I WOULD LOVE TO BE A FLY ON YOUR WALL.
IT IS NO SECRET PRIVATE EQUITY HAS BEEN IN AND AROUND REGIONAL
BANKS. WERE YOU INTERESTED IN BUYING
FIRST REPUBLIC ASSETS?
>> WE ARE ALWAYS INTERESTED IN BUYING ASSETS BUT NOT IN THIS
BUSINESS. WE DON'T BUY BANKS BUT IF WE
CAN BE SUPPORTIVE OF RESTRUCTURING OF THE BANKING
SYSTEM THROUGH THE PURCHASE OF ASSETS, ABSOLUTELY. SONALI:
LOOK BEYOND TODAY. WE HAVE THE FIRST REPUBLIC SALE
TO JP MORGAN YOU HAVE JAMIE DIMON SAYING THE BANKING CRISIS
IS ALMOST OVER. DO YOU SEE A SECOND WAVE OF THE
CRISIS COMING? MARC: I THINK PART ONE IS OVER.
I WOULD NEVER DISAGREE WITH JAMIE BECAUSE THIS IS HIS JOB
AND HE LOVES IT. BUT WHAT HAS HAPPENED SO FAR IS
TOTALLY PROTECTABLE. MARK TO MARKET LOSSES IS WELL
KNOWN. STRUCTURE OF DEPOSITS ABOVE
MINIMUM GUARANTEES, WELL KNOWN. ARE WE SURPRISED? WE SHOULD BE.
EVERYONE KNEW WHAT WAS HAPPENING.
RISING RATES CREATED STRESS. THE INTERESTING THING IS NOT
WHETHER THESE RANKS FAIL, IT IS WHETHER -- IT IS WHAT IS THE
BUSINESS OF REGIONAL BANKING GOING FORWARD?
40 BILLION LEFT SVB WITHIN TWO HOURS WITHOUT A LINE.
SO YOU ARE A CEO OF A BIG BANK, YOUR COSTS ARE UP AND YOUR
REGULATORY FUNDS ARE UP. CAN YOU EARN MONEY OR DOES THE
BUSINESS MODEL NEED TO EVOLVE? THAT IS INTERESTING AND I THINK
WE HAVE A SECOND WAVE IN COMMERCIAL REAL ESTATE. SONALI:
DO YOU THINK THAT WAVE PERTAINS TO THE BANKING SYSTEM AT LARGE
OR A BROADER SET OF INVESTORS? MARC:
THERE ARE LOTS OF PEOPLE IN REAL ESTATE ACROSS THE WORLD
AND ECONOMY. INVESTORS WHO OWN REAL ESTATE
SUFFER LOSSES. STOCKS GO DOWN, INVESTORS
SUFFER LOSSES. THAT IS NOT SYSTEMIC.
A BANKING SYSTEM WHICH HAS GOVERNMENT GUARANTEES WHERE
PEOPLE PUT THEIR MONEY IN A TRUST RELATIONSHIP, IF THEY
SUFFER SIGNIFICANT LOSSES, THAT CAUSES CONCERN.
THAT IS WHAT WE HAVE. IT WON'T BE SYSTEMIC IN MY VIEW
BUT IT WILL BE CONCENTRATED. REGIONAL BANKS ARE THE PRIMARY
LENDERS TO MANY OF OUR REGIONAL REAL ESTATE ISSUES. SONALI:
WE SOUGHT THIS MORNING THE BIG BIGGER.
JP MORGAN BUYING A REGIONAL BANK. WHAT HAPPENS TO THE SYSTEM
MOVING FORWARD? WHICH IS THE NEW BANKING SYSTEM
LOOK LIKE COMING OUT OF THESE TROUBLES? MARC:
IT HAS ALREADY CHANGED. WE HAVE YET TO ADJUST TO THE
CHANGES OF 2008. WITH DODD-FRANK THE LEGISLATION
WAS TO RESTRICT THE EXPOSURE OF THE U.S.
ECONOMY TO LARGE, SYSTEMICALLY IMPORTANT BANKS. IT WORKED.
BANKS ARE LESS THAN 20% OF ALL LENDING IN THE U.S..
NEW BANKS ARE INVESTORS. EVERYONE WHO IS AT THIS
CONFERENCE TODAY IN SOME WAY OR ANOTHER PARTICIPATES IN THE
BANKING SYSTEM. IF YOU ASK ABOUT BANKING PROPER
I THINK WE WILL SEE THE BIG GET BIGGER.
