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

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. All right, the question
0:23
Speaker 1: here for this felto reserve to what extent can it
0:26
Speaker 1: in fact fight inflation? Is it's something more than just rates. Uh,
0:30
Speaker 1: isn't a supply chain issue out there that's really kind
0:32
Speaker 1: of a challenge? Pre A Miserab, Managing director and Global
0:35
Speaker 1: head of rate Strategy at TV Securities, joins us Um.
0:38
Speaker 1: I guess my question is does the FED have the
0:41
Speaker 1: tools to curb inflation create a soft landing that I
0:44
Speaker 1: think people would like to see. So I think the
0:48
Speaker 1: FED does have the tool of interest rates both the
0:51
Speaker 1: rate channel as well as QT, and they have the
0:54
Speaker 1: ability to slow demand aggregate demand. Does that bring inflation
0:58
Speaker 1: down to two percent? I do struggling with that as
1:01
Speaker 1: you talked about their supply chain issues as commodity price
1:04
Speaker 1: increases because of Russia. So I don't think they can
1:07
Speaker 1: achieve the two percent target in the very near term,
1:10
Speaker 1: but they can absolutely slow aggregate demand, and they can
1:12
Speaker 1: tighten financial conditions, and the market is already doing some
1:15
Speaker 1: of that work for them. So now, really I think
1:17
Speaker 1: that you see, the market didn't really react to even
1:19
Speaker 1: as them the fact that it came in weaker than
1:22
Speaker 1: expected because the market is giving greater weight to inflation
1:26
Speaker 1: and the fact that the Fed will have to respond
1:27
Speaker 1: to these very high readings. Yeah, and that kind of
1:29
Speaker 1: brings up, you know, the topic that's been you know,
1:32
Speaker 1: on people's minds are really less several weeks a couple
1:34
Speaker 1: of months, is stagflation. You look at China, uh, and
1:38
Speaker 1: there are various levels of lockdown, and that seems to
1:41
Speaker 1: be an ongoing issue. Then of course you've got Russia
1:43
Speaker 1: and Europe and what it means for commodities and other
1:45
Speaker 1: products here that kind of suggests that stagflation is a thing.
1:49
Speaker 1: Here are How concerned are you about that? So it
1:52
Speaker 1: is a nightmare scenario for the FED because in the
1:55
Speaker 1: two mandates pull in different directions, you know, because we
1:59
Speaker 1: think that as always inflation starts to decelerate, say the
2:02
Speaker 1: monthly readings go from point six point seven right now
2:06
Speaker 1: CPI two point three point four. We think the Fed
2:09
Speaker 1: at that point will probably be more tolerant of these
2:12
Speaker 1: slightly higher than than target inflation and not overdo it.
2:16
Speaker 1: But that is a call that the FED will have
2:18
Speaker 1: to make closer to your end when they get to
2:20
Speaker 1: neutral on the funds rate. QT is continuing. If inflation
2:23
Speaker 1: just gives them the ability to push out that when
2:27
Speaker 1: they reach their target, we don't think they'll overdo it.
2:30
Speaker 1: That's why our end point of the hiking cycle is
2:32
Speaker 1: not as high as the market. But there is another
2:35
Speaker 1: scenario where inflation really doesn't decelerate and the FED has
2:38
Speaker 1: to go significantly about neutral, you know, three and a
2:40
Speaker 1: half or higher on the funds rate along with QT.
2:44
Speaker 1: That's when I really worry about thet inflation because I
2:47
Speaker 1: don't think that the soft landing in that scenario where
2:50
Speaker 1: there's so much tightening through monetary policy. I thing is
2:53
Speaker 1: a very tough um, you know, aim for the FED.
2:57
Speaker 1: So it's only if they're able to tolerate slightly high inflation,
3:01
Speaker 1: and I sort of hope they make that call near
3:03
Speaker 1: your end. Or that's our basic case, but it depends
3:06
Speaker 1: on some deceleration and that inflation momentum. Yeah, I've got
3:10
Speaker 1: to ask about the balance sheet here, because this is
3:12
Speaker 1: something that there's still a lack of clarity on what
3:15
Speaker 1: can we expect on the balance sheet? What is the
3:18
Speaker 1: worst case and best case scenario in terms of what
3:20
Speaker 1: we hear about that sure, And I completely agree with you.
3:23
Speaker 1: I think it's hard for the market to price in
3:26
Speaker 1: the balance sheet because there's a nonlinear effect of the
3:29
Speaker 1: balance sheet. I would argue that the balance sheet run
3:31
Speaker 1: off initially is not a big deal because we are
3:33
Speaker 1: far from neutral because supply only picks up slowly. They
3:37
Speaker 1: face it in when you get closer to your end,
3:40
Speaker 1: when you know the funds rate is closer to normal
3:43
Speaker 1: or neutral, and the balance sheet at this point is
3:46
Speaker 1: running off almost a hundred billion a month, I think
3:49
Speaker 1: the effects starts to grow a lot more, and the
3:51
Speaker 1: impact really comes from higher long and real rates. And
3:54
Speaker 1: you've already seen a rise in long and reil rates,
3:57
Speaker 1: which is I think ultimately what's tightening financial cans. So
4:00
Speaker 1: I think that's the channel through which you see the
4:03
Speaker 1: tightening in conditions. You see the movement in mortgage rates,
4:06
Speaker 1: which starts to impact housing, and I think that it's
4:08
Speaker 1: working in the fashion the FED wants it to. But
4:11
Speaker 1: I think that's the hard part, calibrating balance sheet which
4:14
Speaker 1: they are not nimble on the balance sheet once it starts,
4:17
Speaker 1: it's supposed to operate in the background, and then making
4:20
Speaker 1: sure that they don't overdo it on the rate hikes channel.
4:22
Speaker 1: I think that's the key one. But you know, I
4:24
Speaker 1: think what we hear this week will be likely the
4:27
Speaker 1: same caps that were talked about in the minute. I
4:29
Speaker 1: think that's pricedon. It's really the flow effect of supply
4:33
Speaker 1: month after month that starts to I think have impact
4:36
Speaker 1: later on in the year. I think that's when we
4:38
Speaker 1: see more of that impact of balance sheet run off.
