Lincoln Archibald: Apollo Global Management is actually a private credit firm, managing $600 billion in the space and pioneering, honestly, one of the greatest asset classes out there. Welcome to Funds That One, where we dive into some of the world's most renowned investment funds. We'll interview investment managers across the alternative landscape and learn how they built their million and even billion dollar asset management empires. We'll explore teams, structures, strategies, and best practices in launching and running alternative investment funds. All right, today we're going to be talking about Apollo Global Management. One of the biggest, baddest private equity VC firms out there on the market. Really, really cool story about how they brought different asset classes into the mix, how they grew their firm, some of their core strategies and structures, and some insights from one of their founders. I think you guys are really gonna enjoy today's discussion on Apollo. So Apollo Global Management was founded back in 1990 by three primary partners, Leon Black, Joshua Harris, and Mark Rowan. Each of these guys came out of a firm called Drexel Burnham. It was an investment bank, think like J.P. Morgan or Morgan Stanley, like it was one of the top tier investment banks in the 70s and 80s. But at the end of the 1980s, they made some poor investment decisions and ultimately went bankrupt. I was part of that, kind of in the same era of Michael Milken, the junk bond king. You know, but look, they'd all been at this investment bank for at least a decade and had really good skills and leveraged buyouts and private credit and mergers and acquisitions. And they said, look, yeah, you know, we're going to go we're going to go start this firm. So, you know, just a comment there. It's so funny how history tends to repeat itself. There's kind of this notion of, you know, business businesses want to fail. They should borrow short and lend long. And that's exactly what just happened just last year in kind of the banking crisis that we had with Silicon Valley Bank. It's the same principle, right? They bought too many long-dated treasury bills and had too much long-term exposure and had a short-term liquidity crunch and went out of business, right? And that's the same thing that happened to Drexel Berman back in the late 80s. Anyhow, so I mean, it was kind of an ideal time to start a fund. Honestly, it was the early 1990s, high unemployment coming out of the banking crisis, as I just mentioned, very sluggish real estate market. And yeah, I mean, with primarily the savings and loan crisis driving the majority of that. LBOs had kind of had a fallout in the late 80s. And so traditional financing, again, very similar today, was dried up in a lot of ways. What happens in eras when traditional banking is dried up? I've said this before, but it creates an opportune time for private credit. So today, I mean, we just had this, you know, one of the quickest ramp ups in the Fed funds, funds rate in history. And so, you know, 2024 has kind of been a year so far of private credit. It allows private creditors to come in and capitalize and lend on assets, infrastructure, businesses, where traditional financing, there's just no lending available. So these 3 guys, Leon, Josh, and Mark, set out to launch a private credit firm. Unlike other firms, these guys closed their initial fundraiser in about 6 months of $400 million. So the average time for a fund to raise is back then and now it's always been somewhere between 12 and 24 months. Right now it's a little closer to 18 to 24 months to raise your first fund. But these guys raised a considerable size in just six months. A lot of this goes back to their track record, honestly, that they were extremely successful. Despite the firm's failure, they were extremely successful bankers at Drexel Burnham, and they really leveraged that experience and their historical dealmaking to get this fund off the ground. The team was right. The experience was right. The timing was right. Like there was all these things going for him when Apollo was starting their firm in the early 1990s. And then their investments were right. So they went out and they started, you know, placing their capital and were just doing really well, really quickly. They had return. I mean, private credit can sometimes, you know, return capital pretty quickly. And they leveraged, you know, some good deals to kick off and start you know, start expanding into other asset classes. So by 1993, they had actually already expanded into a real estate fund that they were running. And then 1996, they expanded internationally. They started, you know, doing the same strategies, but but globally. And before long, they had exposure to almost the entirety of the alternative asset management space. So I have actually always thought of Apollo as like a venture firm. And it was fun, you know, putting this podcast together because in reality they're not. I mean, it's a small piece of their business. They didn't even start with venture, right? They started with private credit. And today they are a $600 billion firm where 400 billion of that is private credit. So literally two thirds of their entire assets under management are in private credit related strategies. So I mean, I