Why Private Assets Are Essential: Masters in Business with Stephanie Drescher

Barry sits down with Stephanie Drescher, Apollo’s Chief Client and Product Development Officer and a member of the Firm’s Leadership Team. He and Stephanie discuss her start at JP Morgan, creating company culture, and investment decisions. They also discussed how Apollo manages performance and balance sheets. They also discuss the increased interest in private markets for investor portfolios. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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

• 0:00Speaker 00

  At Brookfield, we invest in the thing behind the thing behind the next big thing. Our focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Learn how you can own what's next at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital.

• 0:33Speaker 01

  Your team is on a deadline, but moving all your enterprise data will take time your business simply doesn't have. IBM technology lets AI work with your data where it already lives with an open hybrid cloud approach designed to build on your existing investments. It's another way IBM helps you put your data to work. Let's create smarter business. IBM. Visit IBM.com to learn more.

• 1:05Barry Ritholtz?

  Bloomberg Audio Studios, podcasts, radio, news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio. This week on the podcast, I have an extra special guest. Stephanie Drescher is Chief Client and Product Development Officer at private investment giant Apollo. She's been there for over 20 years. She spent a decade before that doing alternatives at JP Morgan. What a fascinating person. Apollo runs $840 billion in client assets and she has really not overseen the wealth

• 1:48Barry Ritholtz?

  division, but also worked on a variety of geographies, new products. She's on everybody's best of list. She's been on the Barron's Women in Finance list since inception every year. I thought this conversation was fascinating. If you're remotely interested in private equity, private debt, private credit, private infrastructure, you'll find this conversation absolutely fascinating. With no further ado, Apollo's Stephanie Drescher. Stephanie Drescher, welcome to Bloomberg. Thank you, Barry.

• 2:21Speaker 03

  Happy to be here.

• 2:22Barry Ritholtz?

  Happy to have you. So we're gonna get into Apollo and your investment philosophy in a bit. But before we do, I I just have to start with your background. Bachelor's in Barnard at Columbia, MBA from Columbia Business School. What was the original career plan?

• 2:40Speaker 03

  I I did always have finance in my sights. So undergrad, it was econ and psych. I I joke that I use the psych in my day to day field way more than the econ these days. Um, but there there was always a draw towards doing something in in the financial kind of arena, interest in markets and the like. So uh, very early internships led me down that path.

• 3:07Barry Ritholtz?

  And I read somewhere in your background that you were particularly inspired to go into finance by your grandmother. Tell us about that.

• 3:16Speaker 03

  That is true. So my father's mother uh, lived with us for a time and believe it or not, uh, she was born in the very, very late 1800s. And while her brother went on to become a doctor, she capped out at an eighth grade education. And so the power of education was always a core value and a focus of of hers and my family. Uh, and she used to read the Wall Street Journal cover to cover every day, super smart. Uh, loved tracking stocks. And so we started to track stocks together and

• 3:57Barry Ritholtz?

  How old were you at this time?

• 3:58Speaker 03

  Oh, I don't know, maybe 12.

• 4:00Barry Ritholtz?

  Okay.

• 4:01Speaker 03

  And in a very high tech way, we would put it up on the refrigerator and kind of see the the changes and and the holdings that she had in her portfolio and sometimes overlapped with that of my parents. That was the early start.

• 4:16Barry Ritholtz?

  So you get an MBA from Columbia. JP Morgan was the first job right out of school?

• 4:22Speaker 03

  It was, although there there was, uh, A mentor, right, prior to the JP Morgan opportunity that, believe it or not, I started babysitting for this family. And I didn't know what the mother did day to day until after a period of time of babysitting. She looked at me and she said, I think your babysitting days are over. And I said, I don't know what you're talking about. And she said, I run a women-led healthcare consulting firm.

• 4:54Barry Ritholtz?

  Huh.

• 4:55Speaker 03

  Would you like an internship? And I practically fell off my chair and I said, I would love an internship.

• 5:01Barry Ritholtz?

  How old were you at this time, like sixteen?

• 5:03Speaker 03

  This, it was late high school, maybe early college, early, early. And it was the most amazing kind of opportunity that someone could give me, right? Just seeing a professional organization do its thing and all the analysis and client relationship management that went into that. So while I decided that healthcare wasn't my thing and consulting wasn't my thing, it was very an easy bridge to JP Morgan and the finance field.

• 5:34Barry Ritholtz?

  So when you started JP Morgan, what was the role? How did you, what areas were you toiling in?

• 5:39Speaker 03

  So I started with a rotational opportunity, which was terrific. I had everything from fixed income research to private banking in Geneva.

• 5:49Barry Ritholtz?

  Did you go to Switzerland?