4:41
Speaker 1: All right, thank you so much for joining us. Always
4:43
Speaker 1: appreciate getting your perspective. Prem Israe, Managing director and global
4:47
Speaker 1: head of rate Strategies over there at TV Securities. In
4:54
Speaker 1: case you haven't heard it, there's a chip shortage out
4:56
Speaker 1: there and it's affecting pretty much every industry out there,
4:59
Speaker 1: and we see it hear it on these conference calls
5:01
Speaker 1: being called out all the time as a reason for
5:03
Speaker 1: supply issues, and to be honest with you, I don't
5:06
Speaker 1: get it. Baba babash Bala Christian that joins us. He's
5:10
Speaker 1: the CEO and president of Power Integrations. Maybe he can
5:13
Speaker 1: answer the question follow I envision all these semiconductor chip
5:17
Speaker 1: makers have rows and rows and rows of desks filled
5:21
Speaker 1: by nbas who do nothing but forecast chip demand five
5:26
Speaker 1: ten years out. Why do we have such a chip
5:28
Speaker 1: shortage right now? I don't get it. Good morning, Paul
5:33
Speaker 1: and pretty and thanks for inviting me. Uh, excellent question.
5:37
Speaker 1: I think part of the reason is that people got
5:39
Speaker 1: so used to squeezing everything out of the supply chain.
5:44
Speaker 1: They introduced what's known as just in time manufacturing, which
5:48
Speaker 1: is actually very risky. What you're saying is everything has
5:51
Speaker 1: to work perfectly for you to be able to manufacture
5:54
Speaker 1: a car or a product and appliance, and now they're
5:57
Speaker 1: seeing the effect for such you know, tight uh supply chain. Uh.
6:05
Speaker 1: I would say, if you go back about fifty years
6:07
Speaker 1: or so, everybody carried inventory at different stages. So that's that's,
6:11
Speaker 1: you know, part of the problem. The second is, I
6:14
Speaker 1: really don't think anybody expected the amount of electronics that
6:19
Speaker 1: goes into some of the products, whether it's appliance or
6:23
Speaker 1: industrial products, or the electrification which is you know, electric cars,
6:28
Speaker 1: buses and so on, they are really computers on wheels,
6:32
Speaker 1: and I think they miscalculated the amount of capacity needed.
6:37
Speaker 1: And when we had the the COVID situation, everybody stopped,
6:42
Speaker 1: I mean literally, automotive companies stopped ordering and so there
6:46
Speaker 1: was nothing in the inventory, and they stopped manufacturing vapors
6:50
Speaker 1: because they thought the whole world is going to come
6:52
Speaker 1: to the end in terms of demand. And now we're
6:55
Speaker 1: seeing the effects of it. So how do you predict
7:00
Speaker 1: or model out some of this demand with the volatility
7:03
Speaker 1: of the COVID lockdowns. Now that we are two years
7:06
Speaker 1: into this, we know the about China zeroor COVID policy.
7:09
Speaker 1: How is that modeling or that forecasting changing. Well, I
7:15
Speaker 1: think what is happening right now is the huge amount
7:19
Speaker 1: of capacity being put into vapor vapor fabrications. You know,
7:24
Speaker 1: vapor plans take a long time, They take three to
7:28
Speaker 1: four years established. So this is very typical of a
7:32
Speaker 1: stomic and recycle with you know, they put a lot
7:35
Speaker 1: of investment and I won't be surprised if three or
7:39
Speaker 1: four years will be floating in vapor capacity. UM I
7:43
Speaker 1: would say we have been much more we meaning power
7:47
Speaker 1: Integrations has been much more careful in planning this. So
7:51
Speaker 1: I am happy to say please to say that we
7:55
Speaker 1: have not had a supply chain problem for multiple reasons.
7:59
Speaker 1: One is a unique boundary model. Secondly, we are multiple
8:05
Speaker 1: source into multiple geographies and so that has really helped us.
8:10
Speaker 1: Probably the most important if it's never stopped manufacturing wafers.
8:14
Speaker 1: Even when there was a downturn in the beginning of
8:18
Speaker 1: we kept building inventory. We had so much inventory that
8:21
Speaker 1: we had no problems applying when the demand came right back.
8:26
Speaker 1: You know, at the beginning of this, I guess the
8:28
Speaker 1: beginning of the pandemic, the beginning of the supply chain challenges.
8:31
Speaker 1: There's a lot of talk about on shoring chip manufacturing
8:35
Speaker 1: in the United States now it's mainly centered in Asia.
8:40
Speaker 1: Do you think that's a viable strategy. Is that happening?
8:46
Speaker 1: It is a viable strategy. It is happening because as
8:49
Speaker 1: far as vapor fabrication goals, it doesn't matter where you
8:53
Speaker 1: put it. The cost is about the same because it
8:55
Speaker 1: was dominated by um equipment costs, not labor costs. So
9:00
Speaker 1: there is no reason to have it in UH low
9:04
Speaker 1: cost countries, low cost labor countries. So Uh, it was
9:08
Speaker 1: too bad as so much of the capacity went away
9:11
Speaker 1: from US, and finally it's good to see that it's
9:14
Speaker 1: coming back. Europe is doing the same thing. And by
9:16
Speaker 1: the way, we have been very careful not to put
9:20
Speaker 1: our technology which we own into countries where we don't
9:24
Speaker 1: have intellectual property protection like in China, like Taiwan and Korea.
9:28
Speaker 1: As a result, we had in a much better place.
9:31
Speaker 1: So you know, we have most most of the foundaries
9:33
Speaker 1: that in Japan, some in US and some in Europe.
9:38
Speaker 1: I've got to ask about once again the geopolitics of
9:42
Speaker 1: this all because I think pre pandemic the story. Paul,
9:46
Speaker 1: correct me if I'm wrong here, but I think the
9:48
Speaker 1: story was the trade war, right, tariffs that haven't necessarily
9:52
Speaker 1: disappeared with the Biden administration. So I have to ask,
9:56
Speaker 1: as it takes years, and I believe it will take
9:59
Speaker 1: years to bring some of that more of that capacity
10:01
Speaker 1: back domestically or onto Europe. I mean, how do how
10:05
Speaker 1: do companies like yours and and others navigate the tariff environment,
10:09
Speaker 1: the geopolitical environment. Well, that's a good question. As I said,
10:15
Speaker 1: we are in a different position, so we are actually
10:18
Speaker 1: not capacity limited. We were not capacity limited last year
10:21
Speaker 1: and we are not this year either, which is an
10:24
Speaker 1: enviable position. So there are a couple of things we
10:28
Speaker 1: are doing hopefully other people can follow on. That is
10:31
Speaker 1: that we only ship to real demand. We don't ship
10:33
Speaker 1: to any orders that are placed. We look at what
10:36
Speaker 1: they were buying before, and we only shipped to the
10:39
Speaker 1: run rate of what they were buying, or maybe a
10:42
Speaker 1: little bit higher because the demand is higher. Secondly, we have,
10:47
Speaker 1: as I said, we have a unique boundary model where
10:49
Speaker 1: we put our technology into companies in Japan, US and
10:55
Speaker 1: Europe where we have a long term contract to keep
10:59
Speaker 1: the capacity be and we are able to do that
11:02
Speaker 1: because we continue to build it. We continue to build
11:05
Speaker 1: during downturns. We did that in two thousand two nine,
11:08
Speaker 1: and of course in two thousand we did that again
11:12
Speaker 1: during the COVID situation, and we group forty four last year. UM.
