Interest Rates, Supply Chain, and Marc Rowan Interview (Radio)

Published May 2, 2022, 3:52 PM

Priya Misra, Managing Director and Global Head of Rates Strategy at TD Securities, talks about the economy and interest rates in 2022. Balu Balakrishnan, CEO of Power Integrations, discusses his company, semiconductors, and the supply chain. Nikki Baird, VP of Strategy at Aptos, a global retail technology company, joins the show to discuss retail tech and the state of retail after Amazon’s big miss at the end of last week. And at the Milken Institute Global Conference in Los Angeles, Bloomberg Businessweek’s Erik Schatzker interviews Apollo Global Asset Management CEO and co-founder, Marc Rowan. Hosted by Paul Sweeney and Kriti Gupta.

Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller. Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news. Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, the question here for this felto reserve to what extent can it in fact fight inflation? Is it's something more than just rates. Uh, isn't a supply chain issue out there that's really kind of a challenge? Pre A Miserab, Managing director and Global head of rate Strategy at TV Securities, joins us Um. I guess my question is does the FED have the tools to curb inflation create a soft landing that I think people would like to see. So I think the FED does have the tool of interest rates both the rate channel as well as QT, and they have the ability to slow demand aggregate demand. Does that bring inflation down to two percent? I do struggling with that as you talked about their supply chain issues as commodity price increases because of Russia. So I don't think they can achieve the two percent target in the very near term, but they can absolutely slow aggregate demand, and they can tighten financial conditions, and the market is already doing some of that work for them. So now, really I think that you see, the market didn't really react to even as them the fact that it came in weaker than expected because the market is giving greater weight to inflation and the fact that the Fed will have to respond to these very high readings. Yeah, and that kind of brings up, you know, the topic that's been you know, on people's minds are really less several weeks a couple of months, is stagflation. You look at China, uh, and there are various levels of lockdown, and that seems to be an ongoing issue. Then of course you've got Russia and Europe and what it means for commodities and other products here that kind of suggests that stagflation is a thing. Here are How concerned are you about that? So it is a nightmare scenario for the FED because in the two mandates pull in different directions, you know, because we think that as always inflation starts to decelerate, say the monthly readings go from point six point seven right now CPI two point three point four. We think the Fed at that point will probably be more tolerant of these slightly higher than than target inflation and not overdo it. But that is a call that the FED will have to make closer to your end when they get to neutral on the funds rate. QT is continuing. If inflation just gives them the ability to push out that when they reach their target, we don't think they'll overdo it. That's why our end point of the hiking cycle is not as high as the market. But there is another scenario where inflation really doesn't decelerate and the FED has to go significantly about neutral, you know, three and a half or higher on the funds rate along with QT. That's when I really worry about thet inflation because I don't think that the soft landing in that scenario where there's so much tightening through monetary policy. I thing is a very tough um, you know, aim for the FED. So it's only if they're able to tolerate slightly high inflation, and I sort of hope they make that call near your end. Or that's our basic case, but it depends on some deceleration and that inflation momentum. Yeah, I've got to ask about the balance sheet here, because this is something that there's still a lack of clarity on what can we expect on the balance sheet? What is the worst case and best case scenario in terms of what we hear about that sure, And I completely agree with you. I think it's hard for the market to price in the balance sheet because there's a nonlinear effect of the balance sheet. I would argue that the balance sheet run off initially is not a big deal because we are far from neutral because supply only picks up slowly. They face it in when you get closer to your end, when you know the funds rate is closer to normal or neutral, and the balance sheet at this point is running off almost a hundred billion a month, I think the effects starts to grow a lot more, and the impact really comes from higher long and real rates. And you've already seen a rise in long and reil rates, which is I think ultimately what's tightening financial cans. So I think that's the channel through which you see the tightening in conditions. You see the movement in mortgage rates, which starts to impact housing, and I think that it's working in the fashion the FED wants it to. But I think that's the hard part, calibrating balance sheet which they are not nimble on the balance sheet once it starts, it's supposed to operate in the background, and then making sure that they don't overdo it on the rate hikes