PEOPLE WILL FLY TO SAFETY WHEN YOU HAVE A CRISIS.
JP MORGAN IS POSITIONED TO STEP INTO FIXED AND SAVE FIRST
REPUBLIC. WE SHOULD NOT BE SURPRISED.
BUT REGIONAL BANKS ARE AN ATTRACTIVE POLITICAL ENTITY.
IT WILL BE INTERESTING TO SEE HOW THE SYSTEM DEALS WITH THE
FUNDAMENTAL ISSUES FACING REGIONAL BANKING. SONALI:
YOU MENTIONED OUR BANKING SYSTEM HAS ONLY BEEN 20% OF THE
COUNTRIES LENDING. WHAT DOES THAT MEAN FOR WHO
WILL AND WILL NOT BE ABLE TO HAVE ACCESS TO CREDIT IN THE
FUTURE? MARC:
I WILL SING AT A COUNTRY LEVEL, WE ARE 50% OF THE WORLD'S
CAPITAL. OUR BUSINESSES AND GOVERNMENT
BENEFIT, OUR CONSUMERS BENEFIT. WE HAVE UNRESTRICTED ASSETS TO
CREDIT. SOMETIMES MORE, SOMETIMES LESS
EXPENSIVE. WE ARE THE ENVY OF THE WORLD
AND NO ONE HAS WE HAVE. THE DEMOCRATIZATION OF CREDIT
THROUGH THE INVESTOR INVESTMENT MARKETPLACE HAS CREATED
UNPARALLEL ACCESS. SONALI: IF YOU THINK ABOUT THE ISSUES
WE TALKING ABOUT, AT APOLLO YOU LOOK AT THINGS SECURITY BY
SECURITY, SOMETIMES BY BUILDING. WHAT OUR OFFICE VACANCIES
TELLING YOU ABOUT THE
COMMERCIAL REAL ESTATE MEANT -- REAL ESTATE MARKET? MARC:
IT IS A BAD DAY TO HAVE REAL ESTATE IN SAN FRANCISCO OR
CHICAGO. EVERYTHING IS NOW WORTH LESS.
WE HAVE HAD A MOVE IN INTEREST RATES AND REAL ESTATE IS AN
INTEREST RATE SENSITIVE ACTIVITY.
EVERYTHING IS WORTH LESS. IT DOES NOT MEAN IT WILL NOT BE
A GOOD INVESTMENT. BUT IN THE SHORT TERM WE HAVE
THIS AND THIS CHANGE OF HOW PEOPLE USE THIS.
WE ARE GOING TO SEE LOSSES. SONALI:
IN CONVERSATION WITH THE CEO OF APOLLO GLOBAL MANAGEMENT.
MARC, YOU MENTIONED THE PAIN IN OFFICE SYSTEM AND COMMERCIAL
REAL ESTATE HAS YET TO SEE. OF WHAT'S THAT MEAN FOR
INVESTORS IN COMMERCIAL REAL ESTATE AND IN REGIONAL BANKS AS
A DERIVATIVE EFFECT? DO YOU THINK THE MARKET IS
UNDERCOUNTING HOW BAD THINGS CAN GET? MARC:
I THINK THE MARKET HAS YET TO ASK THE LONG-TERM QUESTION.
RIGHT NOW THEY ARE ASKING IS THE BANK SAFE, WILL IT SURVIVE?
SAFETY HAS BEEN OUR PRIMARY FOCUS.
BUT WE HAVE SEEN THE GOVERNMENT CAN MAKE THIS SAFE WITH THE
STROKE OF A PEN. I BELIEVE THE BANKING SYSTEM TO
BE SAFE. THAT IS DIFFERENT THAN WHAT IS
THE BUSINESS OF A REGIONAL BANKS GOING FORWARD?
IF YOUR COST TO FUNDS -- COST OF FUNDS IS HIGH, WHAT IS YOUR
BUSINESS MODEL? LIKE EVERY INDUSTRY THAT HAS
HAD TO ADJUST TO TECHNOLOGY, REGIONAL BANKING WILL.
I WOULD BE SHOCKED IF IN FIVE YEARS AGO THE BUSINESS MODEL OF
A REGIONAL BANK LOOKS LIKE TODAY. SONALI: LET'S STEP BACK.
