[Applause] [Music] thank you and what amazing advice we have all been the beneficiaries of not just just most recently from Adam U but this morning uh I thought I'd come at this my own way um and when I tell my organization don't be defensive be curious change is a constant we as investors we in financial services I think have consistently underestimated the impact of change we've been resistant to change we've denied change we stick to the status quo and I thought I'd just maybe share some examples of change and how impactful it is so this
is now my 40th year doing this and I tell my team I look back over 40 years and when I started no highi bonds no leverage loans no ETFs minimal securitized product now those four products are incredibly dominant in our financial landscape why do we think they're going to be here in five or 10 years why do we build investment strategies on them are the circumstances that allowed them to essentially take hold still the circumstances today I don't know I look back again over 40 years and I think we've lived in a period of Tailwinds
for my career I think I've live been very fortunate I think most of you have have been very fortunate we've had four Tailwinds rates have gone from high to low we have printed an awful lot of money we have borrowed forward future demand through fiscal borrowing almost everywhere in the world and we've had the benefit of globalization are any of those four things true going forward I don't know I think there's a healthy debate as to whether they are headwinds but I would argue I think we're in the absence of Tailwinds why would we think
the investment strategies that work for the past 40 years would work going forward is there actually any value to track record over the last 10 years or should we just completely throw it away we all as investors take great comfort of looking at the Last 5 Years the last 10 years what are the chances that we're going to print in the US another 8 trillion do and everything will go up to the right why would track record be relevant you know I think a healthy skepticism you were in 2019 the best investor in the world
you left Norway and you moved to Austin Texas and all you bought in Austin Texas was multif family and you bought multif family in all the right locations and your buildings are now 100% occupied your rents have been growing 10% a year you took out your 60% morgage at 3 and a half% you were feeling great you were the best investor in the world what's your Equity worth today it's a math problem rents up cap rates up your Equity is worth 50 cents on the dollar were you a good investor well in 19 you were
a really good investor in 20 you were a good investor in 21 people were not so sure in 22 you went to the bottom of the B and in 23 people are pretty convinced you were lucky not smart maybe we should use the words Enterprise software instead of Austin Texas maybe we've been living in tailwind and we have to learn to accept change I know in my organization a lot of the things that Adam just said uh we do there's active encouragement of intellectual insubordination which I distinguish from outright insubordination because that makes it difficult
to run the business but there is no hierarchy for a good idea there is no ability uh to feel uncomfortable this is something we actively promote um I gathered U my partners um in auu in January every couple of years we get together and we talk about the future and I started with uh Apollo in 2008 Apollo in 2008 was 40 billion of AUM Apollo in 2023 was 650 billion of AUM we out grew 14 times we outgrew Apple we outgrew Microsoft I think we outgrew everyone other than Nidia by the way all organic next
question were we lucky or smart come on you guys know this we were lucky you can't possibly you can't possibly expect to grow a financial services business at 14 times we were smart only in that we were in the right place to prepare for Change and change happened think about the trends that drove us from 40 billion of AUM to 650 billion of AUM financial crisis in 2008 weakened most financial institutions they were playing defense rates going to zero pushed investors who had made promises to retirees to look for Alternatives those are the factors that
drove our growth and so sitting in the beginning of 2024 I'm looking out and I'm saying to myself what where's change coming from how do we first accept that the success that we've had is based on a series of things that no longer exist how do we prepare the organization and to accept change what happens if we're wrong I think I'm wrong at least 40% of the time which would make me in baseball terms the the the most productive player ever well let's let's create an organizational culture that accepts that you can fail and fix
your mistakes quickly let's not get let's not fire people from making bad decisions let's fire them from making no decision and that's I think what we've done so I sit out and I I think about uh what the team said this morning what you heard from uh Wellington what you heard from Helman and Freeman what you heard from Oak Tree and I think all of it is true and I'm going to add my gloss on top of it I think we as investors are not mindful enough of the massive change taking place and I think
some of the change is predictable so I'll give you how we are building our business based on change on things that we observe 2008 we nearly destroyed the worldwide Financial system we implemented massive amounts of change none of us me included have yet to experience any of that change because right after we changed the rules we printed A8 trillion and everything went up and to the right we've now had about 18 months of living with change so what could we observe easy one are public markets liquid I don't think so maybe on the equity side
that's true on the fixed income side no 2008 put an extreme penalty on Market making capital in fixed income in particular Market making capital is 10% of what it was today of what it was in 2008 markets are three times their size yes we are living with a 30th of the liquidity it now takes 5 days to sell an investment grade corporate bond outside the top 20 we've actually witnessed wholesale market failure this cute little thing called ldi in the UK this was not some crazy thing UK institutions were doing this was a mistaken belief
that they could sell AAA and doublea obligations at or near the market price they were wrong they started selling the price collapsed Bank of England ultimately had to step in should we actually think on a go forward basis that this is the norm that liquidity only exists on the way up it does not exist on the way down why do we want to be public why do we actually distinguish between public and private what is actually the difference between public and private it's not clear to me that there's any liquidity difference Equity is aside second
big fundamental change 2008 most of the regulation around the world not just then But continuing to today has to reduce the role of banks in the economy everywhere in the world is going through de banking at different rates in the US Banks today are less than 30% of debt Capital investors are the other percentage every regulator every government everywhere in the world has two choices Capital can come from Banks or Capital can come from investors there's no third choice once you choose investors you have two more choices they can come from the daily liquid public