• 5:51Speaker 03

  I did, yeah, for about six months. I realized that I needed to buy all of my groceries during the day because it was closed by the time I got out of work. And then I like to travel on weekends. So importantly, though, and seriously, it was a terrific time in my life to be more aware of time zones and cultural nuances and really see kind of a client perspective outside of New York and the US. So

• 6:20Barry Ritholtz?

  It's a big world.

• 6:21Speaker 03

  Totally. Yet it also can feel so small once you start to to travel and live elsewhere. So that was a terrific opportunity. And then ultimately, out of that rotational program, ended up in alternatives within the private bank. And then we were off to the races.

• 6:39Barry Ritholtz?

  So alternatives way back then, but before you leave Switzerland, I recall a vacation not too long ago to Lake Geneva. And what's amazing, and we were in this hotel that used to be a castle. And like, you think you have some understanding of the gilded age and old money. And then you see, no, no, we mean 500 years. It's just such a different eye opening, so different than here. Yeah, really, really amazing. So you're in the alts group at JP Morgan. You stayed at JP Morgan for a decade. Tell us a little bit about the work you did there.

• 7:16Speaker 03

  So it was very early days of speaking to families around the world, the ultra high net worth clients of JP Morgan, about the role of alternatives in their portfolio. And I remember distinctly speaking about the core and satellite within alternatives now, kind of private markets as our nomenclature. But it gave me such a great perspective in terms of the educational kind of foundation that we needed to set first with those clients. And I see it now continuing to play out. But my time at JP Morgan, and it was a very fast 10, 10 years and an amazing kind of training ground,

• 7:59Speaker 03

  was was kind of an assessment of all the different private market strategies, from private equity to hedge funds to credit. And the seat was a combination of the buy side. So kind of due diligence on the managers we were going to put on platform. And then the sell side in terms of the educational component to the end banker and client. Super fun, traveled around the world, speaking about how alts could factor in to return profiles and diversification, smoother volatility, all at a time when private equity was not on the front page every day. It was very early.

• 8:43Barry Ritholtz?

  Let's contextualize a little bit. This is the mid to late 90s and early 2000s. The stock market was just screaming higher double digits, especially the last four years of the nineties. What was it like then? How receptive was the audience to you should consider these private markets? How, how much smaller was the whole space back then?

• 9:08Speaker 03

  Yeah. It was very early days and a very small fraction. I mean, I remember, you know, if we, if we launched kind of one manager a quarter, it was a big deal. Now I feel like there are probably dozens kind of on, on the shelf available for, for clients every, every day, every quarter. The, uh, but the transformation was starting to take hold where there were especially the large families recognizing the return potential that a manager in, in alternatives could provide in, in their portfolio. And they didn't want to rely.

• 9:52Speaker 03

  It was very early, but they saw that they didn't want to rely exclusively on public market exposure. So, um, you know, when we look at actually the percentages in kind of large family office clients today, it matches or frankly exceeds that of an institution. But it's still, they, they started at the ultra high net worth end so much earlier, kind of in, back in those days than most in wealth. So I think, you know, there were, you know, the likes of a JP Morgan client base and a select number of other private banks did start early in, in showcasing these opportunities.

• 10:32Speaker 03

  And the adoption, as I traveled around the world, was, was strong, but it was still kind of storytelling and a lot of niche opportunities where I feel like if we fast forward to today, people recognize that private market solutions can play both the core and satellite in, in their portfolios, it relates. Uh, to a compliment to the public market exposure.

• 10:59Barry Ritholtz?

  So you joined Apollo in two thousand four. I'm kinda curious. A few years earlier, we have the dot com implosion. A few years later, we have the great financial crisis. Uh, I, I hate when people call these, you know, once a century events because they seem to happen a lot more frequently than that. But how significant were those giant public events? To telling the story of, hey, here's some private market investments that you don't have the same sort of volatility and regular, you know, explosions.

• 11:35Speaker 03

  Yeah, no, you're, you're right. They, they were such an incredibly important backdrop to, to why alternatives, why private markets? And, and in fact, when I was still in my seat at JP Morgan, but Apollo was offering then our private equity flagship fund five. The, the dot com, uh, boom was just at its tail.

• 12:04Speaker 03

  And was starting to fracture. You saw the signs. And Apollo came onto the platform and was talking a value story. And for the first several weeks, there wasn't as much take up. And then as the, the market started to change dramatically, there was this wake up call of, whoa, you know what? Let's look at value again. And that kind of was the tail end of the, of the story for, for that fundraise back around the two thousand period. Fast forward to the great financial crisis. It was such an incredible time at that point. I was already in my Apollo seat

• 12:47Speaker 03

  to, to see the investment committee dynamic. And, you know, there were moments that thankfully, because we were so steeped on the credit side, in addition to obviously our view of private equity, where we, we could back up the truck on certain credits with conviction. And I look back now with, with honestly such pride for the decisions that were made in that period of time. And frankly, many subsequently during moments of dislocation where, uh,

• 13:25Speaker 03

  It, it, they make it look so easy on the investment side, but it actually takes so much work and rigor to be in position to make those big investment calls in those moments in time. But it, it served us incredibly well and, and continues to, even Liberation Day.

