Apollo Global CEO: The 15-year good fortune of the global asset management industry has come to an end, and in the future, we must seize these four huge opportunities

At the 2024 Apollo Investor Day, PE giant Apollo CEO Marc Rowan delivered a speech, stating that the 15-year good fortune of the global asset management industry has come to an end, and the future will seize four huge opportunities, which will not only be beneficial to Apollo but are expected to benefit the entire industry.

These four major opportunities involve global industrial renaissance, huge capital needs of global large companies, retirement market's significant demand for fixed income, and rethinking the public and private markets.

Among them, the global industrial renaissance involves long-term and complex capital needs for infrastructure, energy transition, next-generation data, and power. The retirement market has a great demand for fixed income, especially individual investors have a significant demand for alternative investments, fixed income, and other opportunities.

Rethinking public and private asset management involves challenging traditional concepts. In the current market environment, private and public assets both have security and risk, which may promote the trend of private assets replacing fixed income and equities.

The key points of the entire article are summarized as follows:

• In 2008, the asset management scale of all major companies in our industry was $40 billion. By the end of 2023, our managed assets had increased to $650 billion, our assets grew 16 to 17 times, no financial services company has grown like this, our growth actually exceeded Apple, exceeded Microsoft, exceeded almost every growth company you can think of.

• We are smart because we positioned our business before the "tailwind" arrived, driving a 7-fold increase in business revenue. In 2008, every existing global financial institution adopted a defensive strategy, we were fortunate to establish a new financial institution in 2008, basically being in an "attacking mode" for these fifteen years.

• I have always emphasized that change is coming, the tailwind that has been driving our development no longer exists, there will be new trends. If we think that continuing to repeat past practices will lead to success, that is wrong, we must adapt and change, this applies not only to us, but to the entire industry.

• Global industrial renaissance, huge capital needs of global large companies. In addition to the tens of trillions of dollars borrowed by the U.S. government each year, these funds are used for infrastructure, energy transition, next-generation data, and power.

• Forty years ago, Australia adopted a method called the retirement pension system, a good way for investors to include private assets with public assets in their portfolios under appropriate supervision. After forty years of compound interest, the results are simply amazing. I believe we are at the forefront of re-examining this opportunity, and Athen has just begun.

• Looking back at the retirement market, this is a huge opportunity, with a significant demand for fixed income, especially individual investors have a great demand for alternative investments, fixed income, and other opportunities, this is just the beginning. This single business alone can double our industry and company

• I believe this is the most direct and specific opportunity, and also the fastest growing opportunity, that is, to rethink the public and private equity markets. Private equity has only three products: private equity, venture capital, and hedge funds, although they are actually good investments, they all come with risks. I believe that the world we live in today is both safe and risky for private equity, and the public market is the same.

• In the tech ecosystem, we naturally assume that companies like OpenAI or Spotify can remain privately owned for the long term and raise equity. So, why can't this be more widely applicable?

Below is the full speech, with some content omitted:

Asset management has grown 16 to 17 times in the past fifteen years, surpassing Apple and Microsoft

Good morning, everyone. I am Marc Rowan, the CEO of Apollo. It is the best time to formulate a five-year plan, where we have compressed all plans into a very short period of time, and all difficult decisions are already in front of us.

In terms of financial goals, we are talking about an average annual growth of 20% over the next five years, $15 per share, $21 billion in capital, but the only number I really want you to focus on is the $275 billion in annual fundraising, which will be more important for our industry.

Looking back at the development of our industry, we have been very fortunate, with revenue growing 7 times. But let me give you a more interesting data point: in 2008, the asset management scale of all major companies in our industry was $40 billion, with each having $35 billion in private equity and $5 billion in other assets, which were credit.

By the end of 2023, our assets under management have grown to $650 billion, our assets have grown 16 to 17 times, no financial services company has grown like this, our growth has actually surpassed Apple, surpassed Microsoft, surpassed almost every growth company you can think of. Do you think we are lucky or smart?

The good luck of the past fifteen years has ended, and adaptation and change are necessary

We are lucky, we are smart just because we positioned the business before the "tailwind" arrived, driving a 7-fold increase in business revenue and a 16 to 17-fold increase in total assets under management.

