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Summary
Apollo Global Management's CEO, Mark Rowan, elaborated on exciting growth and strategic focus areas during the Investor Day 2024. With a five-year plan, Apollo sees significant opportunities in asset management by narrowing its focus and making transformative decisions. Retirement services will expand their reach in the U.S. and global markets. The company highlights its origin in private equity, with strategic mergers enhancing its retirement ecosystem, aiming to capitalize on new tailwinds like the industrial renaissance and complex financial products. Additionally, Apollo plans to redefine private versus public market investments, emphasizing structural changes in asset allocation while underlining the importance of a strong corporate culture for sustained success.
Highlights
Mark Rowan, CEO of Apollo, shares insights on company strategy at the Investor Day 2024. 🌟
Apollo is focused on asset management choices and expanding retirement services. 🔄
Apollo outgrew many tech giants, attributing success to smart positioning and tailwinds. 🚀
The firm stresses the importance of adapting strategies with changing tailwinds. 🌬️
Apollo aims to double its business by leveraging four significant market opportunities. 📈
Key Takeaways
Apollo has a focused strategy for asset management and retirement services. 🔍
The firm was positioned well to benefit from industry tailwinds and seeks new growth avenues. ⏩
Apollo's success hinges on maintaining a strong corporate culture and adapting to market changes. 🏢
Overview
Apollo Global Management's 2024 Investor Day spotlighted by CEO Mark Rowan, highlighted a refined strategic outlook focusing on asset management and retirement services. By honing in on choices and efficient decision-making, Apollo aims to streamline operations and harness untapped opportunities in the evolving financial landscape. 🌍
Rowan emphasized Apollo's remarkable growth surpassing even tech behemoths like Apple and Microsoft, attributing this success to savvy business positioning amidst robust industry tailwinds. The narrative pivots to the essential need for adapting and evolving strategies to maintain growth momentum. 🌬️
Key pillars of future growth include exploring the global industrial renaissance and rethinking private versus public asset allocations. Apollo seeks to address retirement investment gaps while leveraging its established private equity roots to navigate through a distinctly changing financial environment. With a nod to its collaborative culture, Rowan outlines the role of internal synergy in pursuing long-term profitability. 💪
Strategy | Apollo Investor Day 2024 Transcription
00:00 - 00:30 good morning for those I I don't know I'm Mark Rowan uh CEO of Apollo I want to thank you all for your interest uh and especially your willingness to spend between three and four hours with us hopefully nothing will happen in the world that distracts all of us from the day uh because this has been an amazing and experience there is no better time to be the CEO of a business than doing a 5-year plan anything we wanted to do
00:30 - 01:00 we've now compressed into a very short time frame all the tough decisions have been on the table the resource allocations the level of focus and if I give a top level remark what you're going to see in Asset Management this is about choices there is so much that we could do in Asset Management that this is about Focus listen to what we chose not to do in Retirement Services we almost have
01:00 - 01:30 the opposite focus in Retirement Services they have been so focused on execution of their business plan that it's now time to open the aperture and really go after the retirement market and the two steps to the business I think create a very Dynamic and exciting plan so as Noah suggested this is not our first rodeo this is actually our fourth invest yesterday um you can see
01:30 - 02:00 the results that are up there and I know a number of you when we spoke in 2021 thought we were shall we say optimistic I think even some on the team thought we were optimistic but the team particularly those of us who have been here a very long time were supremely confident that we would deliver the goods and I think short we crushed it not everywhere not every day but for the
02:00 - 02:30 most part uh we feel really good about what we've achieved so far and a number of us have very very short attention spans for those of us particularly who work on trading desks or who make minute to- minute decisions so if you're looking for an exit right after this page is a good time to exit in terms of what I think you should take away as Financial targets you know for f we're talking about 20% average
02:30 - 03:00 growth over the next 5 years for Sr 10% average growth $15 a share of AI 21 billion of capital then the only other number I'd really focus you on is the $275 billion of annual originations I think the word origination and the tracking of origination is going to become more important to our industry and to the dialogue we have with all of you
03:00 - 03:30 we have been incredibly lucky reflect back on where our industry has come from this is revenue seven times but let me give you a more interesting stat in 2008 all of the big firms that you think of as our peer group today we were all 40 billion of AUM everyone was 35 billion of private equity and 5 billion of something else in our case that's something else was
03:30 - 04:00 credit 17 2023 when we ended the year we were 650 billion we grew revenue between excuse me assets between 16 and 17 times no Financial Services businesses grows like that we actually outgrew Apple we outgrew Microsoft we outgrew almost every Growth Company you could think of and I think it's important to ask the question publicly that we ask the team were we lucky or