11:18
Speaker 1: I think it really comes down to making sure that
11:21
Speaker 1: you have sufficient inventory, and that's where I think people
11:25
Speaker 1: cut too short because they were trying to manage the
11:29
Speaker 1: supply chain way too close, and supply chains are incredibly
11:33
Speaker 1: complex in in in when it comes to chips. So
11:38
Speaker 1: going forward, I think what they have to learn is
11:41
Speaker 1: just in time is not a uh not a lowish proposition.
11:47
Speaker 1: There's very high risk when you do just in time manufacturing.
11:51
Speaker 1: So how do you think just in time be about
11:53
Speaker 1: third thirty seconds left? How do you think just in
11:54
Speaker 1: time inventory will evolve? I guess I think what will
11:59
Speaker 1: happen is everybody will caddies some level of inventory, including
12:02
Speaker 1: the automotive companies, appliance companies. UH. That way they are
12:06
Speaker 1: buffered from UH you know, disasters or in this case,
12:11
Speaker 1: pandemic or you know, any of the supply chain interruptions.
12:16
Speaker 1: All right, Ballo, thank you so much for joining us there.
12:18
Speaker 1: Bo Bala Krishnan, he's a CEO and president of Power Integrations,
12:22
Speaker 1: a semiconductor UH company out there giving us his thoughts
12:26
Speaker 1: on the chip market. Again, it's been an issue here
12:29
Speaker 1: from pretty much every company in every industry when they
12:31
Speaker 1: talk about shortages or supply chain challenges. One of the
12:34
Speaker 1: key area is UH they focus on is the semiconductors.
12:40
Speaker 1: All right, Well, last Friday, while I had my toes
12:43
Speaker 1: in the sand, Amazon stock and it's because one day
12:48
Speaker 1: drops since July two thousand six, just extraordinary. So the
12:51
Speaker 1: questions what does that mean for Amazon? What does that
12:53
Speaker 1: mean for e commerce? What does that mean for retail
12:56
Speaker 1: in general as most of the world comes out on
12:58
Speaker 1: the other side of this pandemic re Checking with Nikki Baird,
13:01
Speaker 1: vice president of strategy at Aptose Retail, Nikki, just, first
13:04
Speaker 1: of all, what do you make of Amazon's report and
13:08
Speaker 1: then the market reaction to said report. Yeah, I wasn't
13:11
Speaker 1: too surprised by the report, certainly from our perspective, our
13:17
Speaker 1: retailers are seeing much stronger store sales and much less
13:23
Speaker 1: on the e commerce side. I think the reaction was
13:27
Speaker 1: was definitely a stronger reaction than I would have expected. Uh,
13:31
Speaker 1: you know, just in general, I nobody, I think should
13:34
Speaker 1: expect that e commerce is going to continue to grow
13:37
Speaker 1: from pandemic highs. It's got to come back at least
13:39
Speaker 1: a little bit as consumers ship some of their spending
13:42
Speaker 1: back to stores. I've got to ask about how Amazon
13:47
Speaker 1: is even a proxy perhaps for broader retail, and that
13:50
Speaker 1: Amazon's kind of turning into a logistics business expanding their
13:53
Speaker 1: shipping services to the likes of Etsy, to Walmart, to
13:56
Speaker 1: other third party retailers. Is if you're to really use
13:59
Speaker 1: Amazon as kind of this beacon for broader retail, spending.
14:03
Speaker 1: I think it's definitely still fair to use them for that.
14:07
Speaker 1: While it is true that they are incredibly good at
14:10
Speaker 1: taking services that they used to run their own business
14:13
Speaker 1: and monetizing those by offering them to others. Uh, you know,
14:16
Speaker 1: it is still definitely the destination shopping force for consumers.
14:22
Speaker 1: You know, a lot of people will refer to it
14:24
Speaker 1: as the Google of products. So when you have that
14:26
Speaker 1: kind of market presence in terms of just capturing consumer attention, Uh, yeah,
14:32
Speaker 1: I think you can still use them as a good proxy. Nikki,
14:35
Speaker 1: give us your sense of kind of how the consumer
14:38
Speaker 1: is doing here again coming out on the at least
14:41
Speaker 1: here in in the US of this pandemic um dealing
14:45
Speaker 1: with the really intense inflation pressures. How's the consumer doing
14:49
Speaker 1: in your mind? You know, I am looking forward to
14:53
Speaker 1: getting more feedback on April sales because I think that's
14:57
Speaker 1: going to be the first place that we really see
14:59
Speaker 1: an indicator of how consumers are going to be looking ahead.
15:03
Speaker 1: I think, you know, for the first quarter of the year,
15:06
Speaker 1: we saw that then they were relatively unimpacted by inflation
15:10
Speaker 1: by uh, you know, any of the concerns that were
15:13
Speaker 1: driven from that, and you know, an opening up of
15:16
Speaker 1: the economy as people are getting more and more comfortable
15:20
Speaker 1: with the stage of the pandemic that we're apparently in
15:23
Speaker 1: um But but looking ahead, I think I'm starting to
15:27
Speaker 1: hear anecdotally consumers noticing, you know, that inflation is definitely
15:32
Speaker 1: starting to bite in their budgets. And I think there's
15:34
Speaker 1: anticipation that some of the text credits that were given
15:38
Speaker 1: during the depths of the pandemic are are kind of
15:41
Speaker 1: reducing the tax refund that consumers are expecting to get
15:45
Speaker 1: this year, uh, and that that will start to show
15:48
Speaker 1: up in April spending and info may well. What really
15:51
Speaker 1: strikes me here is that this was the exact conversation
15:54
Speaker 1: we were having September where you had this massive sell off.
15:59
Speaker 1: A lot of you will blame no seasonality, some people
16:01
Speaker 1: saying that the end of fiscal stimulus was the end
16:04
Speaker 1: of what was going to happen at the end of summer.
16:06
Speaker 1: It didn't really happen until I would say, you know,
16:09
Speaker 1: more recently. But this is a conversation that was almost
16:13
Speaker 1: inevitable and something that I think the market had expected.
16:18
Speaker 1: So why such a strong reaction. Yeah, I I honestly,
16:23
Speaker 1: I'm with you. I don't understand the reaction. I would
16:26
Speaker 1: have expected that this kind of responds to be priced in.