channel. I think that's the key one. But you know, I think what we hear this week will be likely the same caps that were talked about in the minute. I think that's pricedon. It's really the flow effect of supply month after month that starts to I think have impact later on in the year. I think that's when we see more of that impact of balance sheet run off. All right, thank you so much for joining us. Always appreciate getting your perspective. Prem Israe, Managing director and global head of rate Strategies over there at TV Securities. In case you haven't heard it, there's a chip shortage out there and it's affecting pretty much every industry out there, and we see it hear it on these conference calls being called out all the time as a reason for supply issues, and to be honest with you, I don't get it. Baba babash Bala Christian that joins us. He's the CEO and president of Power Integrations. Maybe he can answer the question follow I envision all these semiconductor chip makers have rows and rows and rows of desks filled by nbas who do nothing but forecast chip demand five ten years out. Why do we have such a chip shortage right now? I don't get it. Good morning, Paul and pretty and thanks for inviting me. Uh, excellent question. I think part of the reason is that people got so used to squeezing everything out of the supply chain. They introduced what's known as just in time manufacturing, which is actually very risky. What you're saying is everything has to work perfectly for you to be able to manufacture a car or a product and appliance, and now they're seeing the effect for such you know, tight uh supply chain. Uh. I would say, if you go back about fifty years or so, everybody carried inventory at different stages. So that's that's, you know, part of the problem. The second is, I really don't think anybody expected the amount of electronics that goes into some of the products, whether it's appliance or industrial products, or the electrification which is you know, electric cars, buses and so on, they are really computers on wheels, and I think they miscalculated the amount of capacity needed. And when we had the the COVID situation, everybody stopped, I mean literally, automotive companies stopped ordering and so there was nothing in the inventory, and they stopped manufacturing vapors because they thought the whole world is going to come to the end in terms of demand. And now we're seeing the effects of it. So how do you predict or model out some of this demand with the volatility of the COVID lockdowns. Now that we are two years into this, we know the about China zeroor COVID policy. How is that modeling or that forecasting changing. Well, I think what is happening right now is the huge amount of capacity being put into vapor vapor fabrications. You know, vapor plans take a long time, They take three to four years established. So this is very typical of a stomic and recycle with you know, they put a lot of investment and I won't be surprised if three or four years will be floating in vapor capacity. UM I would say we have been much more we meaning power Integrations has been much more careful in planning this. So I am happy to say please to say that we have not had a supply chain problem for multiple reasons. One is a unique boundary model. Secondly, we are multiple source into multiple geographies and so that has really helped us. Probably the most important if it's never stopped manufacturing wafers. Even when there was a downturn in the beginning of we kept building inventory. We had so much inventory that we had no problems applying when the demand came right back. You know, at the beginning of this, I guess the beginning of the pandemic, the beginning of the supply chain challenges. There's a lot of talk about on shoring chip manufacturing in the United States now it's mainly centered in Asia. Do you think that's a viable strategy. Is that happening? It is a viable strategy. It is happening because as far as vapor fabrication goals, it doesn't matter where you put it. The cost is about the same because it was dominated by um equipment costs, not labor costs. So there is no reason to have it in UH low cost countries, low cost labor countries. So Uh, it was too bad as so much of the capacity went away from US, and finally it's good to see that it's coming back. Europe is doing the same thing. And by the way, we have been very careful not to put our technology which we own into countries where we don't have intellectual property protection like in China, like Taiwan and Korea. As a result, we had in a much better place. So you know, we have most most of the foundaries that in Japan, some in US and some in Europe. I've got to ask about once again the geopolitics of this all because I think pre pandemic the story. Paul, correct me if I'm wrong here, but I think the story was the trade war, right, tariffs that haven't necessarily disappeared with the Biden administration. So I have to ask, as it takes years, and I believe it will take years to bring some of that more of that capacity back domestically or onto Europe. I mean, how do how do companies like yours and and others navigate the tariff environment, the geopolitical environment. Well, that's a good question. As I said, we are in a different position, so we are actually not capacity limited. We were not capacity limited last year