just kind of had this misconception of what they actually did. But in reality, their private credit firm at its core, which is which is pretty crazy. Hey, for anyone listening that is trying to start a fund out there, I know how difficult it can be. If you are in need of any additional advisory or consulting services on your business, feel free to fill out the application included in the show notes. My partners and I are always looking for new firms to either invest in or partner with. And we'd love to take a look at your firm. Now back to the show. So they were going along just scaling their asset management business. And then something, I guess, critical happened in about 2009. There was a business called Athene that was founded. And they took a small stake in that company. And really, it was just a company that was focused on retirement assets, right? Helping people plan for their retirement. So kind of annuities driven. And, you know, basically how that side of the business works is you pay out a small fixed return to retirees because they don't need any more volatility in their lives. And then you can capture, you know, the additional margin that you're able to generate. And they partnered with this, you know, a theme business starting in 2009, which quickly and rapidly grew their AUM alongside Apollo's. Over the years, Apollo increased its position up to a minority, up to a 35, still minority, but a considerable position, all the way up until there was a full-on merger with Athene in 2021. And today, of that $600 billion, just for, you know, to kind of give you a snapshot. Today, Athene represents $275 billion. So 45% of Apollo's assets are through basically this retirement planning business that helps retirees, you know, gives them monthly dividend checks. Right. And so and that's why you see so much exposure to private credit. is because they can, it's just arbitrage of the difference on what they pay out to their retirees and what they are able to keep on the upside. So, I mean, along the way, they had some pretty notable experiences. Apollo actually went public in 2011, and then Athene went public in 2017. So they had two public listings in six years that also drove AUM up and to the right with being able to take on public investment dollars. All right, shortly after going public in 2019, the firm actually decided to go to a C Corp. So just a quick lesson here. So most general partners are originally set up, and guys, this isn't legal advice in any way, shape, or form, but most general partnerships are set up as a limited liability company. The limited partnership being set up as a limited partnership, and that LLC being the manager, the general partner of that firm. And then investment management companies are often, or the registered investment advisory firms, are often also LLCs. Now, there's an argument to be made at some point in time when that investment management company, because that's usually the firm that you take public, should go to a C corp instead of an LLC. And again, this is a conversation you should have with your tax advisor or legal counsel. But a lot of it is you can incentivize. It's a lot easier to incentivize employees, right? Now you can issue stock to everyone in your company instead of just like profit interests or exposure to the carry, because typically the carry will go to your general partnership and then your fee income will go to your investment management business. So in your investment management business, that's actually where the majority of that's where payroll takes place. That's where the majority of office expenses take place. And that's where your fee income and all the majority of your expenses actually go out. So that's like really the business. Right. And then the carry is is the upside. So as you start, I mean, look, the firm has over 4000 employees today. So as you grow your firm and you grow your business, there's a time and a place for that. But as an emerging manager, honestly, probably wouldn't be thinking about that all that. Hey, just wanted to throw this in here. Every spring we throw this awesome event called Fund Launch Live. This year it's gonna be in Orlando, Florida. We would love to see you there. We basically, myself will be there, my partners, our team, we bring in a bunch of our coaches and other fund managers, and we honestly just talk funds for several days. It's a really fun, educational conference. We would love to see you there. If you're interested in attending, you can grab tickets at www.fundlaunchedlive.com. Thanks. Now back to the show. But look, I really want to talk about some insights from one of their founders, Mark Rowan. So I mean, this guy's just brilliant. All the partners are brilliant. So let me talk about three things that Mark Rowan, one of their founders, attributed to the success of Apollo. What made their fund win? First and foremost is producing alpha. I was listening to an interview of him and he was talking about why they even exist, why Apollo is there. And at the end of the day, in alternative assets, the only reason that an alternative asset firm should exist or does exist is because they can provide an additional return above market on a risk-adjusted basis. So direct quote. You can only grow as fast as you are able to