04:00 - 04:30 smart we were lucky we were smart only in that we positioned the business in front of incredible Tailwinds and those Tailwinds basically powered our business to seven times Revenue growth and they powered our business to 16 to 17 times AUM growth those Tailwinds in 2008 every existing financial institution around the globe was playing defense
04:30 - 05:00 we were fortunate in that we started a new financial institution Athen in 2008 and we basically played offense for 15 years the other thing that happened is as governments around the world pushed rates to zero both after the financial crisis and again during covid everyone who had made commitments to policy holders to retirees to contractual counterparties found themselves in search of yield and they found us those
05:00 - 05:30 two Tailwinds didn't just power us they powered our entire industry but we also have to be clear that those Tailwinds are now gone this is another thing that we're really working on at Apollo our industry has been so successful our company has been so successful how do we get the organization to play to win and not just
05:30 - 06:00 to play not to lose probably consumes most of our management time we have woken the team up at 4:30 in the morning for meetings to prove to them that we need to do a wakeup call and something different we've had outside speakers come in to scare the be Jesus out of people we've had cautionary tales we're here to play to win and the thing that I keep saying change is coming the Tailwind that got
06:00 - 06:30 us here are not here anymore they are going to be new if we think we're going to succeed by doing more of the same I think that's a fallacy and we have to adapt and we have to change and this is not true just for us this is true for everyone in our industry how how we evolved we've basically evolved focusing on capabilities and to keep us in front of these powerful Tailwinds our whole
06:30 - 07:00 industry and our firm our founding was Private Equity we were a small business with massive opportunity in front of us so-called black art not even an asset class yet post GFC credit Athen these were the big drivers of our growth over the past few years many of you at the investor day said why merge with a theme what capabilities what are you going to get out of it we've got a lot out of it the
07:00 - 07:30 entire business revolves around the retirement ecosystem and ath centrality to our strategy is irreplaceable they basically have put us in the platform business in the Capital Solutions business ADP which you'll hear a little bit about and wealth allows us to be the most aligned firm in our industry side by side what are the new Tailwinds how do
07:30 - 08:00 we think about where the business is going let's start with a little dose of reality we are a small asset manager we are Circa 700 billion plus of assets under management all the big four are in the 10 plus trillion dollars today if we are really successful our business will be twice its size in 5 years we still will not be relevant in
08:00 - 08:30 the scale of the big asset management and I think in some ways this is the most exciting and the most comforting part of a strategy we have four amazing opportunities Tailwinds that are in front of us that will push our business forward any one of which done well would serve to double our business our job now is focus and execution and to put ourselves in front of the Tailwinds of
08:30 - 09:00 these four massive opportunities which I will discuss a little bit more in detail Global industrial Renaissance the capital that is needed today in addition to the true trillion that the US government is borrowing to fund on an annual basis what is it for it's for infrastructure it's for energy transition it is for the Next Generation data and Power these are all long-dated
09:00 - 09:30 they're complex they require creativity in many instances we're financing consortiums backed of the big companies who don't want assets on their balance sheet but want the capabilities that are inherent here these long-term Solutions across a variety of cost of capital are not really appropriate for bank balance sheets who fund themselves short they're not really appropriate for the plain vanilla of the investment grade
09:30 - 10:00 Marketplace we and institutional investors are the long-dated capital necessary to do this in every society there are only two choices as to where debt Capital comes from it can come from the banking system or it can come from the investment Marketplace there is no third choice everywhere in the world banks are being asked to do less and investors are being asked to do more when we did the first investment grade
10:00 - 10:30 financing for AG inbev a number of years ago many in this room and many of our competitors in most of the street said that $4 billion is the last $4 billion that you will ever do that was a $100 billion ago and 11 billion just for Intel this is just getting started we are at the beginning of this trend this is just a secular Trend a driver of our business most of this is invest M
10:30 - 11:00 grade retirement For Better or Worse we're all getting older we as a society have done a terrible job planning for retirement the statistics are well known the vast majority of Americans have not made adequate Provisions for retirement What think of the largest pool of retirees in the world and how they save in the US we have between 12 and 13 trillion dollar in 401K plans
11:00 - 11:30 what are they invested in they are invested in Daily liquid index funds mostly SNP for 50 years why we don't know we basically have the retirement Savings of America 10 stocks are 39% of the S&P four stocks have determined 100% of their returns for the last few years and I jokingly say sometimes we levered