and we are not this year either, which is an enviable position. So there are a couple of things we are doing hopefully other people can follow on. That is that we only ship to real demand. We don't ship to any orders that are placed. We look at what they were buying before, and we only shipped to the run rate of what they were buying, or maybe a little bit higher because the demand is higher. Secondly, we have, as I said, we have a unique boundary model where we put our technology into companies in Japan, US and Europe where we have a long term contract to keep the capacity be and we are able to do that because we continue to build it. We continue to build during downturns. We did that in two thousand two nine, and of course in two thousand we did that again during the COVID situation, and we group forty four last year. UM. I think it really comes down to making sure that you have sufficient inventory, and that's where I think people cut too short because they were trying to manage the supply chain way too close, and supply chains are incredibly complex in in in when it comes to chips. So going forward, I think what they have to learn is just in time is not a uh not a lowish proposition. There's very high risk when you do just in time manufacturing. So how do you think just in time be about third thirty seconds left? How do you think just in time inventory will evolve? I guess I think what will happen is everybody will caddies some level of inventory, including the automotive companies, appliance companies. UH. That way they are buffered from UH you know, disasters or in this case, pandemic or you know, any of the supply chain interruptions. All right, Ballo, thank you so much for joining us there. Bo Bala Krishnan, he's a CEO and president of Power Integrations, a semiconductor UH company out there giving us his thoughts on the chip market. Again, it's been an issue here from pretty much every company in every industry when they talk about shortages or supply chain challenges. One of the key area is UH they focus on is the semiconductors. All right, Well, last Friday, while I had my toes in the sand, Amazon stock and it's because one day drops since July two thousand six, just extraordinary. So the questions what does that mean for Amazon? What does that mean for e commerce? What does that mean for retail in general as most of the world comes out on the other side of this pandemic re Checking with Nikki Baird, vice president of strategy at Aptose Retail, Nikki, just, first of all, what do you make of Amazon's report and then the market reaction to said report. Yeah, I wasn't too surprised by the report, certainly from our perspective, our retailers are seeing much stronger store sales and much less on the e commerce side. I think the reaction was was definitely a stronger reaction than I would have expected. Uh, you know, just in general, I nobody, I think should expect that e commerce is going to continue to grow from pandemic highs. It's got to come back at least a little bit as consumers ship some of their spending back to stores. I've got to ask about how Amazon is even a proxy perhaps for broader retail, and that Amazon's kind of turning into a logistics business expanding their shipping services to the likes of Etsy, to Walmart, to other third party retailers. Is if you're to really use Amazon as kind of this beacon for broader retail, spending. I think it's definitely still fair to use them for that. While it is true that they are incredibly good at taking services that they used to run their own business and monetizing those by offering them to others. Uh, you know, it is still definitely the destination shopping force for consumers. You know, a lot of people will refer to it as the Google of products. So when you have that kind of market presence in terms of just capturing consumer attention, Uh, yeah, I think you can still use them as a good proxy. Nikki, give us your sense of kind of how the consumer is doing here again coming out on the at least here in in the US of this pandemic um dealing with the really intense inflation pressures. How's the consumer doing in your mind? You know, I am looking forward to getting more feedback on April sales because I think that's going to be the first place that we really see an indicator of how consumers are going to be looking ahead. I think, you know, for the first quarter of the year, we saw that then they were relatively unimpacted by inflation by uh, you know, any of the concerns that were driven from that, and you know, an opening up of the economy as people are getting more and more comfortable with the stage of the pandemic that we're apparently in um But but looking ahead, I think I'm starting to hear anecdotally consumers noticing, you know, that inflation is definitely starting to bite in their budgets. And I think there's anticipation that some of the text credits that were given during the depths of the pandemic are are kind of reducing the tax refund that consumers are expecting to get this year, uh, and that that will start to show up in April spending and info may well. What really strikes me here is that this was the exact conversation we were having September where you had this massive sell off. A lot of you will blame no seasonality, some people saying that the end of fiscal stimulus was the end of what was going to