- Apollo plans to double its assets under management in five years even as market conditions change.
- Rowan said the firm was testing new tactics to motivate employees to “play to win.”
- Here’s how and why the firm turned into frozen yogurt and 4:30 a.m. wake-ups.
At Apollo’s presentation to investors on Tuesday, all eyes were on the firm’s ambitious goal to double its assets under management and further cement its place as the world’s largest private lender. (Well, some eyes were on the firm’s use of memes to disfavor its rivals).
But buried in the discussion of origins, opening up 401ks to private investments and hybrid equity replacement products were some unusual management tactics that CEO Marc Rowan said the firm was using to motivate its employees.
“We’ve been waking the team up at 4:30 a.m. for meetings to show them that we need to do a wake-up call and something different,” Rowan said. “We’ve had outside speakers come in to scare the bejesus out of people. We’ve had cautionary tales.”
We, and presumably you, have many questions. How do you wake people up at 4:30am without running into a wall of do not disturb messages? Which outdoor speakers did Apollo knock on to scare the pants off his men? Are we talking about the dreaded Lehman Brothers?
We reached out to Apollo for more details, but the firm declined to comment. While the how is a mystery, Rowan was very clear about the why. The co-founder and CEO of Apollo believes that making money won’t be as easy as it used to be.
“We believe assets are what will be scarce rather than equity,” Rowan said, referring to an environment with more limited investment opportunities. (Business Insider covered this topic in a story explaining why portfolio company executives are the new rising stars of private equity.)
“Change is coming,” Rowan said. “If we think we’re going to succeed by doing more of the same, I think that’s a mistake, and we have to adapt and we have to change.”
Free games
Before we delve into Rowan’s view of what Apollo needs to do to adapt to the new climate, we should point out that the firm is using more than scare tactics to foster what Rowan described as a “working culture.” play to win”.
On Tuesday, Rowan told investors that the firm had also put its own spin on the time-honored management tradition of a festive pizza party, replacing the pie with frozen yogurt.
“The single best decision I’ve made in the last 12 months was buying a frozen yogurt machine myself,” said Rowan. “We open the frozen yogurt machine when we have a team win. Turns out, people prefer frozen yogurt to money.”
Rowan, of course, is joking that people prefer froyo to money (and say as much). Apollo professionals are also particularly well paid in the private equity industry. The thing is, culture is very serious business at Apollo. And Rowan spends half his time managing the firm’s 200 executives.
“How to make the organization play to win and not just play not to lose probably consumes most of our management time,” Rowan said.
The new tailwinds
Today, Apollo manages close to $700 billion in assets, including a massive underwriting business. But on Tuesday, Rowan credited the firm’s success since going public in 2008 as “lucky” and simply “smart” enough to be in the right place at the right time. This allowed him to reap the benefits of low interest rates after the crisis and early investments in life insurance and retirement.
Now, with interest rates high, the tailwinds are gone for Apollo and the industry as a whole, he said.
Rowan said the key is positioning the firm for the right headwinds, just as it did to get to where it is today. He identified four favorable market trends.
The first is the need for massive infrastructure investment in renewable energy, utilities and energy more broadly, and data centers. These are long and complicated projects that require creativity, Rowan said.
“These long-term solutions for a variety of cost of capital are not really appropriate for bank balance sheets that are short-financing themselves,” Rowan said. “They’re not really suited to the plain vanilla of the investment-grade market. We and institutional investors are the legacy capital needed to do that.”
The second is the opportunity in retirement. There’s $12 to $13 trillion in $401 billion, but until now, that capital has been invested “mostly” in the S&P 500, which is weighted mostly toward a few large companies.
“I joke sometimes, ‘We used America’s entire retirement on Nvidia performance,'” Rowan said. “It just doesn’t seem smart.”
Rowan said he believed a change in the presidential administration would open up private, illiquid 401k investments.
Rowan also noted that individual investors, especially more sophisticated “family offices,” would provide a tailwind and perhaps some creative new ideas for the firm.
Finally, he returned to his favorite topic, the reshaping of the private and public markets.
“What if it’s not public it’s dangerous and private it’s safe?” Rowan said. “What if private is safe and risky? And public is safe and risky? We don’t think Nvidia is going to go 20% to 30% a day.”
Rowan said the firm’s ability to use capital earmarked for the “riskier” alternatives bucket to create investment-grade debt was opening up access to the larger, more conservative “fixed income” bucket of cash from institutional investors.
He laid out a “hybrid” future, also touting the firm’s $60 billion to $70 billion hybrid business, in which investors will own capital that is private (think private equity without the leverage).
“Active management can actually be actively managing the buying and selling of stocks, but active management can also be actively running companies,” Rowan said.