11:30 - 12:00 the entire retirement of America to nvidia's Performance it just doesn't seem smart we're going to fix this and we are in the process of fixing this every day we are seeing new products new approaches new additions we don't have to make this up this is happening the most successful country in the Western World from a retirement point of view is Australia Australia 40 years ago a adopted something called
12:00 - 12:30 superannuation a fancy name for allowing investors with appropriate supervision to include private assets along with public Assets in their portfolio the outcome over 40 years of compounding is nothing short of spectacular I believe we are on the cusp of revisiting this opportunity more directly you all of you and we have thought about retirement from the point of view of what athe does athe is just getting started if we're very focused on
12:30 - 13:00 how we succeeded we essentially took an existing product set in an existing industry Dynamic and we made it better don't get me wrong that's been great and the team has done a spectacular job but we have yet to even show what this can be you're going to see some of this in Grant's presentation and more importantly you're going to see some of this over the next few years as our competitors are just thinking about the business that we started and now
13:00 - 13:30 dominate 15 years ago we're moving to other places whether it is stable value tax advantage products going after 401k or guaranteed lifetime income there is no shortage of opportunities in retirement and we truly have not even gotten started we need to imagine this business not as an annuity business not as a pension buyout business but as a Retirement Solutions business and guess what retirement is driven by fixed income
13:30 - 14:00 particularly highgrade fixed income with yield most of our conversations on our quarterly call revolve around what's happening in individual investors think about the following for 40 years our entire industry has basically been built out of the smallest bucket of our institutional investors called Alternatives we are now in front of us with individuals being presented with a market that is at least as large as the
14:00 - 14:30 entirety of our industry we are at the very beginning of attacking this business we are very beginning of understanding what products and how the delivery to this business works and I already know we're going to be successful it's not just we Apollo although I do think this is a large firm opportunity this is not for every firm in the Alternatives business and the reason I know we're going to be successful is I can look at the most
14:30 - 15:00 sophisticated of the individual investors called family office family offices are now more than 50% private family offices to us are nothing other than institutions and they are not generally Guided by Consultants or by other benchmarking or other restrictions they are Guided by Common Sense and the risk reward of the principal when I say say 50% private I do not mean 50%
15:00 - 15:30 Alternatives I mean 50% private increasingly they understand that private is not just Alternatives private is a way for them to get further diversification in their portfolio and to enhance their yield we don't often spend a lot of time talking about family offices because in number they're not that numerous this is a massive market and among the most interesting things in the world are happening now in family office exactly because of the reasons I've said they are not limited by
15:30 - 16:00 benchmarking and they are showing individuals they're actually showing institutions the future let me flip to the bottom of that pyramid there a mass affluent we do not believe that Apollo or our peers will directly serve the mass affluent Marketplace these people are very difficult to reach they have enhan entrenched relationships they are generally well served they are not typically served by an individual
16:00 - 16:30 adviser they're not advised and in very limited Circ without in very few circumstances do we believe they will actually do what is necessary from an education point of view to participate directly in the private Market that does not mean they are not going to have private assets whether it is us with State Street or us with Lord Abbot or our peer group with capital group I believe this Mass affluent Market is going to be served by
16:30 - 17:00 their existing asset managers by their existing advisory relationships and that the product set is going to change we our industry and we Apollo specifically are going to be a part supplier to this portion of the high net worth Marketplace in high net worth which is typically what all of us talk about on the calls this is a group that is advised by wealth systems by raas by ad advisers
17:00 - 17:30 their adoption of private markets is limited only by education it is how many days we're prepared to get on the road and explain this I was joking with our head of wealth that last week I hit Austin Houston and Monaco in one 24-hour period now luckily talking to highet worth investors is highly rewarding because you leave and you actually know exactly where you stand sometimes you actually leave with a ticket which is actually quite quite rewarding this is a massive
17:30 - 18:00 opportunity so if I review retirement massive opportunity lots of demand for fixed income in particular individual investors lots of demand for Alternatives plus fixed income and other opportunities and just getting started this business alone individual could double our industry and double our firm the one that gets me the most excited because I think it is the most near-term and the most tangible and the
18:00 - 18:30 one that I think is going to go faster is this whole notion of rethinking public and private let's face it for those of us who have been in the business 40 years we have it beaten into our head that private is risky and public is safe we know that in our bones and the reason we know that is that probably was true 40 years ago private was three products private equity venture capital and hedge