happen at the end of summer. It didn't really happen until I would say, you know, more recently. But this is a conversation that was almost inevitable and something that I think the market had expected. So why such a strong reaction. Yeah, I I honestly, I'm with you. I don't understand the reaction. I would have expected that this kind of responds to be priced in. And when you look at the you know, the way that consumers are getting up their spending, store sales are still incredibly strong and not even just against pandemic numbers but against So it's not like retail overall is really hurting. Uh, it's it's e commerce is coming back off of you know, rapidly accelerated growth that happened during the pandemic, and that really should be expected. I mean, I think one of the dimensions of this is definitely the cost structure, even for e commerce. And in some ways e commerce is uniquely vulnerable because they depend very much on digital as their pathway for consumers to find them. And you know, while we've been talking about logistics costs and um, you know, inflation and and everything that reflects in the price of the product that the consumer pays, marketing costs online also have been hit really hard. By some estimates, there ten times customer acquisition costs that companies were paying before the pandemic. So when you look at those costs and where you're literally getting a tent of the bang for your buck in terms of acquiring or driving customers to your site. I could see that that's driving some outside concern over the longer term health of e commerce. So, Nikki, if I do go to the store, which I try to avoid at all costs, um am, I going to find stuff on the shelves. How's the supply chain and inventory right now? You know it is better and it was uh and you kind of have to differentiate again, you know, essential versus non essentials. Right, So there's some additional things that are happening in the food supply chain that stay complex. But as far as discretionary spending goes, retailers are are fairly well stocked. Probably not as exciting of assortments as they really would want them to be. But if you go to the store, I think you're going to find stuff, well, thank God for that. Yeah, absolutely, all right, we'll see how that goes, all right, Nicki Baird, thanks so much for joining us there. Nicky Baird, vice president of Strategy for Aptose Retail. We're going to head over to the Milk and Institute's Global Conference in Los Angeles or Bloommark's BusinessWeek. Eric Shatsker interviews Apollo Global Asset manager, CEO and co founder Mark Romans. Tick listen, Mark, great to see you, good morning, see you. Everybody. Delighted to be back at the Milk and Gloo conference and kicking it off with this conversation. I did want to comment Mark on on the following if anybody needed a lesson and how much has changed over the course of the pandemic. It's the private equity CEO who's in khakis and a sweater this morning, and the journalist who's wearing a tie. Um, well, it's consistent with the ethos I've had for a very long time. I know, I know, if you are elected to a national office and I'm seeing you in your office, I wear a tie, or if you're my regulator, I'm wearing a tie. Other than that, I don't worry about it. Um. As I mentioned, Mark, I went around the audience before we began and did what I should do, which is to ask your friends and colleagues what they would ask if they were me, And they all gave me a version of the same question. Uh. And maybe it's not surprising given the times we're living in. What are you most worried about the same thing I'm always most worried about people always. Um, I'll be honest. Um, the business, the markets, the things that we're talking about today, inflation, the correction in the stock market, I don't worry about so much. I mean, if people don't see this as the logical conclusion to fourteen years of money printing, I don't know where they've been. We've printed money for fourteen years. Rates went down, stocks went up. The more risk you took, the further out on a growth curve, you were the better off you did. Okay, it's now about to run in reverse. So SMP. Last I looked the end of nineteen, it was three thousand SNPPE today one long term average sixteen. It's just not that bad people power of the business. Okay, you've brought up the market context. It's probably worth us spending it a few minutes at the very least talking about that. Um. People would probably say it feels like a challenging time to invest for some of the reasons that you just enumerated. Right, there's a lot of inflation, the most we've seen in four decades. There's war, there's the prospect of rising rates. There's quantitative tightening. We haven't seen that really. Uh, in a serious way. Yet, um, you mentioned that there's a correction in the equity market. There's a correction in the credit market too. What kind of future are you preparing for? Of all the one I mean, but I start with you know, sometimes I'm asked to explain what our strategy is and I put it in three words, purchase price matters. So if I can buy a fundamentally good business today at less than I could buy it three months ago, that feels like a good outcome. Will there be bumps along the way where there be deviations, of course there will be, But I think the notion of purchase price matters. Some call it