Business Breakdowns
· Hunter Hopcroft
[00:00:00] S1: Sure. Well, in the spirit of these repeating cycles, 2008, 2009 is another one of those situations where the fallout creates a huge opportunity, not just for Apollo, but for all the alternative asset managers. And again, there was already a strong tailwind behind alternatives. And 2008, 2009 just adds fuel to the fire of people looking for what look like uncorrelated returns in private markets. These firms at this point have gotten really large, both in terms of assets, but in terms of people. And they have these founders who have a lot of their wealth tied up in these general partnerships. The GP business at scale starts to become a bit of a liability, and it's really talent-heavy. So it's driven by people, and you want to keep those people, and you need to find a way to compensate them and have them participate in the upside. It's also really hard in general – at least it used to be. Now things are changing a little bit. It's hard to raise money just for platform expansion. You're getting your fees and carry, but a lot of that is going out the door in compensation, and it's hard to reinvest in the business. So they all went public in 2010 and 2011. They originally, most of them including Apollo, went public as limited partnerships. But in 2019, they converted to a C Corp. This helps the founders monetize. And, drawn to complexity, the founders set up all sorts of elaborate tax structures to go public and protect their wealth in this windfall of monetization from taking the names public. But I think it also shows that these are becoming, especially post-2008 and post-Dodd Frank (circa 2009), full-fledged financial services companies. In some ways, they operate differently than banks; they make money differently than banks, but they are a key part of the financial system we have today.
· Matt Reustle, Hunter Hopcroft
[00:00:00] S0: And when you think about the IPO, but then also strategically having a publicly traded equity, I think you mentioned some of the different dynamics and reasons why you would take the business public. But if we were to just isolate on an ongoing basis, you have equity, which could be used as a form of primary capital. If you wanted to raise additional equity to use those proceeds within the business, you could do so for secondary purposes—which I'm sure played a major role in the IPO—and then you can use it as a currency for acquisitions or other things along those lines. Would you say that there's one of those buckets that really stands out in terms of what it allows these alternative asset managers to do? Maybe focusing on post-initial monetization for some of the founders and partners within the business? [00:00:00] S1: Yeah. So they all want to grow. And again, it's hard for private general partners to necessarily raise money for platform expansion. So, to your point, access to equity and debt capital markets allows them to go out and spin up new platforms, spin up new strategies, and I think that's a big part of what you see as the growth following the GFC. But I do also think that, as a currency for talent, this is a key element in why it makes sense for these companies to be public.
· Hunter Hopcroft, Matt Reustle
[00:00:00] S1: Yeah. So they all want to grow. And again, it's hard for private general partners to necessarily raise money for platform expansion. So, to your point, access to equity and debt capital markets allows them to go out and spin up new platforms, spin up new strategies, and I think that's a big part of what you see as the growth following the GFC. But I do also think that, as a currency for talent, this is a key element in why it makes sense for these companies to be public. [00:00:00] S0: So I'll skip ahead a bit here. Towards the end of the decade, the early 2000s, we have the transition of the business away from Leon Black, and we can touch on those headlines, but really focus on Marc Rowan as the chosen one taking the reins of Apollo. Can you walk through that timeline in terms of how this all played out and that shift towards Rowan?
· Matt Reustle, Hunter Hopcroft
[00:00:00] S0: So I'll skip ahead a bit here. Towards the end of the decade, the early 2000s, we have the transition of the business away from Leon Black, and we can touch on those headlines, but really focus on Marc Rowan as the chosen one taking the reins of Apollo. Can you walk through that timeline in terms of how this all played out and that shift towards Rowan? [00:00:00] S1: Sure. While Leon Black is certainly seen as the key man at Apollo, this triumvirate of Black, Rowan, and Harris remains very much visible in Apollo's life. In 2021, news breaks of Leon Black's involvement with Epstein, and, right on the heels of that, additional sexual assault allegations emerge. And Black basically accelerates his departure. Even before these stories started coming to the headlines, Josh Harris was presumed to be the heir apparent and the next CEO. He's buying the 76ers; he's buying the New Jersey Devils. Eventually, he comes to own the Washington Commanders, previously the Redskins. So Josh Harris is very much involved, but he's also starting to do a lot on his own. And, based on FT reporting, I don't know if we'll ever know what happened internally in these discussions. But after the allegations and headlines about Leon Black come to light, Harris becomes a very vocal critic of Black, and apparently that ices him out at the firm, leaving an opening for Rowan to ascend, which ultimately happens. Josh Harris steps down, stays on the board, but Black is out and Rowan ascends to the CEO position.
· Matt Reustle, Hunter Hopcroft
[00:00:00] S0: One of the interesting things about Harris you mentioned is that he's buying the 76ers and the Devils. Well, before this all plays out with Black, would you say that this is just normal private equity, major wealth-type behavior that we have certainly seen elsewhere? Milwaukee Bucks had a few backers, so it's not uncommon to see such behavior. But it felt way more operationally focused, platform focused in terms of what he was doing. So I'm just curious if that felt out of what you would traditionally see in someone who already has at least a portion of their foot out the door or if I'm reading too much into that. [00:00:00] S1: Well, I would just be speculating as well. But I also think that one of the reasons Harris ultimately doesn't ascend is related to the personalities of these founders. Josh Harris's reputation was as a real-deal guy, and I think his attraction to these sports deals was that this is the type of deal he wanted to be doing. And Apollo was increasingly moving in this credit direction—that wasn't really aligned with his background or appetite. And so, as Rowan ascends, it becomes clear that the firm is going to continue to make this shift towards a credit focus. And so I think Josh Harris is just the deal guy; he's attracted to these big acquisitions, which Apollo was doing less and less of. [00:00:00] S0: Yeah, he remains a deal guy. It's been fun to watch him negotiate for the new stadium in Philadelphia. And he was bringing some of the Apollo tactics with him, that's for sure.
· Matt Reustle, Hunter Hopcroft
[00:00:00] S0: Yeah, he remains a deal guy. It's been fun to watch him negotiate for the new stadium in Philadelphia. And he was bringing some of the Apollo tactics with him, that's for sure. [00:00:00] S1: I do think we need to keep drawing parallels to these top-tier alt managers that were all founded in the '70s and '80s and have an original old guard that is starting to come to the end of their careers. And again, this is a business that relies so much on reputation, talent, and how they have handled succession planning. I think Blackstone is probably the exemplar here of really elevating Jon Gray's profile ahead of that transition. KKR goes with co-CEOs, which has seemed to work okay, but they have a lot less visibility than Gray. And then, on the other side, you have Carlyle, who fumbled their succession planning. Apollo was very close to falling into that bucket. But to me, if you go back to this era—2021, 2022—you have this big headline risk of Black. He leaves, there's a brief spat over whether it is going to be Harris or Rowan, and then when Harris eventually steps away, you have this very de-risk situation. Okay, it's going to be Marc Rowan. And that's where we get to the modern day and what I call "Marc Rowan Unleashed."