18:30 - 19:00 funds all of which have risk even if they are in fact very good Investments and public 8,000 public companies Diversified portfolio of stocks and bonds but what if we're wrong what if it is not private risky and public safe what if private is both safe and risky and public is safe and risky we think nothing of Nvidia going 20 30% in a day lots of fluctu ations in equity we don't think of that as risk yet the slightest
19:00 - 19:30 deviation in private markets we all lose our minds I think the world we live in today is private is both safe and risky and public is safe and risky and if that's right everything we know about portfolio construction makes no sense when something is risky you put it in a small bucket you call that bucket Alternatives you demand really high returns and you watch it closely you put it in funds you
19:30 - 20:00 worry about your exposure you worry about your concentration you worry about your availability variability excuse me that's the world we've lived in but the world is changing recall that our entire industry has been built out of that small green bucket called Alternatives we are today getting access to the much larger red bucket called fixed income fixed income today is generally for our client based 50% larger than the Alternatives bucket
20:00 - 20:30 and it is 100% public IG we are watching replacement take place in real time and this replacement is something that is being aided by well-known Gatekeepers called rating agencies the presence of rating agencies is actually telling investors that some something in the private market and something in the public market are of the same credit quality so an investor
20:30 - 21:00 can actually make decisions about liquidity or illiquidity and make explicit trade-offs of risk and reward I will say something that I I know we will come back and talk about again 18 months from now you and most investors will not know the difference between public and private IG there will be no difference it will not be the size of company it will not be the size of issue it will not be the rating it will not be the
21:00 - 21:30 provision of financial information and it will not be the liquidity everything that exists in the public market for IG is going to exist in the private market for IG we're watching this happen every day but make no mistake while this is our near-term Target I do not believe that replacement stops in the fixed income bucket I think eventually replacement goes to the equity
21:30 - 22:00 bucket the world we live in has completely changed the financial crisis all the rules by which financial markets were governed were completely changed the problem is none of us noticed because we printed as a country 8 trillion the next day and everything went up and to the right it's only for about the last 18 months that we've started to experience the world the way it is why is this taking place in fixed income first in terms of replacement it's taking place there first because of
22:00 - 22:30 rating agencies and second because there is no liquidity in public IG it takes five days to sell an investment grade corporate bond one of the outcomes of the financial crisis was this massive reduction in Dealer Capital to support fixed income trading which has not been picked up by the Jane streets and the citadels and the ssas particularly in private markets we will as you hear begin Market making once we begin Market making I believe
22:30 - 23:00 others will Market make the 8,000 public companies that used to form Diversified portfolios are now 4,000 public companies fewer than a 100 companies go public every year more than a 100 companies go private every year we take for granted in the technology ecosystem that companies like open aai or Spotify can stay private a very long time and raise equity well why doesn't that apply more
23:00 - 23:30 generally I think the future today we're going to talk about fixed income replacement but I think the future we're going to be talking about Equity replacement what is equity replacement think about what's happened to our Equity markets so much of the market is passive today active management is a small percentage but more importantly active management has actually failed when you have a business where 90 plus% of the time for 20 years
23:30 - 24:00 you have failed to beat the index you have to ask yourself whether these people have been have gotten stupider or whether the structure of the market has changed and I assure you these people have not gotten stupider the structure of Market has changed it is just much harder much more skill required to make money in active management particularly with daily liquid funds to those who do it I say hats off to you because it is a really really hard task I think in the future investors will own
24:00 - 24:30 Equity that is private think of that as private Equity not in a fund without the leverage active management may actually be both active management of buying and selling of stocks but active management may also be the active running of companies we have a business today 60 70 billion of something we call hybrid which you'll hear will be multiples of its size our industry these four Trends these
24:30 - 25:00 four planets they are not only available to Apollo they are available to our entire industry and I expect our entire industry to benefit for what's going on however I believe that we have done a better job positioning ourselves to be squarely where we need to be to benefit from where the market is going what do we think and what do we think as investors what do we read in
25:00 - 25:30 research we continue to judge our business we continue to shorthand success by things like AUM and capital raising I believe that over the next few years we're actually going to transition to thinking about what really constrains our business if you if we're right we're going to have demand for private assets coming from retirement we're going to have demand from for private assets coming from individuals and we're going