value in the extreme. You can be like Laurren Buffett and Charlie Monger, But I think it's a strategy that's built for multiple market cycles. In the equity business, it's the price you pay, it's the companies you buy. And in the credit business, it's being senior secured, it's not being long duration, being floating rate. There are lots of ways still to protect yourself. Maybe it doesn't feel as good given what we've been through and just how positive the last decade has been. No, it certainly doesn't feel as good. Um. But on the subject of purchase price mattering and value as a concept and time, there's something of an unknown. Uh, it's enough if you can buy something for less right now, might you be able to buy it for less six months from now? Perhaps? I mean, this is always the question of what's cheap enough and what what what's what's worth doing? Um? I think we have more to go or in what sense? I think there's more of a correction to come? I think, you know, being a macroeconomics prognosticator is not what we do. But understanding fundamentally good businesses that maybe had more options three months ago and have fewer options today. We'll find that category of things that makes sense for us to do. We always do. Yes, history would suggest so. Um. But if you think, if you don't have the luxury of being the kind of investor that Apollo is, and you put your open somebody else's shoes for a moment, do you look at the market and say to yourself, I think the future that I envision is relatively priced aning of them. If there's a little bit more of a correction to come, or that is not a noable answer right now? I don't think it's a noable answer right now. But you know, certainly we saw in today's announcement from the FED the signs that they are taking the need to get inflation expectations under control very seriously, and that will manifest itself through their liquefying their balance sheet and selling down, which they outlined this morning, but also through rate increases. But you know something, we was in d C last week and I spent a lot of there's a lot of free time, by the way, in DC, it's a great time to go and visit um and and the key point I was making is that everything that you believe prior to two eight no longer exists. And in the context of your question, UM, I'll take public markets sixty plus pers. One of the equity market today is indexed, is which indexed, meaning it trades on liquidity, just people going in and out. The fixed income market liquidity driven at this point in time, and so investors, the public public fixed income markets, investors who are relying on public stocks and public bonds are finding out that everything is correlated to liquidity. Because you've had one of the worst first quarters ever. You've had equities down about fo you've had investment grade credit down. Wasn't that supposed to be riskless? Um? And I think institutions kind of already know this. Public markets have become beta and if you want excess return, you need to step back from the public markets. So what you've just said, UM, I would summarize with something along the lines of we've lived through a dozen years of rock bottom rates and most recently endless liquidity, and it felt like a riskless era. Does risk matter again now for the first time, maybe since before the crisis? Absolutely, I think we're seeing things correct. We're a long way from means or medians in the equity market, where from the medium, which is pretty scary UM and the credit market we also have a long way to go. But I do think that the mentality with which investors have focused has they've been lulled into this sense that everything goes up, that everything is supposed to go well, because we've had one could say, thirty plus years of declining rates but extreme liquidity in the past fourteen. So if you think about what you see and what you anticipate, you have an idea of what businesses of yours still work, what businesses don't work anymore? Yours are others. Look, I think the on the run long only markets business are very difficult. To the extent you have been the beneficiary of trends, so you know there there will be a number of speakers who will come here and we'll talk about the massive increase in technology and the technology growth curve. And I would say tech and growth in particular have benefited from low rates because they are their business plans are further out there discounted back at much lower rates. Therefore, they've been the beneficiaries of this speculative room. And to quote one of the speakers will hear from later, technology technological change is real, it's fundamental. But that doesn't mean the purchase price doesn't matter and the entry point doesn't matter. So I think people who have benefited from this extreme low rate, high liquidity environment where growth, all manner of growth have been rewarded. Uh, I think that's where the greatest correction will come. And that, of course is not just the E t F manager whom you're thinking of. That presumably extends to growth equity, it extends to late stage venture, early stage venture, it extends spectrum, it extends to all these markets. I look at the traditional alternative market, and so much of the traditional alternative market UM has become beta as well, even with our our our own firm. You know, I my joke internally is you've worked