This is video, audio, and transcript recorded at our Apollo office in New York. Here is the synopsis of the episode:
Mark Rowan, co-founder and CEO of Apollo Global Management, joins Tyler to discuss why rising interest rates won't negatively impact Apollo's profitability, and why debt has traditionally been an insurance policy. We discussed what was the industry's weakness, why we need to rethink the concept of liquidity, and its pointlessness. Learn more about the term „private credit,“ what role cryptocurrencies play in American finance, why Mark bought a Brutalist apartment, which countries have beautiful new neighborhoods, and the redevelopment of Apollo's offices. The motivations we designed, what we look for in our young hires, different kinds of decisions – what we need in debt and private equity, the biggest obstacles to doing business in India, how to improve university governance, What I learned from running a restaurant and what I'll learn next.
Cowen: Now, how stable is all of this as a political equilibrium? If you think about the four major banks, as you know, they are subject to extremely strict stress tests and capital regulations. The Federal Reserve is the primary regulator. At least when it comes to insurance, it tends to be at the state level. Reinsurance can be obtained through Bermuda. Capital requirements vary widely. State regulators are probably less capable than the Fed. Whether we want more regulation or not, and generally I don't, is this a stable situation? How will it evolve?
Rowan: First, you'll need to revise almost everything you said along the way to prepare what you're about to say. First, it is not a difference between a banking system and insurance, but a difference between a banking system and an investment market. Let's start with this. There are many ways investors can lose money. Investors can buy speculative stocks. They might buy S&P. They can guess almost anything.
We allow speculative investing every day for good reason, so making and losing money is not in itself a systemically risky activity. Things go up, things go down. You can lose money not only in stocks but also in credit.
Now let's talk about investment trusts. If a daily liquid mutual fund owns the credit and investors want their money back, the price will just adjust, as you say. Investment trusts do not guarantee prices. Is it regulated? Mutual funds are regulated. Are they disclosed and transparent? Yes, they are disclosed and transparent. Mutual fund holdings are fully visible and de-leveraged. Is it a risky activity because we moved from the banking system to mutual funds? I don't think so; in fact, I think the risk is gone. It has made our economy and financial system more resilient.
Now, I would like to ask you about political balance. If we focus only on insurance, insurance is not federally guaranteed, there is no short-term borrowing or long-term lending, there is no access to the Fed, there is no liquidity conversion or maturity mismatch. and They are forced to hold large amounts of capital.
Let's just compare ourselves, not the industry as a whole. As a percentage of assets, which company has more capital, our insurance company Athene or a regular bank? You might think it's a typical bank, but you'd be wrong. We hold more capital per dollar of assets than anyone else. Who owns more investment grade assets? 90% of our books are investment grade, and a typical bank's book is two-thirds investment grade.
Cowen: Sure, but it's all time-divided —
Rowan: Let's continue.
Cowen: Money market funds are a source of systemic risk. A.I.G. It has been-
Rowan: This is not to say that the economy is without risks. we have a choice. You can spread the risk across many financial institutions, or you can concentrate it in the government-backed borrow-short, lending-long, government-guaranteed banking system.
Every time you spread that risk, the system becomes more resilient. If you want to focus on insurance, which is a question about political balance, there is more capital, but no capital. ALM mismatchthere are more investment-grade ones, and there are appropriate state-based regulations for institutions that don't have government guarantees, don't borrow from the Fed, or do other things.
Insurance moves very slowly. We are talking about his assets for 10 years on average. This is a very slow process. Again, most of the problems in the insurance industry were not asset problems. These are liability issues, exactly the kind that insurance professional regulation is designed to detect.
Of course, we also recommend Mark's higher version campaign.