25:30 - 26:00 to have demand for private assets coming from institutional clients from their fixed income bucket and eventually from their Equity bucket all of that demand I believe will produce an industry that is twice or three times the size of what it is today that does not mean Capital raising is not important that does not mean Partnerships are not important there's a long way between today and the future but I believe the trend we will find
26:00 - 26:30 ourselves as an industry short ideas rather than short Capital origination is in my opinion what is going to allow you to create value and is going to be the limiter of growth in our business and it is not just origination for instance in private Equity it is origination that matches the right cost and form of capital the world at the investment grade level is much larger than the world at the 20% cost of capital by
26:30 - 27:00 outlevel in addition I think we are all so far the beneficiaries of culture we as an industry have attracted an amazing group of people to come to work on our platform most of whom are escaping a larger institution we should be very careful not to become that this work on culture we will not spend enough time on it today but if I look at how I spend my time this is half my job managing the
27:00 - 27:30 careers of 200 people represent the leadership of Apollo it is all about culture single best decision I've made in the past 12 months was to personally buy a frozen yogurt machine we open the frozen yogurt machine when we have a team win it turns out people prefer frozen yogurt to money it's a recognition I say this as a joke but I I want to give you some insight we have to be very careful to watch what we do culturally in this
27:30 - 28:00 business we want to be on the North Star about how we run the business we want to be the single best place to be a partner in financial services if we get if we do that if we get you to spend your whole career at Apollo we will have your judgment throughout the entirety of your career and our business is fundamentally built on judgment and if our partnership is stable the next generation will look ahead and they will say this is all
28:00 - 28:30 worth it and then young people coming into our business many of whom work incredibly hard including the group that helped put together today they will have two amazing generations of mentors if our partnership is stable it all it all works if the partnership is not stable none of it works culture top home for talent we do that by how we do it the environment in which we do it but we also do it in a way that aligns with our investors no one is more invested in
28:30 - 29:00 their company in their funds in how they're compensated than we are and this is a Hallmark of how we come to Market if only one thing sticks for the whole day this is what should stick I believe and we believe that the ability to originate assets that offer Alpha excess return is the key driver of our business for those who don't follow all the machinations that are at Apollo
29:00 - 29:30 um Chris Edson has now been promoted to head origination so of the roughly 9,000 people in our ecosystem 4,500 of them report to Chris Edson so try to sit next to him at lunch me I check on his health every morning to make sure he just gets to the office this is an incredibly important part of what we do I also believe that the Dynamics of what's Happening around origination is
29:30 - 30:00 what allows you to keep your fees stable or increasing think about the dynamic I've just described we have incredible demand coming for private assets from people who have not historically been in private assets I believe we will have a shortage of private assets I also have said that the liquidity or illiquidity premium is going to disappear for a big part of our Marketplace what is going to to give you excess return the capacity to originate
30:00 - 30:30 the capacity to structure the capacity to control a deal I believe is what is going to contribute excess return we judge ourselves yes by our financial metrics But ultimately it's about the capacity to originate building and owning origination is essential to what we do you'll hear a lot about that today 4,000 employees wake up every day they do not carry an Apollo business card they work
30:30 - 31:00 in 16 platforms we've spent more than $8 billion building this over the last 15 years this is the largest concentration of employees at Apollo the entirety of our asset management business 3,000 people our Retirement Services business less than 1500 people this is platforms this is high-grade Solutions the kinds of things we've done for Intel and ab and Air France and
31:00 - 31:30 AT&T it is also Partnerships with people like City our industry is really really Dynamic right now we are not in any way at war with the banking system we have never been better partners with the banking system look at what's happened just this week in terms of announcements with City announcements with BNP the banking system has figured out that we do not want what they want we don't want their client we can't sell
31:30 - 32:00 their client anything we can't sell them advice or m&a or far exchange or derivatives or payments or credit cards or any other service if a bank loses a client to another bank they lose it all if a bank loses an asset which by the way they generally do not want under New Capital regime they retain the client they retain the fee Revenue this is just beginning to be accepted more widely I
32:00 - 32:30 think what we've done with City while large and dynamic I think you'll see lots more of this we are not the enemy of the banking system we are in fact amazing partners with the banking system let's pivot a little bit let's talk about the structure of our business um for those who are with us at our last investor day um we we certainly took a lot of grief for our dog and and its tail uh we were trying to explain the benefit of being a principal at