In 2008, every existing financial institution globally adopted a defensive strategy, and we were fortunate to establish a new financial institution in 2008, basically being in an "offensive mode" for these fifteen years. Another thing that happened was that with governments around the world adopting zero interest rate policies after the financial crisis and during the COVID-19 pandemic, everyone looking for returns, including policyholders, retirees, and counterparties to contracts, found us.

These two favorable trends not only propelled us but also the entire industry. However, we must also clearly recognize that these favorable trends no longer exist. This is another thing we are truly striving for at Apollo. Our industry has been so successful, our company has been so successful, how to make the organization win rather than just not lose, may have consumed most of our management time We woke up the team at 4:30 in the morning to hold a meeting, to prove that we need to sound the alarm and do things differently. We invited external speakers to warn everyone, we have cautionary tales, our goal is to win, and I have always emphasized that change is coming, the tailwind that has been driving our development is no longer there, there will be new trends.

If we think that continuing to repeat past practices will lead to success, that is wrong, we must adapt and change, this applies not only to us, but also to the entire industry.

How did we develop? We basically stayed ahead of these strong tailwinds by focusing on capabilities. Both the entire industry and our company were initially private equity, we were a small business, but there were huge opportunities in front of us.

After the global financial crisis, credit and Athene were the main drivers of our growth in the past few years. Many investors asked on Investor Day, why merge with Athene, what can be gained from it?

We gained a lot from it, the entire business revolves around the retirement ecosystem, Athene holds an irreplaceable central position in our strategy, they basically brought us into the platform business and capital solutions business.

The Second of Four Huge Opportunities — Global Industrial Renaissance, Huge capital needs of global large companies

Let's start with reality. We are a small asset management company with assets under management exceeding $700 billion, while today the four giants all exceed $10 trillion. If we achieve great success, our business scale will double in five years, but we still won't have a place in the scale of large asset management.

I think, to some extent, this is the most exciting and gratifying part of the strategy. We have four amazing opportunities in front of us that can drive our business forward. If any one of these opportunities is done well, it is enough to double our business. The task now is to focus and execute, and place ourselves in front of these four huge opportunities.

Global Industrial Renaissance, Huge capital needs of global large companies. In addition to the tens of trillions borrowed by the U.S. government each year, these funds are used for infrastructure, energy transition, next-generation data, and power. These projects have long cycles, high complexity, and require creativity. In many cases, we are providing financing for consortia supported by large companies, these consortia do not want the assets to appear on their balance sheets, but want to access the capabilities within them.

Long-term solutions cover all kinds of capital costs, which are not really suitable for bank balance sheets that provide short-term funds for themselves, nor for ordinary people in the investment-grade market.

In every society, there are only two sources of debt capital: it can come from the banking system, or it can come from the investment market, there is no other choice. Around the world, banks are being asked to do less, and investors are being asked to do more.

When we did the first investment-grade financing for AB InBev a few years ago, many people, including competitors, said, "The $4 billion is the last $4 billion you can do." However, that was before $100 billion, and Intel alone had $110 billion. **This is just the beginning, this is a long-term trend for our business

Retirement Market Has a High Demand for Fixed Income

When it comes to retirement, we are all getting older, for better or for worse. As a society, we have done a poor job in retirement planning, these statistics are well known. The vast majority of Americans are not adequately prepared for retirement. Think about the largest group of retirees in the world and how they save. In the United States, we have $12 to $13 trillion in 401K plans. They are mainly invested in daily liquid index funds, mostly the S&P 500, which has been going on for fifty years.

Basically, we have 10 stocks in the S&P 500 that account for 39% of the index, with four stocks determining 100% of the returns in recent years. Sometimes I joke that we owe the entire retirement of the United States to NVIDIA's performance, which may not sound smart, but we are actively addressing this issue.

Every day we see new products, new methods, new supplements, this is happening. From a retirement perspective, the most successful country in the Western world is Australia. Forty years ago, Australia adopted a method called the retirement pension system, a good way for investors to include private assets with public assets in their portfolios under appropriate supervision. The results after forty years of compounding are simply amazing. I believe we are at the forefront of re-examining this opportunity, and Athene, under Apollo Global Management, is just getting started.

