The transcript from this week’s, MiB: Stephanie Drescher, Apollo Chief Client and Product Development Officer, is below.
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Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Riol on Bloomberg Radio.
00:00:16 [Speaker Changed] 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 over overseen the wealth division, but also worked on a variety of geographies, new products. She’s on everybody’s best of lists. She’s been on the Barron’s Women in Finance list, sits 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, Apollos, Stephanie Drescher. Stephanie Drescher, welcome to Bloomberg.
00:01:17 [Speaker Changed] Thank you, Barry. Happy to be here.
00:01:20 [Speaker Changed] 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 at Columbia MBA from Columbia Business School. What was the original career plan?
00:01:37 [Speaker Changed] I, I did always have finance in my sites. 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 right, these days. But there, there was always a draw towards doing something in, in the financial kind of arena, interest in markets and the like. So, very early internships led me down that path.
00:02:04 [Speaker Changed] And I read somewhere in your background that you were particularly inspired to go into finance by your grandmother. Tell us about that.
00:02:13 [Speaker Changed] That is true. So my father’s mother lived with us for a time, and believe it or not, she was born in the very, very late 18 hundreds. 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. And she used to read the Wall Street Journal cover to cover every day. Super smart, loved tracking stocks. And so we started to track stocks together. And how
00:02:54 [Speaker Changed] Old were you at this time?
00:02:55 [Speaker Changed] Oh, I don’t know, maybe 12. Okay. And in a very high tech way, we would put it up on the refrigerator and kind of see the, the changes in, in the holdings that she had in her portfolio and sometimes overlapped with that of my parents. Huh. Really? So that was the early start.
00:03:13 [Speaker Changed] So you get an MBA from Columbia, JP Morgan was the first job right? Outta school?
00:03:19 [Speaker Changed] It was, although there, there was 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 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. Huh? Would you like an internship? And I practically fell off my chair and I said, I would love an internship.
00:03:58 [Speaker Changed] How old are you at this time? Like 16.
00:04:00 [Speaker Changed] This, it was like 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, I decided that healthcare wasn’t my thing and consulting wasn’t my thing. It was very an easy bridge to, to JP Morgan and, and the finance field.
00:04:30 [Speaker Changed] So when you started JP Morgan, what was the role? How did you, what, what areas were you toiling in?
00:04:36 [Speaker Changed] So I started with a rotational opportunity, which was terrific. I had everything from fixed income research to private banking in Geneva. Did you
00:04:47 [Speaker Changed] Go to Switzerland?
00:04:48 [Speaker Changed] 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 liked 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, a client perspective outside of, of New York and the US. So
00:05:17 [Speaker Changed] Great. It it’s a big world.
00:05:19 [Speaker Changed] 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.
00:05:36 [Speaker Changed] So alternatives way back then. But before you leave Switzerland, I recall a vacation not too long ago to Lake Geneva and what’s ama 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 of money. It’s just such a different eye-opening. So different than here. Yeah. Yeah. Really, really amazing. So you’re in the Alts group at, at JP Morgan. You stay at JP Morgan for a decade. Tell us a little bit about the work you did there. Yeah,
00:06:13 [Speaker Changed] So it was very early days of speaking to families around the world, the ultra high net worth clients of, 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, my time at JP Morgan, and it was a very fast 10, 10 years and an amazing kind of training ground was, was kind of a, 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, 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. Yeah, it was very early.
00:07:40 [Speaker Changed] Let, let’s contextualize a little bit. This is the mid to late nineties and early two thousands. 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 the private markets? How, how much smaller was the whole space back then? Yeah,
00:08:06 [Speaker Changed] 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 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 wanna rely, it was very early, but they saw that they didn’t wanna rely exclusively on public market exposure. So, 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 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. 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 portfolio as it relates to a compliment to the public market exposure.
00:09:56 [Speaker Changed] So you join Apollo in 2004, I’m kind of curious, a few years earlier we have the dotcom implosion a few years later we have the great financial crisis. I, I hate when people call these, you know, once a century events ’cause 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.
