love to be a part of the building of something special, something unique. And I like sharing things that are unique. First is the, every time you order an avocado in New York from Instacart or order in, like half of them are not great. Are bad. Are bad. There's this guy called Da Avocado Guy. And he like, yeah, yeah. And he like, Da Avocado Guy, you guys can go get it right now.

• 1:12:58Speaker 02

  It's like probably, I don't know, it's probably 50 or 100% higher than a regular avocado. But every avocado is perfect. Yeah. So no matter what, back to your idea on young ideas, any, anything that is unique, special, solves a problem. You can have a business, Da Avocado Guy. Blueberries, my wife found this farm down in Florida that makes blueberries once a year. Harvest, you can order five pounds once a year. You gotta order it the day of, you just missed it, everybody. I actually don't know the name of the farm, but it harvests it one, once a year. Da Blueberry Guys. Da Blueberry Guys. We get them and I had them the first year and literally you can't eat other blueberries because they're so good for the and I'm like, okay, you can't. And then now I started sending them to people on the floor.

• 1:13:44Speaker 02

  So I sent them this out there. The people on the floor are all getting Oh, then they're like, why are you sending me blueberries? It's just a message around just it's really unique, really special. That's how you build relationships on stuff. Anything good is around that. And I give all the credit to my wife, obviously, on anything health related, but also just these jobs are impossible. If you don't have someone at home that's supportive and just full trust all the time and just always making the right decision for you and always looking out for you. I'm pretty lucky to have that.

• 1:14:16Patrick O'Shaughnessy?

  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 you thought it was in credit, it was doing just mid-market sponsor back deals. And it's obviously turned into something much different. And so 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?

• 1:14:42Speaker 02

  My stepdad, who went to Westport, 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 three kids, it's hard to thank someone enough for that.

• 1:14:56Patrick O'Shaughnessy?

  Amazing. Great place to close. Thanks for your time, John. If you enjoyed this episode, visit joincolossus.com where you'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus Review, our quarterly print, digital and private audio publication featuring in-depth profiles of the founders, investors and companies that we admire most. Learn more at joincolossus.com/subscribe.