A publog Global Management posting a record in twenty twenty three for private credit, the firm reporting more profit last year than the previous decade. Jim's outser Apollo. John just now for more. Jim, it's going to see you with us of the Act. Good mornings you.
Good to see you too. Always welcome. I appreciate the invite.
Well, thanks for coming on. Let's talk about these ernigs well received by this market. What's underpinning these trends for you?
Well, I think it's a repeat of the secular trends we've been talking about over the last several years. You know, certainly, we have a business and an industry that gets better every day as there are more and more retirees and savers looking to think about retirement retirement income on our annuity business. At the same time, you've got an involving banking system, which I'm taught. I'm sure we're talking about where lots of companies are looking for a variety of
capital solutions. We have the broadest toolbox, but as an industry, it's it's a secular change and where we've been fortunate to be right in the middle of it. But you're right, we had a business last year that hit on all cylinders. All parts of our business were a to first and foremost great investor performance. Assets and asset gathering follows performance, and we did so on a very strong risk adjusted basis.
You went there early, so we'll go there early. Well, this means for the banks there is a sentiment out there. You know how this is portrayed in the media. She goes something like this, Apollo's killing get the banks of struggling. It's their loss? Is your wind your gain? Is that how it works for you?
Well, the reality is this is a brutally competitive business and it has been for the thirty nine years I've been in a business, whether it's you, whether you're in the banking side, the asset management side, or anywhere in between. You know, the competition for market share for assets is always brutally competitive. But certainly it's a great narrative right now. The reality is there's much more of a symbiotic relationship
than exists. And we're a major counter party of all the large US institutions and even globally in Japan and Europe as well, So it's not certainly on any one transaction a buyout financing, whether it's going to go to the Broady syndicated market or it's going to go to private credit. These are all they're competitive within our industry, and they're competitive within the banks. That's never going to change.
But the reality is the financing that takes place at the counterparty financing that we get from the large institutions really critical to our business. We provide them a lot of financing fees and opportunities across our equity and debt businesses. So there's a narrative that sells papers, and then there's the reality, and it's somewhere in between.
This is like in high school when they're two friends and they're kind of always talking about each other behind their backs, but they're really like to each other because they kind of will operate in the same circles. I'm just saying we're getting Stanley front of these a little bit. I mean, the idea is Morgan Stanley bolstering it's private credit portfolio to fifty billion dollars in the medium term. Gold and Sachs reportedly aiming to double the size of
it's one hundred and ten billion dollar credit business. They want to fight back, don't she kind of feel that yees.
Again, we're in a really competitive industry with the smartest, most determined mind in the globe in the US and Europe. The reality is, and the end of the day, it gets about your business model, how you fund your business, and the client product that you're bringing to solutions. So there's no doubt, I mean, there's no doubt that there's going to be firms that are going to start private
credit businesses. But again let's take a step back. As I've talked to you many times in New York and in London, private credit is broader than just the sponsor buyout business. It's a great headline product, it's a great headline tool, but the reality is that's a trillion five market. The reality is private capital, private credit is a forty
trillion dollar opportunity. And that's where when we see what we're doing in terms of aircraft finance and solar finance and a variety of trade and inventory finance, that's where we have a really competitive toolbox. Because of the structure of our liabilities, the duration of those liabilities, and the cost of capital. What we've really done at a poll the last ten twelve years has really brought our cost
of capital down drama. If you're just in the pe business, your cost of capital is mid to high twenty percent. If you're in the measure to stress businesses in the teens. When you have an annuity business, and the reality is in this higher rate environment, more people like to buy annuities. Annuities had a record volume last year. That just brings
in a lot of long duration, lower cost capital. So our ability to be very relevant to any client or borrower is a It's really a defining characteristic.
How much has the money that you're talking about, which is coming from different sources than traditionally, basically been the reason why we haven't seen the credit cycle that so many people were expecting.
Well, I think it's a very interesting question. I think what's going on right now, and I know you had tors in here yesterday, is you know last year you had the equity markets of twenty something percent broadly speaking, and at the end of the year you had defaults going approaching almost five percent. That's a pretty unique characteristic. Usually when you see defaults rising like that, you have
a decline economy. The strength of this economy has befuddled economists and all your guests for the decade, and if you look at where all the dot plots have been, even with those folks who have all the information have missed this. Now. I think once we all say that, you know there's not going to be a cycle. I do think you are seeing some signs of a hardening of economic conditions that are fondly coming up. We'll see it in the next few weeks. I think the Fed's
made the right choice. I think theyve I talked several months ago here about the FED put us back. They put themselves in a really interesting cosition right now where they can mute volatility with having a lot of bullets left in that gun. But I do think there's a modern economy that's going on right now. The depth and breadth has surprised economists and guests across the board, and it's a much more resilient economy. The US economy is the bulwarker the Western world right now. It really is.
Economy is strong, and I think you told us before Christmas. Basically the Federal Reserve has the space now because of lower inflation, to respond to negative shock. What I'm trying to work out though, of the issuance that we've seen so far, and this is more in public markets where Lisa and I've been talking about this boom and supply to start this year and this flood of demand. Is that because the economy is strong or we're just anticipating lower rates this year? Which one is it?
I think it's a combination of. You know, the US consumer has prepared themselves very well for a higher rate environment, corporate balance sheets have prepared themselves very well for a balance sheet, and when people see financing opportunities, they know now that like, don't wait a round for perfection. And I think that's been a good lesson, you know, don't let don't let perfect get in the enemy of progress.
And I think there's been a very very thoughtful There's no doubt there is when people see what's going on where rates we're supposed to be going, there has been a rush and there's a there is a risk on trade right now and virtually every asset class the market has priced to perfection in virtually every asset class, and that means it's a good time to issue. I'll tell you For us, we typically underperforming periods like this. We have a lot of cash on the balance sheet, of
the then right now we're very low levered. We put ourselves in the position if there are pockets of volatility, we're going to be well positioned. But that's how we prudently, that's when we have a macro view, that's how we express it.
It's a classic approach. You want to be the courdancy provider in sound to stress. It makes sense.
Yeah, And I think the story that really has not been spent a lot more time on this issue of market structure, the rise of passive, the lack of company's ability to really do the equity market is and the equity IPO market is fundamentally challenged. And I know spacks were not the answer, but the real in our view that this market structure issue has been going on for several years, it's going on for a decade, and the advent of passive and scale now more than fifty percent.
I think that's going to have profound implications on how companies raise capital going forward.
We've got time to work through that through the act is luckily going to stay with us. You mentioned credit stress. Fact, that's my word. I can't remember the word you use precisely. By want to ask you about that are you seeing pockets of stress right now? Nyc B Commercial raal Est State. We talked about it for the best part of five minutes. Market moves on. What are you seeing?
I think you are seeing in a very broad, growing economy with massive fundamental strength, you're seeing some situations where companies either poor business plan or way too much debt and have not maybe recovered from the COVID crisis. You're seeing that a little bit more in the corporate world. In the US. The US consumer we are the average mortgage is three point eight percent. We've not seen the pain that's been seen in the UK and Germany. That's
really protective. So you're seeing some signs of challenge and weakness. But there's been a tremendous amount of private equity activity and financing activity the last five to seven years. So the fact that you're going to have some stray challenges around the edges interesting. I don't think it's a macro telltale sign of things changing, but there are challenges out there, no doubt.
It's great to have you with us. Jim's out of Apollowest Management