16:28
Speaker 1: And when you look at the you know, the way
16:32
Speaker 1: that consumers are getting up their spending, store sales are
16:35
Speaker 1: still incredibly strong and not even just against pandemic numbers
16:40
Speaker 1: but against So it's not like retail overall is really hurting. Uh,
16:46
Speaker 1: it's it's e commerce is coming back off of you know,
16:50
Speaker 1: rapidly accelerated growth that happened during the pandemic, and that
16:53
Speaker 1: really should be expected. I mean, I think one of
16:56
Speaker 1: the dimensions of this is definitely the cost structure, even
17:00
Speaker 1: for e commerce. And in some ways e commerce is
17:03
Speaker 1: uniquely vulnerable because they depend very much on digital as
17:08
Speaker 1: their pathway for consumers to find them. And you know,
17:11
Speaker 1: while we've been talking about logistics costs and um, you know,
17:15
Speaker 1: inflation and and everything that reflects in the price of
17:18
Speaker 1: the product that the consumer pays, marketing costs online also
17:22
Speaker 1: have been hit really hard. By some estimates, there ten
17:26
Speaker 1: times customer acquisition costs that companies were paying before the pandemic.
17:31
Speaker 1: So when you look at those costs and where you're
17:35
Speaker 1: literally getting a tent of the bang for your buck
17:38
Speaker 1: in terms of acquiring or driving customers to your site.
17:41
Speaker 1: I could see that that's driving some outside concern over
17:45
Speaker 1: the longer term health of e commerce. So, Nikki, if
17:48
Speaker 1: I do go to the store, which I try to
17:50
Speaker 1: avoid at all costs, um am, I going to find
17:53
Speaker 1: stuff on the shelves. How's the supply chain and inventory
17:56
Speaker 1: right now? You know it is better and it was
18:01
Speaker 1: uh and you kind of have to differentiate again, you know,
18:04
Speaker 1: essential versus non essentials. Right, So there's some additional things
18:08
Speaker 1: that are happening in the food supply chain that stay complex.
18:12
Speaker 1: But as far as discretionary spending goes, retailers are are
18:17
Speaker 1: fairly well stocked. Probably not as exciting of assortments as
18:22
Speaker 1: they really would want them to be. But if you
18:24
Speaker 1: go to the store, I think you're going to find stuff, well,
18:28
Speaker 1: thank God for that. Yeah, absolutely, all right, we'll see
18:31
Speaker 1: how that goes, all right, Nicki Baird, thanks so much
18:33
Speaker 1: for joining us there. Nicky Baird, vice president of Strategy
18:36
Speaker 1: for Aptose Retail. We're going to head over to the
18:44
Speaker 1: Milk and Institute's Global Conference in Los Angeles or Bloommark's BusinessWeek.
18:48
Speaker 1: Eric Shatsker interviews Apollo Global Asset manager, CEO and co
18:52
Speaker 1: founder Mark Romans. Tick listen, Mark, great to see you,
18:56
Speaker 1: good morning, see you. Everybody. Delighted to be back at
18:59
Speaker 1: the Milk and Gloo conference and kicking it off with
19:02
Speaker 1: this conversation. I did want to comment Mark on on
19:07
Speaker 1: the following if anybody needed a lesson and how much
19:12
Speaker 1: has changed over the course of the pandemic. It's the
19:15
Speaker 1: private equity CEO who's in khakis and a sweater this morning,
19:19
Speaker 1: and the journalist who's wearing a tie. Um, well, it's
19:23
Speaker 1: consistent with the ethos I've had for a very long time.
19:26
Speaker 1: I know, I know, if you are elected to a
19:28
Speaker 1: national office and I'm seeing you in your office, I
19:30
Speaker 1: wear a tie, or if you're my regulator, I'm wearing
19:33
Speaker 1: a tie. Other than that, I don't worry about it. Um.
19:38
Speaker 1: As I mentioned, Mark, I went around the audience before
19:42
Speaker 1: we began and did what I should do, which is
19:44
Speaker 1: to ask your friends and colleagues what they would ask
19:49
Speaker 1: if they were me, And they all gave me a
19:53
Speaker 1: version of the same question. Uh. And maybe it's not
19:57
Speaker 1: surprising given the times we're living in. What are you
20:02
Speaker 1: most worried about the same thing I'm always most worried
20:05
Speaker 1: about people always. Um, I'll be honest. Um, the business,
20:11
Speaker 1: the markets, the things that we're talking about today, inflation,
20:15
Speaker 1: the correction in the stock market, I don't worry about
20:18
Speaker 1: so much. I mean, if people don't see this as
20:21
Speaker 1: the logical conclusion to fourteen years of money printing, I
20:27
Speaker 1: don't know where they've been. We've printed money for fourteen years.
20:30
Speaker 1: Rates went down, stocks went up. The more risk you took,
20:33
Speaker 1: the further out on a growth curve, you were the
20:35
Speaker 1: better off you did. Okay, it's now about to run
20:39
Speaker 1: in reverse. So SMP. Last I looked the end of nineteen,
20:45
Speaker 1: it was three thousand SNPPE today one long term average sixteen.
20:53
Speaker 1: It's just not that bad people power of the business. Okay,
21:00
Speaker 1: you've brought up the market context. It's probably worth us
21:05
Speaker 1: spending it a few minutes at the very least talking
21:08
Speaker 1: about that. Um. People would probably say it feels like
21:14
Speaker 1: a challenging time to invest for some of the reasons
21:17
Speaker 1: that you just enumerated. Right, there's a lot of inflation,
21:21
Speaker 1: the most we've seen in four decades. There's war, there's
21:25
Speaker 1: the prospect of rising rates. There's quantitative tightening. We haven't
21:28
Speaker 1: seen that really. Uh, in a serious way. Yet, um,
21:33
Speaker 1: you mentioned that there's a correction in the equity market.
21:35
Speaker 1: There's a correction in the credit market too. What kind
21:38
Speaker 1: of future are you preparing for? Of all the one
21:42
Speaker 1: I mean, but I start with you know, sometimes I'm
21:45
Speaker 1: asked to explain what our strategy is and I put
21:48
Speaker 1: it in three words, purchase price matters. So if I
21:53
Speaker 1: can buy a fundamentally good business today at less than
21:57
Speaker 1: I could buy it three months ago, that feels like
22:01
Speaker 1: a good outcome. Will there be bumps along the way
22:03
Speaker 1: where there be deviations, of course there will be, But
22:07
Speaker 1: I think the notion of purchase price matters. Some call
22:11
Speaker 1: it value in the extreme. You can be like Laurren
22:14
Speaker 1: Buffett and Charlie Monger, But I think it's a strategy
22:18
Speaker 1: that's built for multiple market cycles. In the equity business,
22:23
Speaker 1: it's the price you pay, it's the companies you buy.