00:10:32 [Speaker Changed] 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.com boom was just at its tail 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 2000 period. Fast forward to the great financial crisis, it was such an incredible time. At that point I was already in my Apollo seat to, to see the investment committee dynamic.
00:11:48 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 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, right post, when the market started to move materially, there wasn’t that much time within 48 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 25 billion of dollars to work in just a few days. And were one of the biggest market participants during that moment of, of dislocation.
00:13:18 [Speaker Changed] 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.
00:13:41 [Speaker Changed] Look, we are, one of our kind of taglines that you’ll hear internally and externally is purchase price matters.
00:13:50 [Speaker Changed] Yeah, a hundred percent. Yeah. What you pay for something is gonna have a giant impact on what the subsequent returns are gonna be.
00:13:56 [Speaker Changed] 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 born 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 in 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.
00:14:31 [Speaker Changed] Hmm. 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 Riol, you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. Mike 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 it, 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.
00:15:35 [Speaker Changed] It’s, 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, 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, as that market evolved and, and matured into a very robust global business there, it was clear to Mark Rowan, now CEO and I that at some point complimenting that institutional business 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, 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, with our distributors, with our investors. And just making sure that as we continue to innovate, we meet our clients where they are and often kind of co-author the types of offerings that are most meaningful to them. So I, 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, and partners, existing and, and prospects. 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. So
00:17:33 [Speaker Changed] That’s really interesting. How would you describe Apollo’s culture and and what do you do to help shape that?
00:17:40 [Speaker Changed] 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 to, to empower our people to kind of find those opportunities and, and pursue them in, in an appropriate way. We manage the firm as a meritocracy, so we wanna give people responsibility and let them kind of really kind of have the greatest impact that, that they can for their own professional careers as well as for, for the firm. And we, we wanna have a winning high performance culture, meaning, you know, even with all the success that we’ve had, we want to maintain that propell 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.
00:19:10 [Speaker Changed] Hmm. 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, how do you maintain corporate culture like that?
00:19:31 [Speaker Changed] It 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 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, 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 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.
00:20:41 [Speaker Changed] 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? ’cause everybody shows up for coffee or treats.
00:20:50 [Speaker Changed] 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 a allow for that collaboration. It’s, it’s super important for people to, to share and get to the best answer possible together.
00:21:14 [Speaker Changed] So I wanna 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, tell us about that.
00:21:43 [Speaker Changed] Yeah, 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 in the investments and strategies that we manage. So through our retirement services business, Athene 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 aligned with, with the outcomes of, 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, and that means a lot to us in terms of our commitment and focus, but also to our clients. ’cause they, they know how important it is to us in multiple ways.
00:22:42 [Speaker Changed] I I would imagine if anybody has hesitation on a investment, if you see the private equity firm co-investing along with you, that has to be a big confidence driver.
00:22:56 [Speaker Changed] 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, it’s an outlier if it’s a 5% commitment,
00:23:16 [Speaker Changed] But not double digits.
00:23:17 [Speaker Changed] Exactly. Where in one strategy of ours, which has a diversified portfolio of, of private markets, we are two thirds Wow. Of that portfolio. So when, when we say that it’s, it’s meaningful to our balance sheet, we, we mean it,
00:23:39 [Speaker Changed] How does that work in terms of direct stakes and performance fees? Like if you are most of the invested assets that has to have an impact on what the balance sheet looks like, how do you guys align that?
00:23:52 [Speaker Changed] So look, we, we are performance first. At the end of the day, our, you know, our relationships and the trust that we build are overtime through performance and, and through service. I mean, we wanna 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.
00:24:45 [Speaker Changed] So let’s talk a little bit about the wealth channel, which is where, 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. Yeah,
00:25:02 [Speaker Changed] 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 rule. 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 compliment 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. And 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.
00:26:21 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 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, $1 billion 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 the, I think there are very few that can do that well and, and truly meet the well clients where with, in order to meet their portfolio needs.
00:27:27 [Speaker Changed] 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.