• 13:46Barry Ritholtz?

  Mm hmm.

• 13:46Speaker 03

  Right, right post, when the market started to move materially, there wasn't that much time. Within forty eight hours, there were, there was kind of a correction from, from the volatility that we saw on household issuers and, and names. But thankfully, based on our scale and knowledge of those capital structures, we were able to, to put about twenty five billion of dollars to work in just a few days and were one of the biggest market participants during that moment of, of dislocation.

• 14:21Barry Ritholtz?

  You know, you mentioned high conviction investments. I, I recall in the mid to late two thousands, people tossed around the phrase toxic assets. And my attitude was always, there's no such thing as toxic assets. There are only toxic prices. Everything discounted enough become, eventually becomes attractive.

• 14:44Speaker 03

  Look, we are, one of our kind of taglines that you'll hear internally and externally is purchase price matters.

• 14:53Barry Ritholtz?

  Yeah, a hundred percent. What you pay for something is gonna have a giant impact on what the subsequent returns are gonna be.

• 14:59Speaker 03

  Totally. And, you know, that, that does, it does require discipline, especially when multiples are going to kind of stratospheric levels. But, you know, it has, that strategy has borne out in a very kind of productive and successful way for us, maintaining that discipline. But as you're saying, like spotting those moments where investments are mispriced or not well understood and being willing to deal with that complexity at the right place, at the right price in order to generate the outcome we want.

• 15:34Barry Ritholtz?

  Really, really interesting. Coming up, we continue our conversation with Stephanie Drescher, Apollo's Chief Client and Product Development Officer, discussing her career at Apollo. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

• 16:00Speaker 00

  At Brookfield, we invest in the thing behind the thing, behind the next big thing. Our focus across infrastructure, energy, real estate, private equity, and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long-term investing, uncovering value, and partnering alongside clients to shape tomorrow's economy today. Learn how you can own what's next at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital.

• 16:35Speaker 04

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices, but according to recruiters,

• 17:19Speaker 04

  advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 18:01Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Stephanie Drescher. She's Apollo's Chief Client and Product Development Officer. Apollo runs about $840 billion in client assets. So I love this title, but I gotta think people are wondering, what's a day in the life of Apollo's Chief Client and Product Development Officer like? It sounds like that's a really wide bit of land.

• 18:35Speaker 03

  It's a fun job. So I've been at Apollo now 21 years. And when I first started, I built out the institutional side of the business globally. So sovereign wealth funds, think the DB, public pension plans. And that was very much our core client base with an episodic offering through a private bank or a wire from time to time. As that market evolved and matured into a very robust global business, it was clear to Mark Rowan, now CEO, and I that at some point, complementing that institutional business

• 19:19Speaker 03

  with a wealth strategy was in our future. We wanted to make sure, though, that we chose the right moment to really lean in to wealth, because it does take a massive commitment, and I'm sure we'll talk more about it. So in my role, I am fortunate enough to build out our business as it relates to our client set of offerings, our product development, as well as our partnerships with our distributors, with our investors. And just making sure that as we continue to innovate, we meet our clients where they are

• 20:03Speaker 03

  and often kind of co-author the types of offerings that are most meaningful to them. So in any given day, I get to think about our set of products and what we're innovating. I get to speak with our clients and partners, existing and prospects.

• 20:23Speaker 03

  I manage a large group of of people and our talent. And I lean in with a very keen focus on culture, which means a lot to me.

• 20:33Barry Ritholtz?

  So that's really interesting. How would you describe Apollo's culture? And what do you do to help shape that?

• 20:41Speaker 03

  So, look, since the day I joined, there have been cer- certain common themes to to our culture, which I think have always kind of propelled us forward as a firm. Now, public, but very much feels like a partnership. And and the first one is making sure that we continue to innovate, to feel very entrepreneurial, and to empower our people to kind of find those opportunities and and pursue them in an appropriate way. We manage the firm as a meritocracy, so we want to give people responsibility and let them kind of really kind of have the greatest impact that that they can for their own professional

• 21:26Speaker 03

  careers, as well as for for the firm. And we we want to have a winning, high-performance culture, meaning, you know, even with all the success that we've had, we want to maintain that, propel it forward, and continue that high level of performance. And importantly, we do it together. So it's not about any one person. I often say to my team, you know, it's it's we, not me. And that's really powerful. So when we bring everything that Apollo has to offer, we call it kind of the one Apollo, to to any client situation or any goal, we can use that power of of the firm to be successful and to allow us all to win.

• 22:11Barry Ritholtz?

  Really, really interesting. You know, so the biggest complaint I heard from various corporate executives during the pandemic was, how do we maintain the corporate culture? We've spent so much time and energy trying to build over the years. Suddenly, everybody's at home on a Zoom call in their pajamas. How do you maintain corporate culture like that?