THERE IS UNDERSTANDING THAT YOU CAN'T UNWIND 12 YEARS OF EASY
MONEY SO EASILY. YOU SAW PICKUPS.
THE PRICES IN THE U.K., THE REGIONAL BANKING CRISIS AND THE
CRYPTO CRASH. WHAT ELSE IS YET TO BREAK?
MARC: IT IS HARD TO BE A PREDICTOR OF
WHAT ELSE IS TO BREAK. BUT I LOOK AT PLACES WHERE WE
HAVE MISMATCHES BETWEEN LIQUID LIABILITIES LIKE A BANK, BORROW
SHORT AND LEND LONG. WE HAVE OTHER PLACES WHERE THE
SAME BUILD HAS TAKEN PLACE. 12 YEARS OF EASY MONEY FORCED
PEOPLE TO DO UNNATURAL THINGS TO LOOK FOR YIELD AND RATE OF
RETURN. IT WAS THE FIRST TIME THE
QUESTION WAS CALLED.
LDI WAS NOTHING MORE THAN AN -- A MISPLACED -- THAT PUBLIC
SECURITIES WERE LIQUID. THEY ARE NOT LIQUID ON THE WAY
DOWN. WE HAVE THE SAME IN CERTAIN
OPEN-ENDED MUTUAL FUNDS. WE HAVE SEEN IT IN ETF'S AND
POINTS OF STRESS. EVEN IN SOME PRIVATE VEHICLES
AND POINT OF STRESS. THIS IS NOT PUBLIC OR PRIVATE.
THIS IS THE STRUCTURE OF LIABILITIES. SONALI:
THERE IS QUESTION OF HOW WELL THE PUBLIC MARKETS HAVE HELD UP
IN THE FACE OF SOME OF THIS.
HOW SAFE CAN YOU FEEL IN THE FACT THAT YOU HAVE LIQUIDITY?
MARC: I THINK ABOUT WHAT HAS HAPPENED
IN THE WORLD AND THE DIFFERENCE BETWEEN PUBLIC AND PRIVATE.
WE USED TO THINK PUBLIC IS SAFE AND PRIVATE WAS RISKY.
WE KNOW PUBLIC CAN BE RISKY AS WELL.
WE HAVE FOUND OUT PRIVATE CAN BE SAFE AND RISKY.
WE ARE TALKING ABOUT DEGREES OF LIQUIDITY.
WHAT WE HAVE ELECTED TO DO IN OUR INDUSTRY AND APOLLO IS
FOCUS ON PRIVATE. WE DON'T BELIEVE THERE IS
SUSTAINABLE OUTCOME.
EXCESS RETURN IN PUBLIC TRAINING -- PUBLICLY TRADING
MARKET. IF INVESTORS COME TO US FOR
EXCESS RETURN, WE NEED TO STEP AWAY FROM DAILY LIQUID MARKETS.
THERE IS PLENTY FOR US TO DO. SONALI:
THIS MORNING, -- REDEMPTION WHEN IT COMES TO THAT LIQUID
VEHICLE AND THE REAL ESTATE MARKET. TRYING TO COURT RETAIL
INVESTORS. WHEN YOU LOOK AT THE HICCUPS
SOME OF THE CURRENT FUNDS ARE FACING IN THE MARKET, SOME
CHALLENGES WHEN IT COMES TO INVESTORS ASKING FOR THEIR
MONEY BACK, FOR LONG DATE OF INVESTMENTS ON THE OTHERS, WHAT
DOES THIS TELL YOU ABOUT THE DIRECTION OF TRAVEL?
IS INVESTOR CONFIDENCE IN RETAIL SEMI LIQUID FUNDS
BECOMING DENTED?
>> I DON'T KNOW ABOUT THAT. I THINK BLACKSTONE IS DOING THE
RIGHT THING. THE INDUSTRY OWES THEM A DEBT
OF GRATITUDE BECAUSE THEY ARE TEACHING INVESTORS THAT
ALTERNATIVES ARE NOT AN ATM. THEY ARE AN ASSET CLASS THAT IS
UNDER STRESS BECAUSE PEOPLE ARE CONCERNED ABOUT REAL ESTATE
VALUATIONS. THEY ARE REDEEMING BECAUSE THEY
THINK VALUATIONS ARE HEADED DOWN.