00:27:40 [Speaker Changed] Yes, so the, the channels represented in wealth include the private banks and wires as one channel. The independence, 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, out outside of, of the US across EMEA 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 bill to a certain level of wealth. And so whether it’s, you know, a, a wire like A-A-U-B-S or a a Morgan Stanley and their set of advisors or you name kind of a, an RIA, we wanna show up to that intermediary with offerings that are gonna work for their platform and, you know, their, their base and make sure that we can speak to semi-liquid as well as draw down and really kind of listen closely to what they’re looking to provide their clients.
00:29:30 [Speaker Changed] So the challenge we always see on, on the RAA side is on the privates 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? Yeah,
00:30:11 [Speaker Changed] It’s a journey, but I think it’s already getting better and I do see a world where it, it becomes 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, right? There’s innovation, which, you know, we have worked on in, in partnership with State Street for example, where there are ETF structures of which private markets are apart. And I think the technology is moving from kind of more of an analog to digital in, in 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 parts or specific strategies, but to increasingly offer more holistic solutions.
00:31:47 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 and models and a number of discretionary pools of capital that are highly applicable for private markets.
00:32:23 [Speaker Changed] Hmm. 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 Riol, you’re listening to Masters in Business on Bloomberg Radio. I’m Mary Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest is Stephanie Recher. She’s 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.
00:33:34 [Speaker Changed] Yeah, I, I think there’s been a transformation in terms of public and private holdings in a portfolio and what does it mean to be safe or risky? I 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, I think there’s now a, a much clearer recognition that the public markets can be both safe and risky as can the private markets. 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 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 60 40 portfolio, but rather thinking of it as part of their core holdings in equity and debt and think and now thinking simply of alternatives as an alternative to public stocks and bonds.
00:35:46 [Speaker Changed] So 60 40 becomes 50 30, 20 or 60 20 20 or something along those lines. Yeah. Or,
00:35:53 [Speaker Changed] Or it could even keep 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 our diversification and to reduce the volatility. It’s a game changer. It’s no longer 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.
00:36:26 [Speaker Changed] 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 nineties, is that the total number of public equities has shrunk dramatically. Yeah. The Wilshire 5,000 is about 3,400 stocks, 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?
00:37:06 [Speaker Changed] Yeah, I I think it’s very real. You, 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 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, 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. It’s, it’s not, you’re ATM no one should think that it is, right? 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 draw down depending on the strategy.
00:39:15 [Speaker Changed] So, so let’s talk about liquidity and semi-liquid 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 product. So you’re giving up some of that upside in exchange for semi liquidity.
00:39:52 [Speaker Changed] Our, our view is that the, the structure and the design should marry the underlying assets in the portfolio.
00:40:00 [Speaker Changed] So two year credit notes are gonna be more liquid than perpetual open-ended
00:40:06 [Speaker Changed] E Exactly. So we have, you know, in our, our view the strategy is 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 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 an 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, albeit, you know, not too much further is a pickup in in the access return.
00:41:34 [Speaker Changed] Huh. Real, really interesting. You know, I’m, I’m not gonna quote you exactly, but I did read something you had said a a about private credit is that you see a full on fundamental rethink taking place in the space. Explain what you mean by fundamental rethink.
00:41:55 [Speaker Changed] You know, the, the idea of of private markets or alternative of our alternatives being that very high risk portion of a portfolio and therefore 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 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, right. Each about 150 trillion or so globally. The institutions right now have an a an average allocation of over 20% to private markets, the individual on average 3%.
00:43:44 [Speaker Changed] Yeah, I was gonna say single digits clearly. It’s absolutely, and, and all of the, when we, when we look at the projections and a variety of war game scenarios, this looks like this is gonna 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?
00:44:13 [Speaker Changed] Look, our, our view is that origination is the great differentiator. So we, we focus not as kind of a UM as a limiter, but rather origination and making
00:44:32 [Speaker Changed] Sure and define that because when I hear origination, I’m thinking not all private investments are created the same,
00:44:40 [Speaker Changed] Right? It’s the ability to create proprietary investment opportunities is, 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 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.