• 22:32Speaker 03

  It is, it's so important, frankly, whether we're all in the office to maintain that culture, or certainly the challenges during during the pandemic.

• 22:43Speaker 03

  Making sure certainly during that, during kind of that COVID period of creating forums, even if it was remote, to maintain the connectivity was, was really important to have different, I remember many different kind of lunchtime meetings that we would have on Zoom or our, our family community group would have different webinars where it was the employee as parent and then their children frankly were involved as well. So I think it's kind of forced fostering that sense of, of community, even if it is in

• 23:23Speaker 03

  fact, remote. And then thankfully, once in office, I know as I was passing through the sixth floor here at, at Bloomberg, I saw the, the very deliberate kind of floor plan that you have and food and beverage kind of accessible to employees.

• 23:41Barry Ritholtz?

  Everybody has to go through six. It causes all these random meetings that you have, "Oh, I haven't seen you in a long time. How's everything going?" Because everybody shows up for coffee or treats.

• 23:51Speaker 03

  Totally. And, and we have the same. So ours is on the eighth floor, but we call it the casual collision. And that's really important to our culture to kind of show up, certainly as soon as we could do, do so from a practical perspective and allow for that collaboration. It's, it's super important for people to, to share and get to the best answer possible together.

• 24:14Barry Ritholtz?

  So I want to talk about the wealth channel, but before I get there, I have to ask about something that Apollo does, that not every large private markets firm does. You have talked about realigning the interest of the firm with clients, making sure that you're on the same side of trades. And towards that end, Apollo is a regular co-investor along with clients in certain projects. Tell us about that.

• 24:44Speaker 03

  Yeah. Uh, so from a, from a kind of balance sheet perspective, we are often one of, if not the largest investor side by side with our third-party clients and the investments and strategies that we manage. So through our, uh, retirement services business, Athene, uh, as well as our third-party business, we, we invest side by side. And so the decisions we make on behalf of the balance sheet are,

• 25:19Speaker 03

  aligned with, with the outcomes of, um, of the strategies in which we invest third-party capital. So we often say, well, we can't guarantee the outcome, we guarantee a shared outcome. And, uh, and that means a lot to us in terms of our commitment and focus, but also to our clients, because they, they know how important it is to us in multiple ways.

• 25:42Barry Ritholtz?

  I, I would imagine if anybody has hesitation on a, um, investment, if you see the private, uh, equity firm co-investing along with you, that has to be a big confidence driver.

• 25:57Speaker 03

  It, it is. And in certain instances, like when you look across the industry, a commitment from an asset manager might be at the 2.5% or 3.5%. It's, uh, it's an outlier if it's a 5% commitment.

• 26:16Barry Ritholtz?

  But not double digits.

• 26:17Speaker 03

  Exactly. Where in one strategy of ours, which, um, has a diversified portfolio of, of private markets, uh, we are two-thirds of that portfolio. So, uh, when, when we say that it's, it's meaningful to our balance sheet, we, we mean it.

• 26:39Barry Ritholtz?

  Uh, how does that work in terms of direct stakes and performance fees? Like if you're most of the invested assets, that has to have an impact on what the balance sheet looks like. How do you guys align that?

• 26:53Speaker 03

  So, look, we, we are performance first at the end of the day. And our, uh, you know, our relationships and the trust that we build, um, are over time through performance and, uh,

• 27:08Speaker 03

  And through service, I mean, we want to make sure that our partners feel our our support in just about every way. So for us, it's it's never about a particular fee of one type or or another. Ultimately, we're not focused on an AUM goal. That is the reward for good performance. And as long as we are making the best investment decisions and showing up frankly, as a best in class partner for our clients, that is what drives our business forward.

• 27:46Barry Ritholtz?

  So let's talk a little bit about the wealth channel, which is where you focus some of your time early in your career at Apollo. Tell us how this has changed over the past 20 years and tell us a little bit about what type of clients show up there.

• 28:02Speaker 03

  Yeah. So, you know, the the wealth business, I saw certainly in my very early days of JP Morgan, but then for my first kind of 16 plus years at Apollo, the private bank or or wire was really more the exception than the role. It was a more of a episodic type of of relationship. That all completely transformed into a strategic commitment from from all of us at at Apollo, starting about four or five years ago. So when Mark Rowan took the reins as CEO, all the stars aligned to build a wealth business to complement

• 28:47Speaker 03

  the institutional. And that that decision truly needed to come from the top, CEO on down, because it is strategic. It's it's not transactional if you're going to do it well. It needs to be a long term commitment to to the channel.