22:26
Speaker 1: And in the credit business, it's being senior secured, it's
22:30
Speaker 1: not being long duration, being floating rate. There are lots
22:34
Speaker 1: of ways still to protect yourself. Maybe it doesn't feel
22:37
Speaker 1: as good given what we've been through and just how
22:39
Speaker 1: positive the last decade has been. No, it certainly doesn't
22:43
Speaker 1: feel as good. Um. But on the subject of purchase
22:47
Speaker 1: price mattering and value as a concept and time, there's
22:57
Speaker 1: something of an unknown. Uh, it's enough if you can
23:03
Speaker 1: buy something for less right now, might you be able
23:06
Speaker 1: to buy it for less six months from now? Perhaps?
23:11
Speaker 1: I mean, this is always the question of what's cheap
23:14
Speaker 1: enough and what what what's what's worth doing? Um? I
23:18
Speaker 1: think we have more to go or in what sense?
23:21
Speaker 1: I think there's more of a correction to come? I think,
23:24
Speaker 1: you know, being a macroeconomics prognosticator is not what we do.
23:29
Speaker 1: But understanding fundamentally good businesses that maybe had more options
23:36
Speaker 1: three months ago and have fewer options today. We'll find
23:40
Speaker 1: that category of things that makes sense for us to do.
23:44
Speaker 1: We always do. Yes, history would suggest so. Um. But
23:51
Speaker 1: if you think, if you don't have the luxury of
23:56
Speaker 1: being the kind of investor that Apollo is, and you
23:59
Speaker 1: put your open somebody else's shoes for a moment, do
24:01
Speaker 1: you look at the market and say to yourself, I
24:05
Speaker 1: think the future that I envision is relatively priced aning
24:09
Speaker 1: of them. If there's a little bit more of a
24:10
Speaker 1: correction to come, or that is not a noable answer
24:14
Speaker 1: right now? I don't think it's a noable answer right now.
24:16
Speaker 1: But you know, certainly we saw in today's announcement from
24:19
Speaker 1: the FED the signs that they are taking the need
24:23
Speaker 1: to get inflation expectations under control very seriously, and that
24:27
Speaker 1: will manifest itself through their liquefying their balance sheet and
24:30
Speaker 1: selling down, which they outlined this morning, but also through
24:34
Speaker 1: rate increases. But you know something, we was in d
24:39
Speaker 1: C last week and I spent a lot of there's
24:41
Speaker 1: a lot of free time, by the way, in DC,
24:43
Speaker 1: it's a great time to go and visit um and
24:46
Speaker 1: and the key point I was making is that everything
24:49
Speaker 1: that you believe prior to two eight no longer exists.
24:54
Speaker 1: And in the context of your question, UM, I'll take
24:57
Speaker 1: public markets sixty plus pers. One of the equity market
25:01
Speaker 1: today is indexed, is which indexed, meaning it trades on liquidity,
25:06
Speaker 1: just people going in and out. The fixed income market
25:11
Speaker 1: liquidity driven at this point in time, and so investors,
25:14
Speaker 1: the public public fixed income markets, investors who are relying
25:19
Speaker 1: on public stocks and public bonds are finding out that
25:24
Speaker 1: everything is correlated to liquidity. Because you've had one of
25:27
Speaker 1: the worst first quarters ever. You've had equities down about
25:30
Speaker 1: fo you've had investment grade credit down. Wasn't that supposed
25:35
Speaker 1: to be riskless? Um? And I think institutions kind of
25:40
Speaker 1: already know this. Public markets have become beta and if
25:43
Speaker 1: you want excess return, you need to step back from
25:46
Speaker 1: the public markets. So what you've just said, UM, I
25:54
Speaker 1: would summarize with something along the lines of we've lived
25:57
Speaker 1: through a dozen years of rock bottom rates and most
26:00
Speaker 1: recently endless liquidity, and it felt like a riskless era.
26:03
Speaker 1: Does risk matter again now for the first time, maybe
26:07
Speaker 1: since before the crisis? Absolutely, I think we're seeing things correct.
26:14
Speaker 1: We're a long way from means or medians in the
26:17
Speaker 1: equity market, where from the medium, which is pretty scary
26:23
Speaker 1: UM and the credit market we also have a long
26:25
Speaker 1: way to go. But I do think that the mentality
26:29
Speaker 1: with which investors have focused has they've been lulled into
26:33
Speaker 1: this sense that everything goes up, that everything is supposed
26:36
Speaker 1: to go well, because we've had one could say, thirty
26:39
Speaker 1: plus years of declining rates but extreme liquidity in the
26:44
Speaker 1: past fourteen. So if you think about what you see
26:50
Speaker 1: and what you anticipate, you have an idea of what
26:55
Speaker 1: businesses of yours still work, what businesses don't work anymore?
27:02
Speaker 1: Yours are others. Look, I think the on the run
27:06
Speaker 1: long only markets business are very difficult. To the extent
27:10
Speaker 1: you have been the beneficiary of trends, so you know
27:15
Speaker 1: there there will be a number of speakers who will
27:17
Speaker 1: come here and we'll talk about the massive increase in
27:20
Speaker 1: technology and the technology growth curve. And I would say
27:23
Speaker 1: tech and growth in particular have benefited from low rates
27:27
Speaker 1: because they are their business plans are further out there
27:30
Speaker 1: discounted back at much lower rates. Therefore, they've been the
27:34
Speaker 1: beneficiaries of this speculative room. And to quote one of
27:38
Speaker 1: the speakers will hear from later, technology technological change is real,
27:43
Speaker 1: it's fundamental. But that doesn't mean the purchase price doesn't
27:46
Speaker 1: matter and the entry point doesn't matter. So I think
27:50
Speaker 1: people who have benefited from this extreme low rate, high
27:54
Speaker 1: liquidity environment where growth, all manner of growth have been rewarded. Uh,
28:00
Speaker 1: I think that's where the greatest correction will come. And that,
28:03
Speaker 1: of course is not just the E t F manager
28:06
Speaker 1: whom you're thinking of. That presumably extends to growth equity,
28:11
Speaker 1: it extends to late stage venture, early stage venture, it
28:16
Speaker 1: extends spectrum, it extends to all these markets. I look
28:19
Speaker 1: at the traditional alternative market, and so much of the
28:22
Speaker 1: traditional alternative market UM has become beta as well, even
28:27
Speaker 1: with our our our own firm. You know, I my
28:29
Speaker 1: joke internally is you've worked for me for ten years,
28:32
Speaker 1: but I still don't know if you're a good investor.
28:35
Speaker 1: I think we're about to find out, any sense. Having
28:41
Speaker 1: lived through what now three solid market cycles, let's say four, four,
28:50
Speaker 1: how long does shake out lasts? No, no known unknown. Look,
28:56
Speaker 1: we if we profess to know, we we just mislead.