We focus on how to succeed, basically by leveraging existing products and industry dynamics and making them more optimized, which is already very impressive. We have not yet fully demonstrated its potential, but in the coming years, you will see more, as our competitors are just beginning to think about the business we started and led fifteen years ago.

We are in the early stages of pioneering this business and exploring the products and delivery methods of this business. I am confident that we will succeed, this is not just an opportunity for Apollo, it is an opportunity for large companies, but not every alternative investment company has such an opportunity.

I know we will succeed because I see the most sophisticated individual investors, namely family offices. Family offices now have over 50% in private assets. For us, family offices are nothing but institutions, they are usually not guided by advisors, other benchmarks, or restrictions, but by common sense and the principles of risk and return, which is a huge market. They are not constrained by benchmarks, they actually show institutions the future.

Let me turn to the bottom of the pyramid, the mass affluent. We do not believe that Apollo or our peers will directly serve the mass affluent market. These people are hard to reach, they have established relationships, usually well-served, usually not serviced by individual advisors, and they do not receive advice in very limited circumstances.

This does not mean they will not have private assets. Whether working with us or with capital groups like ours, I believe this mass affluent market will be served by their existing asset managers and advisor relationships, and the product mix will change.

Our industry, especially our Apollo Global Management company, will become a supplier to the high-net-worth market segment. It is very rewarding to talk to high-net-worth investors, as you can clearly know your position when you leave, and sometimes even leave with orders, which is truly satisfying.

Looking back at the retirement market, this is a huge opportunity, with a great demand for fixed income, especially from individual investors for alternative investments, fixed income, and other opportunities, which is just beginning.

Rethinking the public and private equity markets, both are safe and risky

What excites me the most is that I believe this is the most direct, most specific opportunity, and the fastest growing opportunity, which is to rethink the public and private equity markets. Let's face it, for those who have been working in this industry for forty years, we inherently think that private equity is risky, but the public equity market is safe, because that was indeed the case forty years ago. Private equity only has three products: private equity, venture capital, and hedge funds, although they are actually good investments, they all come with risks.

The public equity market, on the other hand, has 8000 listed companies, with diversified investment portfolios of stocks and bonds. But what if the public equity market is also both safe and risky? We don't care about the 20-30% fluctuations in Nvidia's stock price in a day, there is a lot of equity volatility, but we don't see it as a risk. However, a slight deviation in the private equity market makes us lose our rationality. I believe that the world we live in today is where private equity is both safe and risky, and the public equity market is the same.

The existence of credit rating agencies actually tells investors that certain things in the private equity and public equity markets have the same credit quality, allowing investors to make decisions about liquidity or illiquidity, and clearly weigh risks and returns. Everything investment-grade in the public equity market will exist in the private equity market.

We will start market-making, and once we start, I believe others will follow suit. The 8000 listed companies that used to make up diversified investment portfolios have now been reduced to 4000, with less than 100 companies going public each year, while over 100 companies are privatized annually.

In the tech ecosystem, we naturally think that companies like OpenAI or Spotify can remain private for the long term and raise equity. So, why can't this be more widely applicable?

I believe in the future, today we will talk about fixed income alternatives, but in the future, we will talk about stock alternatives. Today, there is so much passive in the market, with active management accounting for a very small proportion. But more importantly, active management has actually failed. When a business fails to outperform the index for over 90% of the time in twenty years, the market structure has indeed changed.

Especially for daily liquidity funds, profitability becomes more difficult and requires more skills. For those who can do it, I salute you, because it is indeed a very difficult task. I believe that future investors will have private equity, not in a fund without leverage, where active management may actually involve actively buying and selling stocks, but also may involve active management of company operations. Today we have a business we call 'mixed investment', and you will hear that it will double in size Our industry, these four trends, are not only applicable to Apollo Global, but to the entire industry. I expect the entire industry to benefit from them. However, I believe we have positioned ourselves better to accurately benefit from market changes.

As we continue to assess our business, we will continue to move towards success through indicators such as asset management scale and capital raising. I believe in the coming years, we will actually transition to thinking about the factors that truly constrain our business.

If we are right, we will have demand for private equity assets from retirees, demand for private equity assets from individuals, demand for private equity assets in the fixed income area from institutional clients, and ultimately demand from them in the equity area. I believe all of these demands will create an industry that is two or three times the size it is today.