THEY ARE DOING EXACTLY WHAT THEY ARE SUPPOSED TO DO AND
WHAT THESE VEHICLES ARE DESIGNED TO DO.
BUT I THINK ABOUT THE STRUCTURE OF OUR BUSINESS AND RETAIL
INVESTORS ARE GOING TO BE 50% ALLOCATED.
BUT NOT ALTERNATIVES, PRIVATE EQUITY AND HEDGE FUNDS.
JUST ALTERNATIVES TO PUBLICLY TRADED STOCKS AND BONDS. SONALI:
WHAT DO YOU SAY TO PEOPLE WHO CRITICIZE THE PRIVATE MARKETS
AND CREDIT MARKETS?
>> THE EASIEST THING TO VALUE IS A BOND.
CASH FLOWS, INTEREST RATE AND DURATION.
BETTER RISK REWARD HAS BEEN AVAILABLE IN PRIVATE MARKETS
THAN IN PUBLIC MARKETS FOR MUCH OF THE LAST 10 TO 12 YEARS.
EVERYONE IN OUR INDUSTRY HAS PICKED A DIFFERENT SEGMENT.
PRIVATE INVESTMENT RATE IS SOMETHING PEOPLE HAVE NOT
COMPTON PLATED -- CONTEMPLATED. THINK WHAT GE CAPITAL USED TO
DO.
AT $400 BILLION OF PRIVATE CREDIT, MOSTLY INVESTMENT
GRADE, UNFORTUNATELY WE ARE NOT RELEVANT.
IT SOUNDS LIKE 400 MILLION, BUT WE ARE TALKING ABOUT A $40
TRILLION MARKET. SONALI: GETTING BIGGER AS WELL.
THERE IS DISCUSSION IN WASHINGTON ABOUT REGULATING
NONBANKS. DO YOU THINK YOU FACE TIGHTER
REGULATION? MARC: WE ALL DO. THAT IS THE DIRECTION OF TRAVEL.
PEOPLE LOOK FOR, IF THE INFORMATION IS AVAILABLE.
IT IS ALREADY PUBLIC. ARE WE MISMATCHED IN TERMS OF
BORROWING SHORT AND ENTERING -- LENDING LONG? NO.
ARE WE LEVERED OR CONCENTRATED, A DIVERSIFIER FOR THE ECONOMY?
THE U.S. FINANCIAL SYSTEM IS THE ENVY OF
THE WORLD. WE ARE 50% OF ALL THE ACTION IN
THE WORLD. IT IS A RESULT OF DECISIONS
MADE ALONG THE WAY TO ALLOW INVESTORS TO BE SUPPLIERS OF
CREDIT. SONALI: THAT IS THE ARGUMENT, IF NOT
YOU, WHO? MARC: THE U.S. AND WORLD ECONOMY NEED A
CERTAIN AMOUNT OF CREDIT. THE CHOICES ARE DO YOU ALLOW IT
TO BE SUPPLIED EXCLUSIVELY BY THE BANKING SYSTEM BACKED BY
GOVERNMENT GUARANTEES AS IN MANY FOREIGN COUNTRIES, OR DO
WE ALLOW RETAIL INVESTORS, HIGH NET WORTH INVESTORS,
INSTITUTIONS TO PARTICIPATE IN GET DIVERSIFICATION AND
SOCIALIZATION OF RISK? INVESTORS ARE PREPARED FOR
THINGS THAT GO UP AND DOWN. SONALI:
YOU MENTIONED THE BENEFITS OF THE PRIVATE MARKETS IN TERMS OF
RETURN OPPORTUNITIES IN THE CREDIT MARKETS.
I'M CURIOUS WHAT YOU THINK ABOUT THE CURRENT STATE OF
INVESTMENT-GRADE WHEN YOU LOOK AT THE PUBLIC MARKETS.
THERE HAS BEEN DISCUSSION ABOUT HOW CALM SPREADS HAVE BEEN
BEHAVING IN THE FACE OF WHAT MANY FEEL IS A PENDING
RECESSION. DO YOU FEEL THERE ARE MORE
RISKS UNDER THE SURFACE WHEN YOU LOOK AT PUBLIC CREDIT? MARC:
I THINK YOU HAVE A COMMUTE FUSED -- CONFUSED MARKET.
