Apollo’s Rowan warns rivals to ignore blockchain at their peril

This article was written by Heather Perlberg. It appeared first on the Bloomberg Terminal.

Apollo Global Management Inc.’s Marc Rowan has been a pioneer in private equity for decades. The next big thing in the eyes of the billionaire: blockchain.

“The ecosystem that’s being built around crypto is nothing short of amazing,” Rowan, co-founder and chief executive officer of New York-based Apollo, said in an episode of “Bloomberg Wealth with David Rubenstein.” “Many of the rails or the technology or the platforms or the systems that support what’s happening in NFT are actually the precursor to changes in our financial system and we ignore them at our peril.”

Apollo started collaborating with fintech firm Figure Technologies last year on blockchain technology designed specifically for the finance industry. The companies have already originated digital mortgage loans and used blockchain to transfer ownership. Apollo also announced a partnership with Motive Partners, a private equity firm focusing on financial technology, and invested in crypto storage company Anchorage Digital.

“We are moving our securitizations onto blockchain. We’re taking stakes and backing challengers to the financial system,” Rowan said. “Fintech is here to stay. Blockchain is here to stay.”

Rowan, 59, who became Apollo’s CEO early last year, has an eye for spotting innovation early in the investing world. He was the brains behind acquiring Athene Holding Ltd., the insurer that made Apollo the envy of Wall Street. Known for problem solving at Apollo and making strategic decisions for the firm, Rowan has largely avoided the spotlight.

This interview has been edited and condensed.

Are you worried about the economy?

Of course we worry about the economy. And I think it plays well to how we think as a firm. If I were to describe what we do, we do ‘purchase price matters.’ That’s different than value. Value only buys a certain type of company. But ‘purchase price matters’ means you have to always prepare for a cycle. You have to always prepare for some other kind of market. And we see lots of the signs of that today.

Is cryptocurrency a good area to invest?

For me, personally, no. But the ecosystem that’s being built around crypto is nothing short of amazing.

Do you offer crypto-related investments to clients?

No, but we make use of them tremendously internally. Our pivot to fintech, given what we do as a large financial institution, has been very deep. Increasingly, we are moving our securitizations onto blockchain. We’re taking stakes and backing challengers to the financial system. Fintech is here to stay. Blockchain is here to stay. Crypto? I think the jury is out.

What’s the next big thing beyond that?

We’re watching it take place right in front of us. I look at the whole NFT market, and we can look at art or all manner of crazy things trading hands as NFTs. But then I bring it back to real-world examples. Many of the rails or the technology or the platforms or the systems that support what’s happening in NFT are actually the precursor to changes in our financial system and we ignore them at our peril.

It was reported you weren’t dying to be a CEO. Now that you’ve done it for a year, are you happy you’re doing the job?

Best thing I’ve ever done. It’s a totally different challenge than what I had been doing previously, trying to do something where you have to motivate others to actually make you successful. It’s just a different kind of puzzle, and I love it.

Do you get involved in investment decisions?

On a day-to-day basis, no.

If there’s a big buyout investment, you basically let the team do it?

I say jokingly if it’s life threatening, I will absolutely be involved. But most of what we do is handled by people who are much better equipped than I am to make the decision.

So what are Apollo’s main businesses?

We really are in three businesses. We are in the equity business. Think of equity as private equity. We’re in the hybrid business. Hybrid business represents the midpoint between debt and equity. And we’re in the yield business, and the yield business for us is primarily a fixed-income replacement business rather than an opportunistic business.

What about your European business?

Europe looks exactly like the U.S., it’s just a smaller version. We are in all three businesses. The ethos that we have of how we run our business has translated from the U.S. to Europe. I actually moved to London to set up our European business and lived there a number of years.

Why’d you move back?

Well, it was either stay forever, or go to high school in the U.S. for the kids.

Are you worried about China as a place to invest these days?

We have not been big investors in China because we have not been big growth investors. We have not been out doing venture, not doing growth. We want growth, but we historically have not been prepared to pay for it.

What about Japan?

I sometimes say if I have a free day — anywhere in the world, I would spend it in Japan. It is a wonderful equity market in that corporations are maturing, they are selling off businesses. But equally as important, it’s an amazing yield market. This is an older population that needs guaranteed income where yields have been low for so long that there is no source of guaranteed income, and they’re very comfortable investing in the U.S.

What do you recommend for the average investor interested in alternatives?

This whole notion of retail is actually fascinating. I think there are not great choices today. But I also think we’re in the first inning, to use a sports analogy. We are currently offering high-net-worth and retail investors products that we created for other reasons in other markets.

We are in the process of creating this next generation of products which will meet the needs for retail. They don’t want capital calls. They can’t get diversified by buying one fund here or there. They need diversification. They need low fees. They need alignment. They need liquidity. These things are not impossible. We’ve (as an industry) just spent 35 years solving problems for large institutions and all that creativity is now being turned to this marketplace.

What do you do that gives you pleasure, that’s relaxing?

I love to mountain bike, wherever I am in the world. If I’m going to the Middle East, I’ll take my bike with me. If I’m going to Europe, I’ll take the bike. I have done some amazing rides. And for 60, I’m actually quite good. Age adjusted, of course.

Isn’t that kind of dangerous? Do you have key man insurance for this?

No, I always ride with someone who’s better than I am. So far, so good.

What are the qualities you’re looking for when you hire people?

There’s no one type. We hired 424 people last year on a base of 1,600. That’s a lot of people and we’re building a lot of different things. There are high-octane equity businesses. There are yield businesses. There are platforms. There’s technology. There’s marketing. So, there’s no one skill set.

People come here because they appreciate that we’re entrepreneurs. Large banks have, by far, been the biggest source of our talent. We’ve built something where people can take a skill set that they’ve learned in another organization and come here and apply it in an entrepreneurial way.

What’s the best investment advice you’ve ever received?

I don’t know if it’s investment advice but the two best pieces of advice I’ve received are accept change before it’s visited upon you, and don’t be defensive, be curious.

What is the most common mistake that investors make?

The one I see again and again and again for our institutional investors is the need for liquidity. Whether you’re a pension fund, an endowment, a sovereign wealth fund, a retirement-services business or any other form of institution, you do not need the large portion of your assets to be liquid every day.

The risk these institutions should always get paid for is liquidity risk. And they have the opportunity, therefore, to earn excess return just by stepping back from public markets. But it’s not how they were brought up. I don’t think people yet understand how much beta there is in publicly traded markets.

What would you tell the average investor who says, “I’ve got $100,000 to invest?”

The best risk reward today is hybrid. You are stepping back from the publicly traded markets, so are getting the benefit of illiquidity and getting downside protection because the world is uncertain from a geopolitical and an economic point of view.

If you could ask any investor in the world for investment advice, who would you talk to?

I don’t know that there’s one investor I want to talk to. I probably want to get the two bookends. Certainly to understand what’s happening with Masa (Son) at SoftBank and probably (Warren) Buffett at the other bookend.