32:30 - 33:00 versus just being a fee provider but think about the market we've just described we believe that assets are what is going to be scarce rather than Capital if we're right as a business we should want to make as much money as possible in an aligned Fashion on every asset that we originated how do we do that well for some of those
33:00 - 33:30 assets we get a fee plus 100% of the profit think of that as a theme balance sheet the amount we can do there is limited it's limited by Capital it's limited by diversification it's limited by our desire to do and grow other parts of our business for some of our business we have a full fee plus a third of the profitability we call that ADP for those
33:30 - 34:00 who follow our business this is an insurance partnership where outside investors own 2/3 and we own one3 and finally we have a business for which we earn a full fee and we have no retained interest in the profitability other than a promote or some form of upside we like all three businesses but to date we have as an industry and you as analysts and people
34:00 - 34:30 who follow the stock we've been focused on Capital light some of our competitors do this differently they hold assets on their balance sheets some hold assets elsewhere we have the most efficient way to hold assets and that is in partnership with retirees through our athe Retirement Services business this is a partner ship that is built on fundamental need
34:30 - 35:00 ath business basically relies on excess return in investment grade fixed income we start with a belief that there is no excess return in publicly traded fixed income the only excess return comes from originating investment grade therefore their entire business needs long-term safety field with
35:00 - 35:30 spread what we've done is we've built the capacity to originate as a theme got bigger we had to get bigger this has been a mutual beneficial partnership it is not a gimmick for asset raising it is not something one should do lightly it is a fundamental full-on activity and very few if any of our competitors actually understand this business and what they are doing how do you win well to win I think you need all
35:30 - 36:00 five of these things if you don't have these things and most people who are entering the business and most traditional companies don't have any of these things what do you do well what you do is you take assets and liabilities to Cayman you put up 50 cents on Capital you avoid a bunch of rules and that's what we're watching anytime someone tells you they're taking
36:00 - 36:30 their business to Cayman read that as shortlived and lacking in any of these things these five things I believe are necessary to succeed and in our competitive set only one of our competitors has actually taken the time to build something of substance asset out performance back to this notion of private is risky and public is safe look down at the pie charts down below comparing a theme to The Industry 97%
36:30 - 37:00 NAIC 1 and two which are the most highly rated categories approximately 5% Alternatives 1% stocks if you cannot generate investment grade private you do more alts and you do more stocks this is what our industry has done they also own real estate Equity of which we own none they also own high yield what what we have built is proprietary
37:00 - 37:30 origination fixed income investment grade and we are earning 150 basis Points Plus of spread on that for the portion of the portfolio that is allowing us to drisk the portfolio rather than risk the portfolio in every cycle we have performed better our credit losses are fewer our credit upgrades are more our attraction of third party capital is the greatest this is just an amazing story and kudos to Jim and Grant and the
37:30 - 38:00 leadership team at Athen for what they've done but this is a symbiotic relationship with Apollo distribution the chart moves up and to the right the team has done an amazing job building a service culture but at its core how did we win how did we go from zero to better than every brand name you possibly can mention we took a little bit of the asset
38:00 - 38:30 outperformance and we gave it to customers and guess what customers prefer more to less and over the past 15 years we've built the number one market share in retail and I won't steal any of gr Thunder as he takes you through this business but suffice it to say if you do not have ratings and you do not have service and you do not have this what you're doing is you're buying secondary blocks of business with degraded surrender charges and degraded
38:30 - 39:00 protection and you are paying more for them than originating new business not a great way to run distribution is key Capital the reward for good performance is trust with capital the entire industry over the past decade has raised 28 billion of capital we've raised 20 billion of capital we are now the second greatest capital capitalized business uh in our industry and we have
39:00 - 39:30 the luxury of retaining vast amounts of capital which Jim will take you through Capital gives us ratings flexibility it takes down our cost of funds but most importantly it positions us for a rainy day we grow in stairsteps when the industry is short of capital because that's when spreads are widest that's when economics are the best cost structure other insurance companies have six or seven product lines we have one product line we have driven cost to an
39:30 - 40:00 incredibly low level while retaining a service culture and the Wii in this case is Grant and the team in De Moine where more than 12200 people work it is not the Wii at N9 West 57th who are high cost producers of everything none of this though is possible without management if you approach this as an asset Gathering business you will lose anyone who is in Insurance
