Here is the video, audio, and transcript, taped in his Apollo office in NYC. Here is the episode summary:
Marc Rowan, co-founder and CEO of Apollo Global Management, joined Tyler to discuss why rising interest rates won’t hurt Apollo’s profitability, why liabilities have traditionally been the weak spot in insurance, why the concept of liquidity needs a rethink, the meaninglessness of the term “private credit”, what role crypto will play in American finance, why Marc bought a brutalist apartment, which country has beautiful new neighborhoods, what motivated Apollo’s office redesign, what he looks for in young hires, the different kind of decision-making required in debt versus private equity, the biggest obstacle to doing business in India, how university governance can be improved, what he’s learned from running restaurants, the next thing he’ll learn, and more.
And an excerpt:
COWEN: Now, how stable is all this as a political equilibrium? If you think about the four major banks, as you well know, there are very serious stress tests applied to them, capital requirements. The Fed is a major regulator. At least for insurance, it tends to be at the state level. One can reinsure through Bermuda. Capital requirements are very different. Competence of the state regulators arguably is lower than that of the Fed. Whether or not one wants more regulation — and generally, I don’t — but is this a stable situation? How’s it going to evolve?
ROWAN: First, I would have to correct almost everything you’ve said along the way to set the table for what I’m going to talk about. First, the difference between not so much the banking system and insurance, but the banking system and the investment marketplace. Let’s start with this — there are plenty of ways for investors to lose money. Investors can buy speculative stocks. They could buy the S&P. They can speculate in almost anything.
The making or losing of money is not, in and of itself, a systemically risky activity because, for good reason, we allow speculative investing every single day. Things go up, things go down. You can lose money in credit as well as in equity.
Now we come to mutual funds. If a mutual fund, which is daily liquid, owns credit, and investors want to get their money back, you’re right, price just adjusts. Mutual funds are not price guarantors. Are they regulated? Mutual funds are regulated. Are they disclosed and transparent? Yes, they’re disclosed and transparent. The holdings of a mutual fund are completely visible and they’re de-levered. Is that a risky activity because it moved out of the banking system and into a mutual fund? I don’t think so; I actually think it has de-risked. It’s made our economy and our financial system more resilient.
Now I’ll come to your question on political equilibrium. Insurance — if you just focus on insurance — has no federal guarantee, does not borrow short and lend long, has no access to the Fed, and does not do liquidity transformation or maturity mismatch, and they are forced to hold amounts of capital.
If you look — and I’ll give you a comparison just for us, not for the whole industry — who holds more capital, Athene our insurer as a percentage of assets or the typical bank? You would think the typical bank, but you would be wrong. We hold more capital per dollar of assets than anyone else. Who holds more investment-grade assets? Ninety percent of our book is investment-grade, the typical bank is two-thirds investment-grade.
COWEN: Sure, but that’s all time-sliced—
ROWAN: Let’s keep going.
COWEN: Money market funds have been a source of systemic risk, AIG has been —
ROWAN: I can’t tell you there’s not risks in the economy. We have a choice. We can have risk dispersed among lots of institutions, or we can have it concentrated in the government-backed, borrow-short, lend-long, government-guaranteed banking system.
Every time we disperse that risk, we make the system more resilient. If you want to focus on insurance, which is your question on political equilibrium, there’s more capital, there’s no ALM mismatch, there’s more investment-grade, and there is appropriate state-based regulation for institutions that do not have government guarantees or borrow from the Fed or do anything else.
Insurance is very slow-moving. We’re talking about, on average, 10-year assets. This is a very slow-moving process. Again, most of the issues that have happened in the insurance industry have not been asset issues. They’ve been liability issues, exactly the kind of thing that insurance-specialist regulation is designed to detect.
Recommended, and of course we talk about Marc’s higher ed campaign as well.
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