• 29:08Speaker 03

  In my view, there are actually only a small number of firms that can really show up and do this well in partnership with with all the financial intermediaries involved with wealth. And the reason I say that is when you look at what's required, it's a pretty massive lift. You need to make sure that you build out the right relationships and you need the team globally in place to do that across channels and geographies. You need to make sure that the product mix is extensive enough so that you're relevant

• 29:47Speaker 03

  as it pertains to our investment capability, but you want to make sure that you're showing up with the right structures for the right clients. Then there's the educational component, there's the servicing, there's technology. For example, we we have spent actually a billion dollars, one billion dollars from our balance sheet in wealth tech investments alone to make sure that we're partnering and investing in firms that will help the industry. So I think there are very few that can do that well and and truly meet the wealth clients where with in order to meet their portfolio needs.

• 30:27Barry Ritholtz?

  So within that channel, family offices, high net wealth, sovereign funds, are you also selling through other intermediaries like brokerage firms or RIAs? Tell us a little bit about that.

• 30:41Speaker 03

  Yes, so the the channels represented in wealth include the private banks and wires as one channel, the independents, which includes RIAs and and independent broker dealers. Family office is also kind of under our our wealth umbrella. So that's the ultra high net worth space selectively. And then we have geographic focus, you know, outside of of the US across EMEA.

• 31:12Speaker 03

  And and Asia, the rest of of North America is is covered appropriately out of Canada and Latam. So so each of those channels are are represented. And while each has differences, and we definitely approach them with different resourcing and and commitments, the common denominator of of all of them is helping the intermediary, the advisor or the banker or the CIO of the family office, either build for retirement in the case of their underlying client, or build

• 31:55Speaker 03

  to a certain level of wealth. And so whether it's a a wire, like a UBS, or a Morgan Stanley, and their set of advisors, or you name kind of an RIA, we want to show up to that intermediary with offerings that are going to work for their platform and their their base, and make sure that we can speak to semi-liquid, as well as drawdown, and really kind of listen closely to what they're looking to provide their clients.

• 32:30Barry Ritholtz?

  So the challenge we always see on on the RIA side is, on the private, it seems everything is sort of a one-off. And whereas on the public side, the custodianship is standardized, the reporting is standardized, all the compliance and due diligence is pretty, you know, turnkey. Tell us about, A, the challenges of of all the private investments that may not all be identical, and is there a solution out there, a platform in development, that might make this more like a turnkey, more public security-like than private?

• 33:10Speaker 03

  Yeah. It's a journey, but I think it's already getting better. And I do see a world where it it becomes

• 33:21Speaker 03

  So much easier, more efficient to to access. And so if we look at what we're already seeing, you know, when we think about an interval fund structure, where you can buy many different underlying strategies, it's point and click. Through an advisor, but it's point and click. There isn't kind of the fulsome subscription process that we've seen. There's innovation, which, you know, we have worked on in partnership with State Sheet, for example, where there are ETF structures of which private markets are a part.

• 34:00Speaker 03

  And I think the technology is moving from kind of more of an analog to digital and and just kind of the the plumbing and the infrastructure that supports the the private markets overall ecosystem. So there's there's definitely a lot of time and effort to try to simplify the processes. And I think it's going to go hand in hand with an evolution that's already starting, where allocators are looking to to managers like ourselves to not only offer specific

• 34:40Speaker 03

  parts or specific strategies, but to increasingly offer more holistic solutions. So a bundle of private market solutions, which could be multi-strategy, going to eventually kind of multi-strategy, multi-manager as as well, which can then be housed not only in the accounts, brokerage accounts or self-directed that we see so often today, but in a range of pools of of capital in models and a number of discretionary pools of capital that are highly applicable for private markets.

• 35:24Barry Ritholtz?

  Really, really interesting. Coming up, we continue our conversation with Stephanie Drescher, Apollo's Chief Client and Product Development Officer, discussing the state of private markets today. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

• 35:54Speaker 04

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 36:36Speaker 04

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 37:20Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Stephanie Drescher. She is the Chief Client and Product Development Officer at private investment giant Apollo, helping to oversee $840 billion in client assets. So, we're living in a moment where private credit and private equity, they used to be a small niche. That's no longer the case. Not only are they mainstream, they're one of the fastest-growing parts of the investment world. Tell us a little bit about what's happening in that space and what's driving that shift.

• 37:59Speaker 03

  Yeah. I think there's been...

• 38:03Speaker 03

  A transformation in terms of public and private holdings in a portfolio. And what does it mean to be safe or risky? Think historically, people have thought that because something was liquid in the public markets, it was inherently safe, or frankly, safer than something less liquid in the private markets. And as we look at 2022, and frankly, many moments of dislocation in the public markets. And there's now a much clearer recognition that the public markets can be both safe and risky, as can the private markets.

