Reuters
At Apollo's presentation to investors on Tuesday, all eyes were on the firm's ambitious goal of doubling its assets under management and further cementing its place as the world's largest private lender. (Well, some eyes were on the firm's use of memes to diss its rivals).
But buried in the discussion of origination, opening 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 have woken the team up at 4:30 a.m. in the morning for meetings to prove to 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 a lot of questions. How do you wake people up at 4:30 a.m. without running into a wall of do-not-disturb messages? Which outside speakers did Apollo tap to scare the pants off its people? Are we talking Lehman Brothers scary?
We contacted Apollo for more specifics, but the firm declined to comment. While the how is a mystery, Rowan was very clear about the why. The Apollo cofounder and CEO believes making money won't be as easy as it once was.
"We believe that assets are what is going to be scarce rather than capital," Rowan said, referring to an environment of more limited investment opportunities. (Business Insider covered this topic in a story explaining why portfolio-company execs 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 fallacy, and we have to adapt, and we have to change."
Before delving into Rowan's view of what Apollo needs to do to adjust to the new climate, we should note that the firm is using more than scare tactics to drive what Rowan described as a "play to win" work culture.
On Tuesday, Rowan told investors that the firm had also put its own twist on the time-honored management tradition of a celebratory pizza party, replacing the pie with frozen yogurt.
"The single best decision I've made in the past 12 months was to personally buy a frozen-yogurt machine," Rowan said. "We open the frozen-yogurt machine when we have a team win. It turns out people prefer frozen yogurt to money."
Rowan, is of course, joking that people prefer froyo to money (and said as much). Apollo's professionals are particularly well-paid even in the private-equity industry. The point is that culture is a very serious business at Apollo. And Rowan spends half his time managing the firm's 200 leaders.
"How do we get the organization to play to win and not just to play not to lose probably consumes most of our management time," Rowan said.
Today, Apollo manages close to $700 billion in assets, including a massive business underwriting loans. But on Tuesday, Rowan credited the firm's success since going public in 2008 to being "lucky" and just "smart" enough to be in the right place at the right time. This allowed it to reap the benefits of post-crisis low interest rates and its 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 to position the firm in front of the right tailwinds, just like it did to get where it is today. He identified four favorable market trends.
The first is the need for massive infrastructure investment into renewable energy, utilities and power more broadly, and data centers. These are long and complicated projects that require creativity, Rowan said.
"These long-term solutions across a variety of cost of capital are not really appropriate for bank balance sheets who fund themselves short," Rowan said. "They're not really appropriate for the plain vanilla of the investment grade marketplace. We, and institutional investors, are the long-dated capital necessary to do this."
The second is the opportunity in retirement. There is $12 to $13 trillion in 401ks, but as of now, that capital is "mostly" invested into the S&P 500, which is largely weighted towards a few big companies.
"I jokingly say sometimes, 'We levered the entire retirement of America to Nvidia's performance,'" Rowan said. "It just doesn't seem smart."
Rowan said he believed a change in presidential administration would open up private, illiquid investments to 401ks.
Rowan also noted that individual investors, especially the more sophisticated "family offices," would provide a tailwind and maybe some creative new ideas for the firm.
Finally, he returned to a favorite theme, a reshaping of the private and public markets.
"What if it's not public is risky and private is safe?" Rowan said. "What if private is both safe and risky? And public is safe and risky? We think nothing of Nvidia going 20% to 30% in a day."
Rowan said the firm's ability to use capital earmarked for the "riskier" alternatives bucket to create investment-grade debt was opening access to the larger and more conservative "fixed income" bucket of cash from institutional investors.
He posited a "hybrid" future, also touting the firm's $60 to $70 billion Hybrid business, in which investors will own equity that is private (think private equity without the leverage).
"Active management may actually be both active management of buying and selling stocks, but active management may also be the active running of companies," Rowan said.