29:00
Speaker 1: But what we can do is return to some basic playbooks.
29:03
Speaker 1: So I look at the three businesses we're in. We're
29:04
Speaker 1: in the equity business, We're in the hybrid business, and
29:07
Speaker 1: we're in the credit business or the yield business. Of
29:10
Speaker 1: those three, the yield business is our largest for some
29:13
Speaker 1: three hundred and sixty billion senior secured, top of the
29:17
Speaker 1: capital structure, floating rate, generally, shorter duration. That feels like
29:24
Speaker 1: a good place to be, and it feels like business
29:28
Speaker 1: is going to be good because credit creation is going
29:31
Speaker 1: to be more difficult. That generally is good for people
29:34
Speaker 1: who are able to create credit. If I move to
29:37
Speaker 1: the hybrid business, hybrid is the piece of investing where
29:42
Speaker 1: you give away all the upside in return for downside protection.
29:45
Speaker 1: You essentially become a solutions provider that also feels like
29:49
Speaker 1: a pretty good business. People are going to need solutions
29:52
Speaker 1: to the extent your business plan was predicated on raising
29:55
Speaker 1: easy money every year. Maybe it's changed. Um. Toughest business
30:00
Speaker 1: will be the equity business, because the equity business is
30:02
Speaker 1: the most volatble and difficult economic times. Um. But there
30:06
Speaker 1: it's it's very granular, it's very companies specific, and there
30:10
Speaker 1: are a whole host of sectors that will not see
30:14
Speaker 1: cycles as a result of what's happening at a macro
30:17
Speaker 1: level where they're just fundamentally good businesses. Credit hasn't seen
30:22
Speaker 1: a real distress cycle since the Great Financial Crisis? Will
30:26
Speaker 1: it see another? At some point? It has to? Um,
30:29
Speaker 1: You look, we two thousand and eight is actually a
30:33
Speaker 1: really good dividing line, um for the credit markets. So
30:37
Speaker 1: much changed the role of the bank's changed, the role
30:40
Speaker 1: of the investment marketplace changed. But you're right, it has
30:43
Speaker 1: not been tested. Um. We have as a general rule
30:48
Speaker 1: not seeing the kind of speculative excesses that we saw
30:52
Speaker 1: prior to two tho eight. This, at least the corporate
30:55
Speaker 1: side of this credit cycle feels more benign. You don't
30:59
Speaker 1: see them kind of pent up leverage so or systematic
31:03
Speaker 1: leverage or use of off balance sheet leverage. So I
31:07
Speaker 1: would expect it to be significantly more benign than we did,
31:12
Speaker 1: but inevitably there will be corrections. Is that also because
31:17
Speaker 1: the lenders have less thanks to the deterioration of documents,
31:24
Speaker 1: have less power over the borrowers. I'm not sure I
31:28
Speaker 1: would say it. Look I said when I was in
31:30
Speaker 1: d C last week, Dodd Frank worked. Dodd Frank took
31:33
Speaker 1: risk out of government guaranteed institutions and put it into
31:37
Speaker 1: the investment marketplace. So in the US today the banking
31:40
Speaker 1: system is less than credit creation in Europe at in Asia,
31:46
Speaker 1: depending on the country close, we have essentially matched credit
31:52
Speaker 1: and the creation of credit with institutions who have the
31:55
Speaker 1: capacity to hold long term. That's not true in every market.
31:59
Speaker 1: We will have opened the mutual funds, we have e
32:01
Speaker 1: t f s, we have some mismatches like that, but
32:04
Speaker 1: we don't have the kind of built up leverage on
32:07
Speaker 1: regulated balance sheets that we had pre crisis. So I
32:10
Speaker 1: personally would expect a more benign crisis. Mark you referred
32:15
Speaker 1: to this earlier. UM the thirty year called it bond
32:20
Speaker 1: bull market. That was an enormous tail wind for the
32:26
Speaker 1: industry that you and your peers in private equity and
32:30
Speaker 1: more broadly alternatives built. And then again, as we've acknowledged,
32:39
Speaker 1: the tail end of that was the most aggressive central
32:42
Speaker 1: bank easing since the Great Depression. Now that we're living
32:45
Speaker 1: in a different era's let's form however long at lasts,
32:49
Speaker 1: it's definitely a different era. UM. Does a different era
32:53
Speaker 1: require a different strategy? I don't know. I mean I'll
32:58
Speaker 1: give you for us, and I every market participant will
33:01
Speaker 1: be different. UM. We built our yield business on the
33:05
Speaker 1: back of what I call fixed income replacement think of
33:08
Speaker 1: actually replacement of investment grade fixed income, but with more yield,
33:12
Speaker 1: and we built it to serve initially our own retirement
33:15
Speaker 1: services balance sheet a theme. The way that business works
33:19
Speaker 1: is we make promises to retirees and we back those
33:23
Speaker 1: promises with highly rated credit. Whether whether rates are higher
33:27
Speaker 1: or low is not really that relevant to us. It's
33:31
Speaker 1: about spread. Because if rates are high, promises we make
33:35
Speaker 1: two retirees will be high, and if rates are low,
33:37
Speaker 1: promises will be low. Our job is to earn a
33:40
Speaker 1: spread and therefore inflation market price of securities does not
33:46
Speaker 1: really impact the way we invest or how we think
33:50
Speaker 1: very much like a pension fund or an endowment or
33:53
Speaker 1: sovereign wealth fund, where they also have obligations, sometimes fixed
33:59
Speaker 1: to retirees, sometimes not fixed in the case of a
34:01
Speaker 1: sovereign wealth fund. And so what we're seeing is the
34:06
Speaker 1: biggest rotation is the acceptance by institutions and others that
34:10
Speaker 1: publicly traded markets offer beta and if they want excess
34:15
Speaker 1: return they need to go step back from the daily
34:18
Speaker 1: liquid market and do something else. So is that different? Maybe?
34:23
Speaker 1: So a couple of questions arise from me out of that, Ah,
34:29
Speaker 1: what about a recession defaults and credit losses? And then
34:37
Speaker 1: I'll get to the second question after that. Look on,
34:39
Speaker 1: the fundamental risk is collectibility, and it's why in an
34:45
Speaker 1: uncertain time and the business we've elected to scale has
34:49
Speaker 1: been fixed income replacement, not high yield, not levered loans,
34:54
Speaker 1: all of which have a place in the financial ecosystem.