generate return per excess unit of risk. And if we are not able to offer excess return per unit of risk, we do not exist. It's sometimes just better to quote, say the man's words. So look, I mean, that's a really profound statement there. And I think it's critical for asset managers or emerging asset managers to understand that you should always be like self-underwriting yourself and saying, hey, look, are we actually providing alpha per unit of risk to our investors? And if we're not even doing that, then what are we doing in business? And, um, you know, there's a couple other nuggets that, that Mark talked about, you know, as, as he was, as he was attributing, you know, Hey, what, what actually contributed to the success of Apollo? Uh, you know, one thing that he talked about was, uh, Hey, look there, you know, so for one of his funds, the average check size was like $750 million. Uh, so it was a, it was a large fund. And he's like, look, at the end of the day, there's not a lot of people in your business that should be making $750 million investment decisions. As you're growing your firm, and we recognize that, right? We weren't going to allow non-qualified individuals to make $750 million investment decisions that weren't capable, that didn't have the background, that that shouldn't basically. Now, that's not to say we shouldn't empower our employees and everyone on our staff and every investment manager, portfolio manager involved, because they did. Right. But it's like at the end of the day, those are the most important decisions. Right. Like who who is going to actually oversee and deploy and make those hard decisions on where to allocate capital? So, you know, a big a big takeaway for him of why his fund won was, you know, just just manager selection and making sure that he brought the right people into the firm to make those big decisions. All right. And lastly, the final thing that he talks about in what made his firm succeed is momentum. At the end of the day, he wanted to make sure that both internally, as well as the firms that they are investing in, always had momentum. Mark says, look, there's really not a lot of things that can stop momentum. If there's true momentum in a business, they can overcome just about anything. And so him and his partners made it paramount that their firm always had momentum growing, right? Whether it was through a strategic partnership with Athene or with a new fund or a new product or a new whatever, that there should always be momentum in those first couple decades of a firm if you're really trying to position yourself. Funny enough, in an interview he did last year, he was asked, because Apollo is just known for coming out with something new every year, he was asked, I think it was just going into 2023, he said, what does 2023 look like for you? And he said, well, this year there's no new toys. We've just got to focus on what we've got. So I think they're kind of maybe at a at a critical mass right now where they're they're starting to flatline. But again, this is, you know, a couple of decades later. So, you know, as you are in your business, right, you should always be, you know, be conscious of the narrative, be conscious of the story that you're telling and make sure that there is always momentum, whether that be through assets under management, through, you know, portfolio companies, acquisitions, new employees you're hiring. But just make sure that it's forward growth. And at the end of the day, that's really what's going to drive your asset management firm. All right, so that's Apollo, not a venture firm. I mean, they do have venture products, but they're actually primarily a private credit firm. Started in 1990 with a strong start at $400 million. Again, you don't have to start small. You can start with $400 million if you have the background, the track record, the team, and the network to do so. Because honestly, starting a $400 million fund, it makes a lot more economical sense than maybe just scraping together a $20 or $50 million firm. But again, you may not have those sort of resources. So, you know, do what you got to do. But look, they constantly innovated on themselves. They were constantly introducing, you know, key strategies and new milestones to the firm. They recognize that, hey, at the end of the day, we got to produce alpha. They recognize that, gosh, we got to pick the right people to make investment decisions. That's huge. And at the end of the day, we got to have momentum in our business. That is what has ultimately driven them to be a $600 billion asset management firm and definitely one that I would say has won at this investment management business. Thanks guys. Hope you enjoyed the conversation. All information shared are solely the thoughts and opinions of the author or guests. Content is for educational purposes only. Do not take any information from the show as financial, investment, tax, or legal advice. Seek counsel from a licensed professional before taking action in any business pursuit. We're not selling or soliciting security in any way, shape, or form. The host may maintain positions in securities discussed on this podcast. Guests on the show may be current or historical clients of FundLaunch, FundLaunch Partners, or Black Card Capital Partners.