• 38:46Speaker 03

  Because when we look at the public markets, let's say, the S and P 500, for example. The performance and frankly, moments of underperformance have been so concentrated in terms of the attribution to roughly seven stocks. Sometimes people will say 10 stocks. But when there's so much concentration, or frankly, lack of diversification in the public markets. It it creates a moment where people start to zoom out and say, frankly, what if the toolkit for my equity piece of the portfolio should have a combination of both public and private? And frankly, what if my fixed income segment of the portfolio

• 39:30Speaker 03

  should have both public and private? Then the toolkit for advisors and for for families is much broader to create that excess return. And what we've seen is the desire to incorporate the private markets, not just as an add on to an otherwise traditional 6040 portfolio, but rather thinking of it as part of their core holdings and equity and debt. And think and now thinking simply of alternatives as an alternative to public stocks and bonds.

• 40:10Barry Ritholtz?

  So 6040 becomes 503020 or 602020 or something along those lines?

• 40:18Speaker 03

  Yeah, or or it could even keep. Uh, whatever percentages are split between public, between equity and debt, but have both the public and private options available within each of those percentages to maximize the return, to maximize diversification and to reduce the volatility. It's a game changer. It's no longer a nice to have private markets in a portfolio. It's a need to have in order to meet the long-term financial goals of the client.

• 40:51Barry Ritholtz?

  So one of the things I can't help but notice over the course of my career, which began more or less around the same time as yours in the mid 90s, is that the total number of public equities has shrunk dramatically. The Wilshire 5000 is about 3,400 stocks. Uh, the S and P 500 still 502 stocks because of A shares. It's a little over 500. But even the Russell 2000 and some of the other broader indexes, far fewer public names in there. How much is the shrinking of the public float driving activity onto the private side?

• 41:31Speaker 03

  I, I think it's very real. You're, you're right. It's about half the number of public companies. It was, you know, just, you know, even a couple of decades ago. At the same time, when, when you look at the number of companies, total number of companies globally, 90% are in fact private. So if someone truly wants representative, uh, exposure in their portfolio, it's really hard to rationalize eliminating 90% of the total number of companies out there. Right. And focusing exclusively on public because it's liquid. Realistically,

• 42:12Speaker 03

  One needs to look at what is the return profile goal for the portfolio? What, what type of illiquidity can, can someone accept? And, and then create a portfolio that allows for that excess return. Institutions have realized that now over decades and they've been the beneficiaries of that excess return by accepting some amount of illiquidity. With the advent of new structures in the private market, certainly for wealth and increasingly even for institutions, you can, you can select offerings out there that provide more interim liquidity.

• 42:56Speaker 03

  It's, it's not your ATM, no one should think that it is, but it provides a much broader suite of solutions across a range of liquidity profiles, offering far more liquidity than one would have received in a traditional private equity drawdown structure. In, in our view, in a, as we develop portfolios with our clients, depending on what they're looking for in terms of underlying return and, and liquidity, we believe there's a, a role for a mix of both more, more liquid private markets structures as, as well as drawdown, depending on the strategy.

• 43:40Barry Ritholtz?

  So, so let's talk about liquidity and semi-liquidity as well as illiquidity. The academic perspective has always been, hey, when you're moving into an illiquid market, you get the benefit of the illiquidity premium. It's a smaller market, it's less efficient, there's opportunities to create alpha here, but the trade-off is your money is locked up for three years, for five years, for seven years, whatever it is. When first with the semi-liquid products, are you giving up some of that upside in exchange for semi-liquidity?

• 44:17Speaker 03

  Our view is that the the structure and the design should marry the underlying assets in the portfolio.

• 44:24Barry Ritholtz?

  So two-year credit notes are going to be more liquid than perpetual, open-ended?

• 44:31Speaker 03

  Exactly. So we have, you know, in our our view, the strategies within private markets are so wide-ranging, which, to your point, in terms of portfolio construction, you know, our our view is that since a private market holding can span everything from short-term investment-grade credit all the way through to your traditional kind of private equity drawdown, that's a very wide range. And when you think broadly about that type of exposure, why shouldn't an allocation in a portfolio be maybe even 50% to private markets, just

• 45:12Speaker 03

  given the breadth and applicability of the underlying assets from the short-dated investment-grade credit all the way through to more traditional private private equity? But but to your point, there are options where private markets can be a part of an overall portfolio, like in ETF format, where it is, in fact, daily as part of a broader portfolio. Or if you go to kind of an investment-grade strategy, it may be, you know, monthly in nature. But you're you're right, the the trade-off for stepping out a bit on the liquidity curve,

• 45:52Speaker 03

  albeit, you know, not too much further, is a pickup in in the excess return.

• 45:59Barry Ritholtz?

  Really interesting. You know, I'm I'm not going to quote you exactly, but I did read something you had said about private credit, is that you see a full-on fundamental rethink taking place in the space. Explain what you mean by fundamental rethink.

