Apollo Global Management expects to expand into eventually investing a portion of institutional investors’ stock allocations, Mark Rowan, the firm’s co-founder and CEO said on the firm’s Aug. 1 earnings call.
Apollo reported $696 billion in assets under management as of June 30, up 4% from $671 billion at the end of the first quarter, and up 13% from $617 billion year-over-year.
“This is already happening in the fixed income bucket of our large institutional clients, who are making daily trade-offs between …the public investment grade and private investment grade,” Rowan said.
That trend of so-called "fixed income replacement" which Apollo defines as asset owners investing in both public and private investment grade fixed income in the same portfolio is growing because “there is not real liquidity in public fixed income markets. So, the tradeoff of liquidity is not that immense,” he said.
“But make no mistake, replacement is coming for the equity business as well,” Rowan added.
Gunning for equity bucket
Rowan believes that Apollo will “ at some point, get access to the equity bucket of our institutional clients,” partly because there are fewer public companies.
What’s more, institutional investors’ equity portfolios are mainly passively-managed with just a few public companies determining 100% of returns.
“I believe that we will see investors own equity that is private, which to me, in addition to owning private equity, the distinction being leverage,” he said.
Rowan said that investors might accept a “new form” of active equity management, changing the definition from actively buying and selling stocks to actively running private businesses without adding the leverage of the private equity asset class, he said.
“We've built a business that we call hybrid, that is a $50 billion plus business for us today, and I believe on a percentage basis will be our fastest growing business because the equity bucket is as yet untapped and it is the largest bucket of our institutional clients,” Rowan said.
Hybrid was Apollo’s smallest business by AUM as of June 30 at $70 billion, a10% increase from $63.7 billion in AUM and up 13% from $62 billion in AUM at the end of the year-earlier quarter, Apollo reported.
Apollo’s largest business was yield with $521 billion in AUM at the end of the second quarter, up 4% from $500.6. billion in AUM as of March 31 and up 16% from $450 billion in AUM year-over-year. Its equity business had $105 billion in AUM as of June 30, down 2% from $106.7 billion and flat from June 30, 2023.