34:58
Speaker 1: But the business that we are math sit in is
35:01
Speaker 1: the top of the capital structure, senior secured. Typically in
35:05
Speaker 1: a recession, you do not suffer significant losses if you're
35:09
Speaker 1: a good investor, We've been through a mini test for
35:14
Speaker 1: COVID and the shutdown we had in twenty we we
35:18
Speaker 1: like where we stand, but I would much rather be
35:21
Speaker 1: at the top end of the capital structure today then
35:24
Speaker 1: at the bottom. And then on the point about um
35:31
Speaker 1: the I guess the nature of the instrument um and
35:37
Speaker 1: the degree to which it offers alpha that you can
35:41
Speaker 1: no longer find in public markets. How long is that sustainable?
35:47
Speaker 1: There is? Think about the amount of money that you're
35:51
Speaker 1: deploying into private credit every day. I could look at
35:54
Speaker 1: what's going on at your peers right the amount of
35:57
Speaker 1: money that they're raising in permanent capital vehicles and that
35:59
Speaker 1: they have to invest. This just keeps mushrooming. And at
36:03
Speaker 1: what point does that begin to erode the alpha that
36:07
Speaker 1: remains in private markets. I think we're a long way
36:10
Speaker 1: from that. And you know, there are very subtle gradations
36:13
Speaker 1: today that are taking place in the marketplace for alternative credit.
36:17
Speaker 1: So um there are two words that go together but
36:20
Speaker 1: actually don't mean anything private credit. They sound like something,
36:24
Speaker 1: but they're not. Because private credit can be the most
36:28
Speaker 1: risky private credit, it can be financing of levered loans,
36:32
Speaker 1: or it can be the most secure. Each of us.
36:36
Speaker 1: Each of the alternatives firm have chosen their place in
36:39
Speaker 1: the ecosystem that they want. The bet that we have
36:42
Speaker 1: made is at the top end of that. The primary
36:46
Speaker 1: competitor for us is not black Stone, KKRTPG, Carlisle, Aries, Brookfield, whoever.
36:53
Speaker 1: It's JP Morgan, Goldman, Sachs be of a securitization market.
36:58
Speaker 1: And I feel at three hundred and sixty billion that
37:02
Speaker 1: we are just like that. We're just not a massive
37:07
Speaker 1: player yet in the market. We're growing fast. As I've said,
37:10
Speaker 1: this business is going to double over the next five years.
37:13
Speaker 1: Even at seven it's just not that big in the scheme.
37:18
Speaker 1: The market is immense. I mean I look at one
37:21
Speaker 1: little subsect sector of it, energy transition. Little Apollo has
37:26
Speaker 1: put out twenty billion of energy transition financing over the
37:30
Speaker 1: past three years. We'll do another fifty billion over the
37:34
Speaker 1: next three. The need for capital, and by the way,
37:37
Speaker 1: most of that financing senior secured project type financing or
37:42
Speaker 1: a little bit of hybrid. It is not for the
37:44
Speaker 1: most part risk. It is not for the most part equity.
37:48
Speaker 1: The capital needs of our country and the world, given
37:52
Speaker 1: the state of change, not just in technology, but in
37:56
Speaker 1: commodity usage, are immense, So I think the market will
38:00
Speaker 1: definitely get more crowded. There is no market that persists
38:03
Speaker 1: for very long without increased competition. But at least at
38:07
Speaker 1: the little sector we've chosen, Um, we have a long
38:10
Speaker 1: way to go. I was going to save this for
38:12
Speaker 1: the end, but I'm going to have frontload it because
38:15
Speaker 1: what you just said reminded me of it. What you're
38:17
Speaker 1: talking about, Mark is such a different business then the
38:21
Speaker 1: business that you got into years ago. It's like night
38:26
Speaker 1: and day, you know. So it's it's actually funny because
38:29
Speaker 1: I'm I find myself now going, for instance, in d
38:32
Speaker 1: C last week, explaining what it is we do. So
38:36
Speaker 1: I go down and I say, first, what is an alternative?
38:39
Speaker 1: And people look at me, well, of course, it's like
38:41
Speaker 1: private equity and this, And I said, an alternative is
38:45
Speaker 1: nothing other than an alternative to publicly traded stocks and bonds.
38:49
Speaker 1: Some alternatives can be rated double A, and some alternatives
38:53
Speaker 1: or equity. There is nothing inherently riskier about private or
38:57
Speaker 1: alternative than public, just like public can be double A
39:02
Speaker 1: too really risky. And so what we're seeing is the
39:05
Speaker 1: growth of this marketplace given the indexation of public markets.
39:10
Speaker 1: We're seeing the private market massively expand in size and scale,
39:15
Speaker 1: and the alternatives firms, in their own way, are picking
39:20
Speaker 1: their spot along that continuum of double A down to
39:23
Speaker 1: equity as to where they choose to grow. And I
39:28
Speaker 1: think we look forward five years, our clients portfolios are
39:33
Speaker 1: going to look profoundly different in what way what you
39:38
Speaker 1: start with the top end of the scale, the most
39:41
Speaker 1: sophisticated institutions, the largest institutions in the world. They were
39:46
Speaker 1: backers of the alternatives industry. They were well known. Now
39:50
Speaker 1: of course they want to be our partners in the
39:53
Speaker 1: alternatives business, and increasingly they are becoming our partners in
39:56
Speaker 1: the alternatives business. As I said, there's no permanent friends
40:00
Speaker 1: or permanent permanent enemies anymore. Everyone is in a state
40:03
Speaker 1: of flux. The other place we're seeing just massive change
40:08
Speaker 1: is at retail, particularly high net worth. You know, over
40:11
Speaker 1: the past three or four years, we have seen nothing
40:15
Speaker 1: short of a revolution and alternatives take place in the
40:18
Speaker 1: retail marketplace. And that's without yet starting. All retail is
40:23
Speaker 1: seeing thus far from our industry are existing products at
40:28
Speaker 1: institutional fees. Over the next six months, I think you're
40:32
Speaker 1: going to see the first products created especially for this marketplace,
40:37
Speaker 1: and it will not surprise me in five years if
40:40
Speaker 1: a retail investors portfolio is alternatives, except it won't. Alternative
40:47
Speaker 1: will mean alternative to publicly traded stock and bond, not
40:51
Speaker 1: alternative the way many people have associated it traditionally with
40:55
Speaker 1: private equity or hedge fund or risk. And what will
40:57
Speaker 1: some of these first purpose build products look like. I
41:00
Speaker 1: think they're going to solve fundamental needs. I mean, if
41:03
Speaker 1: you think about how a retail investor might have been
41:05
Speaker 1: educated historically, a sixty forty portfolio Debton equity, well, it
41:11