• 46:20Speaker 03

  You know, the the idea of

• 46:25Speaker 03

  Of private markets or alternative of alternatives being that very high risk portion of a portfolio and therefore a small percentage of one's allocation locked up for a long period of time. That's just no longer the modern thinking of the use of private markets in a portfolio. There's no reason right now why an advisor and a banker can't think in a far more flexible way about how they are meeting the need to save for retirement or the ability to build wealth with private market structures

• 47:10Speaker 03

  in mind. So it kind of goes back to that idea of public markets being safe and private markets being risky. That's no longer kind of the the thinking in in the market. I think most intermediaries have really challenged that historical way of building portfolios and they want the same benefits that the institutions have now had for decades. The reality is that the the size of the wealth market in terms of assets held by families, by individuals, is about the same size as that held by institutions. Each about 150

• 47:55Speaker 03

  trillion or so globally. The institutions right now have an an average allocation of over 20% to private markets. The individual on average, 3%.

• 48:09Barry Ritholtz?

  Yeah, I was gonna say, single digits, clearly.

• 48:11Speaker 03

  Absolutely.

• 48:12Barry Ritholtz?

  And all of the when we when we look at the projections and a variety of war game scenarios, this looks like this is going to continue to grow over the next decade. The the I know this is a speculative question and no one really knows, but how large can the private markets get relative to the public markets? Can they be the same size eventually?

• 48:38Speaker 03

  Look, our our view is that origination.

• 48:42Speaker 03

  Is the great differentiator. So we we focus not as kind of AUM as a limiter, but rather origination.

• 48:56Barry Ritholtz?

  And define that because when I hear origination, I'm thinking not all private investments are created the same.

• 49:05Speaker 03

  Right. It's the ability to create proprietary investment opportunities is in our view, a huge differentiator for a platform. And we partner with financial intermediaries, and that is additive in in terms of the flow of of investment opportunities, but not exclusively. In fact, over the last almost 15 years now, we've built out 16 proprietary origination engines.

• 49:44Speaker 03

  So that we can create that investment alpha in-house for the benefit of of our clients. And that proprietary origination fuels our underlying portfolios, which ultimately, in in our view, is critical to delivering on the return.

• 50:04Barry Ritholtz?

  So those 16 different engines, I'm going to assume they're each in a different type of space?

• 50:09Speaker 03

  Exactly.

• 50:10Barry Ritholtz?

  So real assets, infrastructure, private credit, private debt, which isn't always the exact same thing, private equity, there's got to be many more. What what other spaces are you, what other geographies are you looking at? What other spaces are you looking at? What's the product mix look like?

• 50:28Speaker 03

  Yeah. So on on the origination side, it is quite broad. Think everything from fleet finance to.

• 50:38Barry Ritholtz?

  Fleet, jets, ships, all the above?

• 50:41Speaker 03

  And and even trucking, you know, there's a whole range in terms of everything from aviation to kind of ground transport. There's consumer finance. There's specialty finance. That's there's mortgages. So it's it's quite broad in terms of the reach, but it's it's ultimately originating the investment in.

• 51:10Speaker 03

  What we call kind of the industrial renaissance and the need for that private capital is is real and additive to to what could otherwise be found in the public markets.

• 51:20Barry Ritholtz?

  Hmm, really, really fascinating. But before I get to, I only have you for a limited amount of time. Before I get to my favorite questions, let me just ask you one more question. What do you think investors who are looking at the private markets aren't thinking about or talking about, but should be? What sort of topics, geographies, policy issues, what's out there that is getting overlooked, but perhaps shouldn't?

• 51:47Speaker 03

  So what I'm seeing more and more is is a global trend of of the democratization for private markets. And as I look at what's happening, certainly in our own backyard in terms of the executive orders around 401k, and then I look to to Europe and I see their regulation around the LTIF 2.0, or I look even to the UK and I see regs in the UK and

• 52:25Speaker 03

  France in terms of certain requirements and percentages to private markets in their retirement plans. To me, there's a global theme of the desire to allow more access of private markets to to the individual and through their advisors, through the intermediaries, to truly be able to adequately plan for retirement. And we see, obviously, the state of of kind of retirees

• 53:02Speaker 03

  here in in the US. And there's a dire need to give them, you know, through managed accounts, through target date.

• 53:15Speaker 03

  Access to investments that will provide that additional excess return. And you know, as, as we think about it,

• 53:24Speaker 03

  you know, most of those 401ks have time horizons of decades.

• 53:28Barry Ritholtz?

  Right.

• 53:29Speaker 03

  Yet the solutions they have available to them are daily liquid.

• 53:33Barry Ritholtz?

  Mm hmm.

• 53:34Speaker 03

  That mismatch does not need to exist. And, you know, with, with the changes that we're, we're seeing come out of DC, you know, we're, we're hopeful that the framework for the benefit of those retirement plans will continue to be one that shifts from the historical view of maximizing those pools of capital to the lowest possible fee, to one where they look to maximize outcome and truly maximize the result for, for those participants.