40:00 - 40:30 to gather assets and try to do it on a regular basis is actually on a Fool's errand sometimes the market lets you grow sometimes the market does not let you grow we are principles in this business we have been principles in this business by running it as a principle and taking our foot off the gas sometimes and stepping on the gas other times we attract third party Capital we get to do ADP we get to grow when no one else can grow we get wides spreads what
40:30 - 41:00 that results in is stair steps you should expect us to be in the stairstep business going forward we will not grow this business other than if it makes sense to grow this business the other thing you need to do in this business is you need to manage interest rate risk the business itself is actually not susceptible to rates you can look on this page and you can see that we have had amazing years when rates are low and amazing year when rates are high in general we prefer
41:00 - 41:30 higher rates because that's better than consumers but it actually does not matter because the cost of funds and the rate available in the marketplace essentially track each other the only place it gets messy is in transition from a high rate to a low rate or a low rate to a high rate Marketplace management has done an amazing job to do this when rates were very very low we had a massive floater
41:30 - 42:00 position what does that mean that means we gave up income for every one of those years to position the business to benefit or to protect from rates going up we paid the tuition if you will for doing that in 2022 and 2023 we got the payoff for that what did we do after that we massively drisk the book because now that rates are high made no sense for us
42:00 - 42:30 to hold anything other than a modest floater position doing this back and forth the willingness to give up current income the willingness to position the business is actually what Management's job is in addition to growing in stair steps what does this mean it means that we have to accept that we sometimes will consciously take down the profitability of our business far from suffering through oh 24 wasn't
42:30 - 43:00 so good 24 was actually awesome the problem is we did a poor job adequately explaining that the 3.1 billion that we booked in 23 we consciously reduced by $300 million to remove the interest rate risk through Hedges and portfolio rotation you can see organic business optimization of the portfolio and shockingly an interest rate benefit because recall that we actually follow Sofer not market-based Sofer for many of
43:00 - 43:30 our floaters on a year-on-year basis from the rebased up 14% year-over-year doesn't make it any less satisfying or any more satisfying that we really rang the bell in 2023 and so the growth from 23 to 24 reported more anemic what do we think goes forward essentially more of the same we told you at our last investor day that we would
43:30 - 44:00 reach 3 billion in 2026 I assure you we will be well above 3 billion in 2026 and that line will continue to be above our projection line from our last investor day will it be a straight line I don't think so I think it will have stair steps and it will reflect us risking and drisking the portfolio to do good things as principle one of the things that we also need to explain the ecosystem in which
44:00 - 44:30 we participate is actually growing much faster than our Sr this is a choice if we want to grow faster we can retain more business anytime we want if we want to grow slower we can give more business within a range to ADP anytime we want and so given the choice and given how much capital a theme will produce we have a lot of Leverage at our disposal to figure out where on that 10% growth line
44:30 - 45:00 above or below we want to be but it all begins and ends with we're in a growing market for retirees and we have all five attributes of success which none of our competitors have at any size and scale in short just like last investor day the team here is incredibly confident that we will deliver the goods on average 20% growth in our fee related business on
45:00 - 45:30 average 10% growth in our spread related business and nearly 21 billion of capital generation the drivers are everything we've done over the past three years in terms of the foundation that we've built they will continue to grow The Accelerated growth think replacement thirdparty credit equity Global wealth replacement we're not done there I
45:30 - 46:00 believe that at the end of the day private will win over public that doesn't mean replace public it just grows faster private will win over Banks again they won't replace Banks just grow faster we are a small asset manager with vast opportunities around us and for us the limitations are not the business to do particularly in the asset management business this is a choice of what to do and what
46:00 - 46:30 not to do hopefully today you'll take away what we've chosen to focus on and how we're going to build the plan as investors I also step back and think about where this is going the financials were 2.3 trillion in 2014 they're 3.4 trillion today all of you have recognized much of what I've said our group has gone from 4% to 12% of the total capitalization and the capitalization of our indices of our
46:30 - 47:00 companies and our index have grown five times I believe this trend will continue for all the reasons that I've suggested massive Market I think we're the best position for the Tailwind I hope the plan is clear I know it's clear internally finally I'll come back to culture one of the things I like to say in the business we get to do this we really do have a really good time doing what we do and if you come in too
47:00 - 47:30 many days in a row and you don't feel this way it's time for you to do something else at Apollo thank you