Speaker 1: feels like a bad idea right now about it's well,
41:13
Speaker 1: it's it's certainly been a bad first quarter. Imagine if
41:16
Speaker 1: you could replace your publicly traded equity with private equity,
41:20
Speaker 1: and I don't mean private equity and a fund, but
41:23
Speaker 1: you could have lower risk, better returns, and some amount
41:27
Speaker 1: of liquidity. How we do that is up to us
41:30
Speaker 1: to crack. But the we've spent as an industry thirty
41:35
Speaker 1: five years solving problems for the largest institutions in the world,
41:39
Speaker 1: and that creativity has now flipped in part to solve
41:43
Speaker 1: problems for this retail marketplace. For the first fifteen or
41:48
Speaker 1: twenty years, maybe of your career there was an enormous
41:52
Speaker 1: illiquidity premium to be harvested in the private market. To
41:59
Speaker 1: what degree has that premium eroted? Well, I'd say this
42:04
Speaker 1: so clearly the premium has eroded, so as I sometimes say,
42:08
Speaker 1: private equity started thirty five plus years ago as a
42:11
Speaker 1: black art and people rarely participated in it, and now
42:17
Speaker 1: it's an asset class. And how we as an industry
42:22
Speaker 1: go about that asset class remains to be seen. The firms,
42:27
Speaker 1: and I'll get to this, The firms no longer look
42:30
Speaker 1: exactly the same. Private equity does not mean the same
42:33
Speaker 1: thing to each firm. So for us, purchase price matters
42:38
Speaker 1: for some of our peers, different story, different focus. I
42:42
Speaker 1: look at the transactions we've elected to do as private equity,
42:46
Speaker 1: Yahoo being among the most interesting Las Vegas sands. They
42:51
Speaker 1: are very as people in this room might say, they're
42:53
Speaker 1: very apollo esque. A lot of complexity on the front end,
42:58
Speaker 1: a lot of trading of perspiration for purchase price. It
43:02
Speaker 1: is our mentality, it's our brand, it's how we come
43:04
Speaker 1: to market, and it's it's timely. Maybe hasn't been so
43:08
Speaker 1: timely for the past few years. We did just fine,
43:12
Speaker 1: but certainly not the kind of market that we really
43:15
Speaker 1: excel in. When you say you did just fine, you
43:19
Speaker 1: did just fine, of course, but in a competitive context,
43:24
Speaker 1: others did better. Right Over the past five years, you
43:27
Speaker 1: have been either outperformed by your peers or underperforming your
43:32
Speaker 1: peers this year as well, I should add, Um, does
43:36
Speaker 1: that matter to you in the short term, No, it
43:41
Speaker 1: really does not. I mean I look at this business
43:43
Speaker 1: over now thirty years, thirty two years in our case,
43:47
Speaker 1: UM generally not generally mid thirties gross returns, high twenties
43:52
Speaker 1: net return, generally a thousand basis points better than our peers.
43:57
Speaker 1: I'm very proud of that record. I think you'll see
44:00
Speaker 1: divergence in the first quarter when we all announce, which
44:04
Speaker 1: is next week. So if I'm not right about that,
44:08
Speaker 1: I don't know much about our business UM, and I
44:11
Speaker 1: think you'll continue to see divergence. But we look at
44:14
Speaker 1: the private equity business as an absolute rate of return business.
44:17
Speaker 1: We want to produce plus net rate of returns for
44:20
Speaker 1: our clients. What clients have not been doing is adjusting
44:24
Speaker 1: for risk, lower purchase price, less leverage. I'm very comfortable
44:32
Speaker 1: with with the place we have chosen in the ecosystem.
44:36
Speaker 1: I asked you earlier if Apollo needed needed to change
44:40
Speaker 1: its business model to reflect the new reality, and and
44:46
Speaker 1: maybe it doesn't, but do you need to change the
44:49
Speaker 1: way people think it? So it's happening, you know, it's
44:54
Speaker 1: it's it's it's what I do as CEO. I mean
44:57
Speaker 1: what I say is I really can't do anything. I
45:01
Speaker 1: could probably pick one thing and do it well, but
45:04
Speaker 1: it wouldn't matter in the context of our business. My
45:07
Speaker 1: only job is to change how people think, and that
45:10
Speaker 1: is what I'm trying to do. I'm trying them in
45:13
Speaker 1: each of our business is to understand that for yield,
45:17
Speaker 1: it's about safe spread. How do you get safe spread?
45:21
Speaker 1: It's about massively scaling origination. If you can't buy it
45:25
Speaker 1: in the public market, you have to create it yourself.
45:28
Speaker 1: So we wake up every day and we worry about origination.
45:32
Speaker 1: I asked them to think about what's the journey that
45:34
Speaker 1: our clients are on, the retail clients and the most
45:38
Speaker 1: sophisticated clients. A year ago, we had four people in
45:41
Speaker 1: global wealth. We now have a hundred and forty people
45:44
Speaker 1: in global wealth. Global wealth will be a third of
45:48
Speaker 1: our new capital over the next five years, a third
45:51
Speaker 1: a third. I think about the other places in the
45:55
Speaker 1: world that we're looking you know, um, we are late
45:59
Speaker 1: to the game in Asia in terms of really building
46:02
Speaker 1: out of presence. I am fully convinced that Asia does
46:05
Speaker 1: not need another equity opportunity fund. There's plenty of equity
46:09
Speaker 1: in Asia. What Asia lacks is yield and hybrid. The
46:13
Speaker 1: banking system is credit creation. We've recently sent over one
46:18
Speaker 1: of our most senior partners, and his job is to
46:22
Speaker 1: get the bank market share from I think he'll do that,
46:27
Speaker 1: and so we do in the context of what we believe,
46:30
Speaker 1: in the context of our competitive advantages, particularly in yield
46:34
Speaker 1: and fixed income replacement. Our job is to execute the
46:37
Speaker 1: plan that we've put out, which is roughly to double
46:40
Speaker 1: our business, but to do it in a way where
46:43
Speaker 1: we adhere to the promise that we've made to our clients,
46:47
Speaker 1: which is excess return per unit of risk, not just
46:50
Speaker 1: growth in a u M. I promised that would get
46:53
Speaker 1: to some questions. That was listening to the global Apollo
46:58
Speaker 1: Global Asset Management see you and co founder Mark rowan
47:01
Speaker 1: fascinating discussion with bloomber Business Weeks Eric Shatzker about Apollo
47:05
Speaker 1: about the private equity business about alternative investing, how that
47:08
Speaker 1: is continuing to be a market that is growing in size.
47:14
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
47:17
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
47:21
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
47:25
Speaker 1: at Matt Miller three pt On Fall Sweeney I'm on
47:28
Speaker 1: Twitter at pt Sweeney. Before the podcast. You can always
47:31
Speaker 1: catch us worldwide at Bloomberg Radio