for me for ten years, but I still don't know if you're a good investor. I think we're about to find out, any sense. Having lived through what now three solid market cycles, let's say four, four, how long does shake out lasts? No, no known unknown. Look, we if we profess to know, we we just mislead. But what we can do is return to some basic playbooks. So I look at the three businesses we're in. We're in the equity business, We're in the hybrid business, and we're in the credit business or the yield business. Of those three, the yield business is our largest for some three hundred and sixty billion senior secured, top of the capital structure, floating rate, generally, shorter duration. That feels like a good place to be, and it feels like business is going to be good because credit creation is going to be more difficult. That generally is good for people who are able to create credit. If I move to the hybrid business, hybrid is the piece of investing where you give away all the upside in return for downside protection. You essentially become a solutions provider that also feels like a pretty good business. People are going to need solutions to the extent your business plan was predicated on raising easy money every year. Maybe it's changed. Um. Toughest business will be the equity business, because the equity business is the most volatble and difficult economic times. Um. But there it's it's very granular, it's very companies specific, and there are a whole host of sectors that will not see cycles as a result of what's happening at a macro level where they're just fundamentally good businesses. Credit hasn't seen a real distress cycle since the Great Financial Crisis? Will it see another? At some point? It has to? Um, You look, we two thousand and eight is actually a really good dividing line, um for the credit markets. So much changed the role of the bank's changed, the role of the investment marketplace changed. But you're right, it has not been tested. Um. We have as a general rule not seeing the kind of speculative excesses that we saw prior to two tho eight. This, at least the corporate side of this credit cycle feels more benign. You don't see them kind of pent up leverage so or systematic leverage or use of off balance sheet leverage. So I would expect it to be significantly more benign than we did, but inevitably there will be corrections. Is that also because the lenders have less thanks to the deterioration of documents, have less power over the borrowers. I'm not sure I would say it. Look I said when I was in d C last week, Dodd Frank worked. Dodd Frank took risk out of government guaranteed institutions and put it into the investment marketplace. So in the US today the banking system is less than credit creation in Europe at in Asia, depending on the country close, we have essentially matched credit and the creation of credit with institutions who have the capacity to hold long term. That's not true in every market. We will have opened the mutual funds, we have e t f s, we have some mismatches like that, but we don't have the kind of built up leverage on regulated balance sheets that we had pre crisis. So I personally would expect a more benign crisis. Mark you referred to this earlier. UM the thirty year called it bond bull market. That was an enormous tail wind for the industry that you and your peers in private equity and more broadly alternatives built. And then again, as we've acknowledged, the tail end of that was the most aggressive central bank easing since the Great Depression. Now that we're living in a different era's let's form however long at lasts, it's definitely a different era. UM. Does a different era require a different strategy? I don't know. I mean I'll give you for us, and I every market participant will be different. UM. We built our yield business on the back of what I call fixed income replacement think of actually replacement of investment grade fixed income, but with more yield, and we built it to serve initially our own retirement services balance sheet a theme. The way that business works is we make promises to retirees and we back those promises with highly rated credit. Whether whether rates are higher or low is not really that relevant to us. It's about spread. Because if rates are high, promises we make two retirees will be high, and if rates are low, promises will be low. Our job is to earn a spread and therefore inflation market price of securities does not really impact the way we invest or how we think very much like a pension fund or an endowment or sovereign wealth fund, where they also have obligations, sometimes fixed to retirees, sometimes not fixed in the case of a sovereign wealth fund. And so what we're seeing is the biggest rotation is the acceptance by institutions and others that publicly traded markets offer beta and if they want excess return they need to go step back from the daily liquid market and do something else. So is that different? Maybe? So a couple of questions arise from me out of that, Ah, what about a recession defaults and credit losses? And then I'll get to the second question after that. Look on, the fundamental risk is collectibility, and it's why in an uncertain time and the business we've elected to scale has been fixed income replacement, not high yield, not levered loans, all of which have a place in the