• 54:13Barry Ritholtz?

  Really, really very fascinating. Let's jump to our, our final five questions that I ask all of my guests. Starting with, tell us about your mentors who helped shape your career.

• 54:27Speaker 03

  Ah, well, I, I, I mentioned in, in a prior part of our series, someone that I used to babysit for, who gave me my first shot in a healthcare consulting firm. So she will remain part of my kind of, uh, my personal advisory board. While at JP Morgan, Mary Erida is kind of rock star status in, in my book and, and an amazing mentor throughout my career. And then, you know, many at, at Apollo that I, I won't name because I won't embarrass them, but that have been incredible sponsors of, of my career with a lot of opportunities

• 55:10Speaker 03

  just to continue to grow and develop as a professional.

• 55:13Barry Ritholtz?

  Let's talk about books. What are you reading? What are some of your favorites?

• 55:18Speaker 03

  So, well, in terms of what I'm reading right now.

• 55:23Speaker 03

  There's a book called Such Good People, which I will give a disclaimer. It's written by Amy Blumfeldt. And she is a great, close friend from college. And it's a great read. And so I'm at the end and I don't want it to end. So that's, that's a great one. I was actually just away this weekend and I have to say I was struck. I was in the Berkshires and I was struck by the fall foliage.

• 55:50Barry Ritholtz?

  It's amazing this year.

• 55:52Speaker 03

  Beautiful. Like coming, you know, I live and work in New York City. So seeing those surroundings and being back in nature. It did make me think of Emerson and Thoreau, who I did love. And it's been a while since I've, I read their works. But it inspired me to go, to go back and dust that off.

• 56:12Barry Ritholtz?

  Let's talk about what's keeping you entertained these days. What are you streaming or, or listening to?

• 56:17Speaker 03

  Other than you?

• 56:18Barry Ritholtz?

  Well, this doesn't count. Give us, give us a different one.

• 56:22Speaker 03

  Okay. Well, one that is top of mind, who we actually just had participate live at a client forum of ours is Dr. David Sinclair of lifespan. And he is affiliated with Harvard and his work fascinates me in, in terms of.

• 56:45Barry Ritholtz?

  Is that the happiness series?

• 56:47Speaker 03

  Oh, I love that too.

• 56:48Barry Ritholtz?

  The longitudinal study?

• 56:49Speaker 03

  I, I love that. That's a different one. And I, I, I love that professor as well in terms of the value of happiness at different stages of our lives. I love that. But this actually relates to longevity more in terms of genetics and all the research in science and even drug development that is going into the kind of health and wellness from a longevity perspective.

• 57:14Barry Ritholtz?

  The health span study, is that what this one is?

• 57:17Speaker 03

  Yes, exactly. And research that they're already doing in terms of eyes that could have applicability to many other parts of our bodies. So I just find it kind of a fascinating field that I think will develop so much over time. And of course, from a work perspective, as I think frankly of the work of both of those Harvard professors and doctors. Is now, how does it tie into the high performance culture and mindset that we have as a firm? Like, how do we take that thinking and, and try to think about our own employees over time?

• 57:50Barry Ritholtz?

  And our final two questions, what sort of advice would you give to a recent college grad interested in a career in investing, privates, alternative investings? What's your advice?

• 58:03Speaker 03

  Well, first off, go for it because I think it's there's still so much growth ahead. And I would just say, stay curious because, you know, as, as we think about kind of the innovation that's happening, just about from every angle of product innovation and channels and frankly, even applicability of AI to what we do today. If you're tuned in from a curiosity perspective, coupled with kind of strong work ethic, I think that's a winning recipe.

• 58:46Barry Ritholtz?

  And our final question, what do you know about the world of alternative and private market investing today would have been useful 30 years ago or so when you were first getting started?

• 58:58Speaker 03

  Well, no fun if you have the answer key, right? But look, I would say, the one thing that stays the same is change and to embrace that and to be flexible, to recognize that there will be so much evolution and change that continues in front of us from an industry and certainly as someone starting, if someone's starting out now, to kind of enjoy that ride and recognize that there will be many chapters that unfold. And the best we can, kind of try to see where that puck is going, but certainly embrace that.

• 59:46Speaker 03

  That there's so much more innovation and opportunity to come.

• 59:51Barry Ritholtz?

  Really, really interesting. Thank you, Stephanie, for being so generous with your time. We have been speaking with Stephanie Drescher, Apollo's Chief Client and Product Development Officer. If you enjoy this conversation, check out any of the 589 we've done over the previous 11 and a half years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcast. And be sure and check out my new book, How Not to Invest: The Ideas, Numbers, and Behavior That Destroys Wealth and How to Avoid Them, wherever you get your books at. I would be remiss if I didn't thank the crack team

• 1:00:32Barry Ritholtz?

  that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my producer. Sage Baumann is the head of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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