Marc Rowan: commitment

Transcript context

…Given that so few other institutions seem interested in addressing this problem of retirement risks, what’s the source of the comparative advantage that allows Apollo to do it, make money doing so, apparently be stable? How do the pieces fit together? Where’s the so-called free lunch coming from? Is it your talent? Is it the building you bought, or what is it? I assure you, it’s not my talent. I’m fortunate that nearly 10,000 people make me look good — most days, not every day, but most days. If you think about our industry, in our industry, you need four things to be successful. The easiest of those things is capital. If you are a responsible investor, and you sell investors on a long-term business plan, you should be able to raise capital. But if you look at our industry, the public companies in the retirement services business over the last decade have raised virtually no capital. Fundamentally, investors have decided they do not trust the public companies as good stewards of capital, and in fact, the vast majority of these companies have paid out their current book value as dividends over the last decade. I start with, well, capital should be easy. Capital for this industry is actually quite hard, and so we showed up in 2008 with capital. That doesn’t guarantee you’ll be successful. The next piece is, you need long-term low-cost liabilities. Initially, as a start-up company in 2008, we had no right to participate in this market, but 2008 was a very tumultuous period of time. Lots of companies were looking to get back to their “home market,” and people were selling off old blocks of business. We bought old blocks of business, and we did it successfully and got to scale, and we acquired a large amount of low-cost business. Today, that same opportunity, by the way, is no longer available because there are not big blocks for sale. The interest-rate environment is different. There’s not the same tumultuous need to sell. So, we are now the largest originator, organic originator — the sale of new products through traditional channels in the retirement business. Last year, we did some $60-plus billion. This year, we’re projected to do $70-plus billion just in the US. This is a big market if you get it right. So, long-term, low-cost liabilities that are predictable that you can invest against. Third, you need a scaled low-cost operating infrastructure. Even though we are not the largest insurer, we are the largest retirement services company. We focus on one product segment. You look at other big insurers — they have diverse operations. In some cases, they don’t have scale in any of their businesses, even though they are quite large. We are, as one product based in Iowa, really efficient, very low cost, and that allows us to make money. The other thing that you need to be successful: an insurance company, a retirement services company needs to both be and appear to be and project solvency. Regulatorily, you need solvency. Rating agencies — you need solvency. And if you’re backing 20-year promises, you need solvency. You need lots of low-cost, lower-risk, higher-yielding assets. We have become, at Apollo, experts in originating these higher-quality, higher-yielding assets, so-called private credit, and have been successful in originating them to the benefit of Athene and others in the insurance industry. How did the macroeconomics of this new world work? If you don’t have much maturity-matching risk, you’re relatively insensitive to where interest rates are moving. If the Fed is controlling interest rates, say, to disinflate or for any other reason, it seems that matters much less than it used to. Do you agree?…

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