financial ecosystem. But the business that we are math sit in is the top of the capital structure, senior secured. Typically in a recession, you do not suffer significant losses if you're a good investor, We've been through a mini test for COVID and the shutdown we had in twenty we we like where we stand, but I would much rather be at the top end of the capital structure today then at the bottom. And then on the point about um the I guess the nature of the instrument um and the degree to which it offers alpha that you can no longer find in public markets. How long is that sustainable? There is? Think about the amount of money that you're deploying into private credit every day. I could look at what's going on at your peers right the amount of money that they're raising in permanent capital vehicles and that they have to invest. This just keeps mushrooming. And at what point does that begin to erode the alpha that remains in private markets. I think we're a long way from that. And you know, there are very subtle gradations today that are taking place in the marketplace for alternative credit. So um there are two words that go together but actually don't mean anything private credit. They sound like something, but they're not. Because private credit can be the most risky private credit, it can be financing of levered loans, or it can be the most secure. Each of us. Each of the alternatives firm have chosen their place in the ecosystem that they want. The bet that we have made is at the top end of that. The primary competitor for us is not black Stone, KKRTPG, Carlisle, Aries, Brookfield, whoever. It's JP Morgan, Goldman, Sachs be of a securitization market. And I feel at three hundred and sixty billion that we are just like that. We're just not a massive player yet in the market. We're growing fast. As I've said, this business is going to double over the next five years. Even at seven it's just not that big in the scheme. The market is immense. I mean I look at one little subsect sector of it, energy transition. Little Apollo has put out twenty billion of energy transition financing over the past three years. We'll do another fifty billion over the next three. The need for capital, and by the way, most of that financing senior secured project type financing or a little bit of hybrid. It is not for the most part risk. It is not for the most part equity. The capital needs of our country and the world, given the state of change, not just in technology, but in commodity usage, are immense, So I think the market will definitely get more crowded. There is no market that persists for very long without increased competition. But at least at the little sector we've chosen, Um, we have a long way to go. I was going to save this for the end, but I'm going to have frontload it because what you just said reminded me of it. What you're talking about, Mark is such a different business then the business that you got into years ago. It's like night and day, you know. So it's it's actually funny because I'm I find myself now going, for instance, in d C last week, explaining what it is we do. So I go down and I say, first, what is an alternative? And people look at me, well, of course, it's like private equity and this, And I said, an alternative is nothing other than an alternative to publicly traded stocks and bonds. Some alternatives can be rated double A, and some alternatives or equity. There is nothing inherently riskier about private or alternative than public, just like public can be double A too really risky. And so what we're seeing is the growth of this marketplace given the indexation of public markets. We're seeing the private market massively expand in size and scale, and the alternatives firms, in their own way, are picking their spot along that continuum of double A down to equity as to where they choose to grow. And I think we look forward five years, our clients portfolios are going to look profoundly different in what way what you start with the top end of the scale, the most sophisticated institutions, the largest institutions in the world. They were backers of the alternatives industry. They were well known. Now of course they want to be our partners in the alternatives business, and increasingly they are becoming our partners in the alternatives business. As I said, there's no permanent friends or permanent permanent enemies anymore. Everyone is in a state of flux. The other place we're seeing just massive change is at retail, particularly high net worth. You know, over the past three or four years, we have seen nothing short of a revolution and alternatives take place in the retail marketplace. And that's without yet starting. All retail is seeing thus far from our industry are existing products at institutional fees. Over the next six months, I think you're going to see the first products created especially for this marketplace, and it will not surprise me in five years if a retail investors portfolio is alternatives, except it won't. Alternative will mean alternative to publicly traded stock and bond, not alternative the way many people have associated it traditionally with private equity or hedge fund or risk. And what will some of these first purpose build products look like. I think they're going to solve fundamental needs. I mean, if you think about how a retail investor might have