THE CURVE IS UP AND DOWN. IT DOES NOT SURPRISE ME
INVESTORS BEING OFFERED YIELDS TODAY OF A CERTAIN MAGNITUDE
ARE ACTIVE AND LOCKING THE MEN. ESPECIALLY AFTER A DECADE OF
LOW RATES. SONALI: I HAVE HEARD YOU SAY THE ERA OF
EQUITY IS ERODING. DOES THAT MAKE A BIGGER SECULAR
PUSH TO CREDIT? MARC: I THINK IT DOES.
THIS IS AN AMAZING ENTRY POINT FOR CREDIT BECAUSE OF WHAT HAS
TRANSPIRED.
WE PAINTED--PRINTED -- NOW THAT WE HAVE STARTED WITHDRAWING,
ENTRY POINT FOR CREDIT IS FABULOUS.
IT IS ADJUSTED QUICKLY. LIQUIDITY HAS ERODED.
BANKING CRISES HAVE ERODED. IT WILL NOT ALWAYS BE THIS
GOOD, EQUITY HAS ADJUSTED BUT NOT AS MUCH AS CREDIT. SONALI:
WE'VE SEEN FROM THE BANKING SYSTEM THAT WHAT WAS SAFE
YESTERDAY CAN BE JUNK TOMORROW. DO YOU NOT BELIEVE WE WOULD BE
FACING A WAVE OF DOWNGRADES?
MARC: THERE IS NO DOUBT.
BUT IF YOU ARE CONCERNED ABOUT THE DIRECTION OF TRAVEL, I
WOULD ALMOST RATHER BE TOP -- YOU TEND TO GET PAID BACK.
BEST HAS BEEN ON PRIVATE INVESTMENT GRADE.
I WOULD RATHER PLAY OUR HAND THAN ANYONE ELSE'S. SONALI:
I AM CURIOUS ABOUT APOLLO'S PLAN FOR THE REST OF THE YEAR.
YOU ARE SEEING PEOPLE SLIM BACK ON HIRING OR FLAT OUT LETTING
GO OF THOUSANDS OF STAFF.
WHAT OPPORTUNITY DO YOU SEE GIVEN APOLLO HAS DONE THIS?
MARC: WE WILL CONTINUE TO GROW.
BETTER THAN 25% THIS YEAR ON THE RETIREMENT SERVICES SIDE.
THAT IS WITH AN OVERLAY OF OUR STRATEGY CALLED NO NEW TOYS.
THE UPSIDE FROM EXECUTING THE BUSINESS PLAN IN FRONT OF US IS
SO HIGH THAT THE PRICE A DISTRACTION IS HARD TO
CONTEMPLATE.
I THINK 23 FOR US, WE WILL GROW, AND WE WILL DO IT IN THE
CONTEXT OF THE ENVELOPE OF OUR BUSINESS THAT EXISTS.
NO NEW TOYS. SONALI: ARE YOU FINDING IT EASY TO HIRE
FROM BANKS OR TECHNOLOGY COMPANIES? MARC:
IT IS NEVER EASY TO HIRE. THIS IS ABOUT CULTURE.
WE HAVE GROWN THE TEAM AND IT IS THE LIMITER OF OUR GROWTH.
AT THE END OF THE DAY WE PROVIDE CLIENTS JUDGMENT.
IT COMES FROM PEOPLE BEING AT APOLLO FOR A LONG TIME AND
INTEGRATING INTO OUR CULTURE. WE CAN ONLY GROW AS FAST AS WE
CAN CULTURALLY ABSORB IT. THERE IS A NATURAL HEDGE OR
LIMITER TO OUR GROWTH. WE WATCH THE BALANCE CAREFULLY.
SONALI: WEDNESDAY IS BIG FED DAY.
WHAT YOU EXPECT WHEN YOU LOOK AT THE INTEREST RATE
PER--TRAJECTORY? MARC: THERE IS A POST-POLL.
THE DIRECTION OF TRAVEL WEDNESDAY IS GOING TO BE OUT.
IT WILL DEPEND ON THE LANGUAGE THAT SURROUNDS IT AND THE
ACTIVITIES THAT TAKE PLACE FOLLOWING IT.
IF WE HAVE A SECOND LEG OF THIS BANKING CRISIS, IT WILL BE
SLOWER. IF WE SEE THE WAGE PRESSURES WE
JUST SAW, IT WILL BE TOUGHER.