00:45:39 [Speaker Changed] So those 16 different engines, I’m gonna assume they’re each in a different type of space.
00:45:44 [Speaker Changed] E Exactly. So,
00:45:45 [Speaker Changed] So yeah, so real assets, infrastructure, private credit, private debt, which isn’t always the exact same thing. Private equity, there’s gotta 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 makes look like? Yeah.
00:46:04 [Speaker Changed] So on on the origination side, it it is quite broad. Think everything from fleet finance to
00:46:13 [Speaker Changed] Fleet jets, ships,
00:46:15 [Speaker Changed] E all the above. Exactly. 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 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.
00:46:55 [Speaker Changed] 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, lemme 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?
00:47:24 [Speaker Changed] So what 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 L TIF 2.0 or I look even to the UK and I see regs in the UK and 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, and we see obviously the state of, of kind of retirees here in, in the US and there’s a dire need to give them, you know, through managed accounts, through target date access to investments that will provide that additional excess return.
00:48:55 And you know, as, as we think about it, you know, most of those 4 0 1 Ks have time horizons of decades, right? Yet the solutions they have available to them are daily liquid. 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. Hmm.
00:49:48 [Speaker Changed] 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.
00:50:03 [Speaker Changed] 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 my personal advisory board while at JP Morgan, Mary Erdos is kind of rockstar status Yep. In, in my book. And, and an amazing mentor throughout my career. And then, you know, many at, at Apollo that I won’t name ’cause I won’t embarrass them, but that have been incredible sponsors of, of my career with, of a lot of opportunities just to continue to grow and develop as a professional.
00:50:48 [Speaker Changed] Let’s talk about books. What are you reading? What are some of your favorites?
00:50:53 [Speaker Changed] So, well, in terms of what I’m reading right now, there’s a, a book called Such Good People, which I will give a disclaimer. It’s written by Amy Feld and she is a great close friend from college and it’s a great read. And so I’m, 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 when I was in the Berkshires and I was struck by the fall foliage and just how it’s
00:51:26 [Speaker Changed] Amazing this year.
00:51:27 [Speaker Changed] 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 Throw 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.
00:51:47 [Speaker Changed] Let’s talk about what’s keeping you entertained these days? What are you streaming or, or listening to
00:51:52 [Speaker Changed] Other than you,
00:51:53 [Speaker Changed] Well, this doesn’t count. Give us, give us a different one.
00:51:58 [Speaker Changed] Okay, well one that is top of mind who we actually just had participate live at a, 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, is
00:52:21 [Speaker Changed] That the Happiness series?
00:52:22 [Speaker Changed] Oh, I love that
00:52:23 [Speaker Changed] Too. Love the longitudinal study.
00:52:25 [Speaker Changed] I I love that. That’s a different one. And I, I I I love that professor as well in terms of the value of happiness at different stages of our lives. Right? I love that. But this actually relates to longevity more in terms of genetics and all the research and science and even drug development that is going into the kind of health and wellness from a longevity perspective.
00:52:49 [Speaker Changed] The health span study, is that what this one is? Yes,
00:52:52 [Speaker Changed] Yes, exactly. And research that they’re already doing in terms of eyes that could have applicability to many other parts of our body. So I just find it kind of a, 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?
00:53:25 [Speaker Changed] And our final two questions. What sort of advice would you give to a recent college grad interest in a career in investing privates alternative investings? What, what’s your advice?
00:53:38 [Speaker Changed] 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, if you’re tuned in from a, a curiosity perspective coupled with kind of strong work ethic, I, I think that’s a winning recipe.
00:54:21 [Speaker Changed] And our final question, what do you know about the world of alternative and private market investing today would’ve been useful 30 years ago or so when you were first getting started?
00:54:33 [Speaker Changed] Well, no fun if you have the answer key, right? But look, I, 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, and, and embrace that, that there’s so much more innovation and opportunity to come. Hmm.
00:55:26 [Speaker Changed] Really, really interesting. Thank you Stephanie, for being so gen 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 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 Bauman 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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