been educated historically, a sixty forty portfolio Debton equity, well, it feels like a bad idea right now about it's well, it's it's certainly been a bad first quarter. Imagine if you could replace your publicly traded equity with private equity, and I don't mean private equity and a fund, but you could have lower risk, better returns, and some amount of liquidity. How we do that is up to us to crack. But the we've spent as an industry thirty five years solving problems for the largest institutions in the world, and that creativity has now flipped in part to solve problems for this retail marketplace. For the first fifteen or twenty years, maybe of your career there was an enormous illiquidity premium to be harvested in the private market. To what degree has that premium eroted? Well, I'd say this so clearly the premium has eroded, so as I sometimes say, private equity started thirty five plus years ago as a black art and people rarely participated in it, and now it's an asset class. And how we as an industry go about that asset class remains to be seen. The firms, and I'll get to this, The firms no longer look exactly the same. Private equity does not mean the same thing to each firm. So for us, purchase price matters for some of our peers, different story, different focus. I look at the transactions we've elected to do as private equity, Yahoo being among the most interesting Las Vegas sands. They are very as people in this room might say, they're very apollo esque. A lot of complexity on the front end, a lot of trading of perspiration for purchase price. It is our mentality, it's our brand, it's how we come to market, and it's it's timely. Maybe hasn't been so timely for the past few years. We did just fine, but certainly not the kind of market that we really excel in. When you say you did just fine, you did just fine, of course, but in a competitive context, others did better. Right Over the past five years, you have been either outperformed by your peers or underperforming your peers this year as well, I should add, Um, does that matter to you in the short term, No, it really does not. I mean I look at this business over now thirty years, thirty two years in our case, UM generally not generally mid thirties gross returns, high twenties net return, generally a thousand basis points better than our peers. I'm very proud of that record. I think you'll see divergence in the first quarter when we all announce, which is next week. So if I'm not right about that, I don't know much about our business UM, and I think you'll continue to see divergence. But we look at the private equity business as an absolute rate of return business. We want to produce plus net rate of returns for our clients. What clients have not been doing is adjusting for risk, lower purchase price, less leverage. I'm very comfortable with with the place we have chosen in the ecosystem. I asked you earlier if Apollo needed needed to change its business model to reflect the new reality, and and maybe it doesn't, but do you need to change the way people think it? So it's happening, you know, it's it's it's it's what I do as CEO. I mean what I say is I really can't do anything. I could probably pick one thing and do it well, but it wouldn't matter in the context of our business. My only job is to change how people think, and that is what I'm trying to do. I'm trying them in each of our business is to understand that for yield, it's about safe spread. How do you get safe spread? It's about massively scaling origination. If you can't buy it in the public market, you have to create it yourself. So we wake up every day and we worry about origination. I asked them to think about what's the journey that our clients are on, the retail clients and the most sophisticated clients. A year ago, we had four people in global wealth. We now have a hundred and forty people in global wealth. Global wealth will be a third of our new capital over the next five years, a third a third. I think about the other places in the world that we're looking you know, um, we are late to the game in Asia in terms of really building out of presence. I am fully convinced that Asia does not need another equity opportunity fund. There's plenty of equity in Asia. What Asia lacks is yield and hybrid. The banking system is credit creation. We've recently sent over one of our most senior partners, and his job is to get the bank market share from I think he'll do that, and so we do in the context of what we believe, in the context of our competitive advantages, particularly in yield and fixed income replacement. Our job is to execute the plan that we've put out, which is roughly to double our business, but to do it in a way where we adhere to the promise that we've made to our clients, which is excess return per unit of risk, not just growth in a u M. I promised that would get to some questions. That was listening to the global Apollo Global Asset Management see you and co founder Mark rowan fascinating discussion with bloomber Business Weeks Eric Shatzker about Apollo about the private equity business about alternative investing, how that is continuing to be a market that is growing in size. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three pt On Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio

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