markets or they can come from institutional private markets think about the priorities particular particularly in Europe energy transition climate change infrastructure everything I just mentioned is longterm why would we want that funded on a daily liquid basis wouldn't we want that funded in institutional markets to match liquidity where is systemic risk think about why banking is being disfavored banking is being disfavored in part because Banks borrow short and lend long do we really want more borrow short lend long by using more public markets or do we want private markets this whole rethink of the role
of a bank the role of an investor is a massive change we as investors are going to experience products in the financial uh excuse me the fixed income space that we've never seen before risk rewards products returns that have been locked on the balance sheets of financial institutions for the last 40 years are on their way to you as investment products we're all going to have to come overcome biases that we have about public and private other big change indexation and correlation do we have price Discovery in US markets I don't know 35% of uh
83% of the US market is S&P 500 10 stocks are 35% of the S&P those 10 stocks trade at a 45 PE today how many of Us come in every day trying to buy 45 PE stocks probably none on the other hand think of the largest pool of capital in the world today12 trillion do sitting in 401K for us mid-market investors people who really need Returns what are these people invested in Daily liquid index funds for 50 years why why do we have people invested in Daily liquid index funds for 50 years and it'll go
to where I think change is really coming we are going through an entire evaluation of public versus private in my 40 years I certainly grew up thinking public is safe private is risky and for most of my career that's been true private was three products Venture Capital hedge funds and private Equity all three are risky public was safe in the US at least 8,000 public companies Diversified portfolios of stocks and bonds what if that's not the case anymore what if private is both safe and risky and public is safe and risky how should we think
about investing how should we think about portfolios most of us most institutions operate with a private bucket or an Alternatives bucket why don't you have a public bucket rather than a private bucket Market we went from 8,000 public companies in the US to 4,000 public companies and I would bet that's going to go down not up shouldn't we have half our money in private I think we've looked to private markets for rate of return because we've always perceived it as as more risky therefore more return is desired I think we're going to look to private
markets for diversification I think to escape indexation and concentration I think we're going to look to private markets I think we're going to think the whole no rethink a whole notion of risk and reward the things that we've taken for granted that public is safe and that private is risky that banks are a sort of death financing that daily liquid by the way why do we have daily liquid funds I don't know why does an institution with a 20 or 40e time Horizon concern itself with liquidity I don't know these are we are breaking taboo
investors right now are confused and they're confused because they're looking back at history and they're saying this worked but what they're not yet willing to do is to question the fundamentals is the system totally different have things changed are we in the absence of Tailwinds am I willing to revisit underlying assumptions think about the following like coming back to the notion of price Discovery active management of equity is a really difficult business very few people do it really well have the discipline have 60 teams if I told you there was a market where for 20
years 93% of the participants failed to beat the index you would be concerned did these people get stupider I don't think so well has the structure of the market changed I think the structure of the market has changed I think the whole notion of daily liquidity is going to change we are betting it on that we've built a business that is 650 billion today which will be twice its size in five years based on a bet that investors are going to revisit how they think it is already happening so if you take the typical investor
and I'll take your portfolio but then I'll I'll simplify it um typical Institutional Investor that invests with us is 50ish perc invested in public Equity daily liquid 30% invested in fixed income daily liquid and 20 20% in everything else why no one knows that's what we've done that's what's worked historically and we're actually watching this change in real time and the the place it's changing first is in fixed income a single a rated private security is that an alternative or is that fixed income I ask cios this question all the time it can stump them
for an hour because we've all grown up thinking this thing doesn't exist we are watching institutional investors look at their fixed income portfolio and they are moving their fixed income portfolio not into public and private but into Alpha and beta we are going to watch a turnover of the fixed income portfolio of institutional investors move into private markets and the reason that's happening is there's an Arbiter there's a rating agency someone can say this was a-rated this was a-rated you can pick up 200 basis points of yield for moving therefore we should move since we
don't need the liquidity what about if the same were true in equity what if people took their 50% Equity bucket and they actually thought about diversification they thought about the number of public companies and rather than think about private Equity because private equity and I know the debate is taking place in this country in real time private Equity is levered equity it's in a fund structure it produces some binary outcomes what if we talked about Equity that's private rather than private Equity that's going to be a harder move for people because there's no rating agent
agency yet that is willing to allow people to talk across the spectrum of public and private and equal risk but that's the world we live in today more companies are going to be private people who are not invested in in equity that is private are missing out on half of the marketplace they are concentrating their portfolios the notion that their public portfolios have performed well in the past does not surprise me we are indexed and correlated we have been driven by money flows we've printed $8 trillion doll in the US 100% of last year's return
was essentially 10 stocks everyone has woken up and discovered that they own Nvidia apple and Amazon and Microsoft and he's levered the same way it's not clear to me that that's sustainable and for me as a leader of a business I think Adam's notion of humble confidence uh is is actually a really good one we all are confronted with change we're all confronted with uncertainty but while we do the little things to deal with change and uncertainty and we we reflect contrary opinion and we allow for intellectual insubordination how many of us actually Force the
organization to fundamentally rethink whether the things we think are true are true I want to challenge that I want all of you to think about that I don't think what we've grown up in exists anymore I don't think the financial system works the way we think it does I think liquidity is different the sources of debt are different indexation and correlation are different the whole Notions of public and private are different and I don't think the strategies that we've employed over the past 40 years are going to work going forward that's a really uncomfortable thing
for us to deal with because we're all used to doing due diligence and looking at track record looking at historical correlations it's not clear to me that I is any value thank you this has been great [Music] [Applause] [Music] [Music]
