The boss at Apollo has left the 43rd floor – the Manhattan aerie where his predecessor stalked corporate game – for a windowless post down on nine. He favors sweaters over suits. Eats in the cafeteria. He talks about diversity. Thinks about philanthropy.
His reserved, methodical way of doing business has led people to call him “The Professor.”
Is this that Apollo –
It is under “Professor”
It’s been more than two years since Rowan’s boss,
Marc Rowan
Photographer: Victor J. Blue/Bloomberg
Since he was named chief executive officer, Rowan, 60, has acknowledged what many in the industry have been feeling in their bones: The traditional private equity business, the one Apollo mastered over three decades, isn’t what it used to be now that those golden years of near-zero interest rates are over. He’s been pushing Apollo further and further beyond its private equity roots and into high-growth arenas like private credit and insurance.
Higher interest rates and an uncertain US economy will now put Rowan’s vision to the test. The firm’s Athene unit draws closer scrutiny from politicians and regulators due to its consumer annuities business. Insurance, a less volatile but lower-profit-margin business than private equity, drives the majority of its earnings, and has led investors to value Apollo more like an insurer than a private equity firm.
Call Apollo a “private equity firm” these days and executives will correct you: No, we’re an alternative asset management company, one that’s driving into direct lending, structured credit and more, powered by Rowan’s financial masterstroke, the insurance arm
At the same time, Rowan is also chasing a more elusive goal, and one that’s difficult to quantify in dollars and cents. He wants Apollo to shake off its image as one of Wall Street’s most ruthless risk-takers for good.
Executives have spent the past few years on what some competitors have snarkily called an “Apollo Apology Tour.” Even now, they often start meetings with prospective clients by fielding questions about their reputation as a hard-driving investor and are putting more effort into explaining their business, Apollo insiders say.
It’s not just because the firm wants to change its image. People inside and outside the firm say Rowan recognizes that there just isn’t enough money in fighting to the death over pennies on the dollar in distressed deals — and that making nice can be more lucrative. Two recent deals that bear that out are
Apollo is also leading a group of creditors to potentially provide trucking company Yellow Corp. with fresh cash during a coming bankruptcy,
A spokeswoman for Apollo declined to comment.
“I don’t know that there’s much they can do at this point other than proving themselves through a cycle,”
This account is based on conversations with current and former employees, investors, analysts, competitors and other people familiar with the firm, some of whom asked not to be identified so that they could speak freely.
‘Apollo Premium’
Rowan’s first order of business in reshaping Apollo’s future when he took the top job in March 2021 was to distance the firm from its past.
Black has vanished in a cloud of scandal. His close friendship with Jeffrey Epstein cost him his job and a place in high-caste Manhattan.
Harris, who had visions of taking over as CEO, departed after Rowan was appointed. Today, he’s
Representatives for Harris and Black declined to comment.
Rowan certainly throws off a friendlier vibe than Black. Last year, he feted his executives at the luxury Faena Hotel in Miami Beach — the first off-site for partners since Apollo was founded in 1990. The show-stopper: a surprise performance by Alicia Keys.
Rowan also has expressed impatience with micromanaging, a sharp contrast with the hands-on Harris, Apollo employees say. He wants to hold individual partners more accountable for the businesses they oversee, rather than steer all of Apollo himself from the top down.
Rivals and insiders alike wonder how real the change is, and whether the firm built by Black will shed its hard-charging ways. No one is under any illusions. Employees say the firm, which was caught up in the pandemic-era reckoning on Wall Street over working conditions, is a still a demanding place, with high standards and harsh feedback. An executive’s day in the office sometimes can stretch to 10 p.m. or beyond.
That culture made Apollo’s executives very wealthy — and helped it become the dominant nonbank credit manager on Wall Street. Boardrooms are named after their most successful deals, such as PetSmart LLC, where Apollo and other lenders waged war against the struggling pet-store chain after its private equity owners transferred the firm’s most valuable assets away from creditors. Apollo recently took a
But it cuts both ways. Apollo’s longtime reputation — particularly in the brass-knuckle business of bickering over bankruptcies and investing in troubled companies – has had real financial consequences. Historically, bond and loan investors have demanded additional interest, around 50 to 100 basis points, to finance Apollo’s leveraged buyouts, just in case a brawl ensues. It’s known as the “Apollo Premium.”
Davitt said he’s spent time with Rowan and thinks he’s not just all talk.
“My sense is he felt like his biggest job, and maybe even still his biggest job, has been changing that tone around how people work with each other at the firm,” Davitt said.
The stock market seems to agree. The firm’s shares are trading around a record high of $81.46, and have returned about 84%, including reinvested dividends, since Rowan took over as CEO in March 2021. That compares to a nearly 22% return for the S&P 500. Apollo investors will get their next look at the firm’s performance when it reports second-quarter earnings on Aug. 3. The firm is
Rowan laid out his vision at a lunch on June 6 hosted by the Economic Club of New York. Old-school private equity, Rowan explained, was unlikely to hold the key to Apollo’s future. Private equity made up $101 billion of the firm’s $598 billion in assets under management as of the first quarter.
“I look at our private equity business, it’s at scale,” said Rowan, making a rare appearance in a suit, as dictated by the venue’s dress code. “It’s going to be larger, but not much larger, in five years.”
He went on: “There’s simply no benefit to scale. In fact, I might argue that there’s a detriment to scale.”
The new realities are being reflected in Apollo’s ability to raise money from rich pension funds and endowments. The firm recently lowered the target for its latest private equity fund, its 10th, to the low-$20 billions from $25 billion. The entire industry is feeling pressure, but some allocators say they skipped the firm’s latest buyout fund because they wanted to wait a vintage to see if the current CEO can really change its culture.
Rowan’s ascent ushered in at least one big change almost immediately: Apollo promptly merged with Athene, the insurance business that he helped build, in an $11 billion deal.
Since then, Athene — and Apollo’s ability to structure assets for the insurance arm — has been the firm’s North Star. Apollo has snapped up more than a dozen different businesses that originate mortgages, auto loans and other assets for Athene and other insurers to invest in.
“It’s a much more consistent stream of earnings than it was previously,”
The payoff: During the first three months of this year, Athene drove roughly two-thirds of Apollo’s earnings. The downside: the insurer exposes Apollo to greater scrutiny from regulators. Former Securities and Exchange Commission Chair
Rowan and other Apollo executives have been on the offensive since the US banking crisis in March to highlight the strength of Athene’s balance sheet and ability to weather any downturn.
Still, Rowan’s move to the ninth floor to sit among the firm’s investment team underscores the growth opportunity in credit and so-called hybrid assets. The CEO now sits among people in those areas who handle nearly $500 billion of assets.
As if to underscore the point, Rowan’s Apollo has made changes that everyone on Wall Street watches: pay. The firm — which has long embraced the classic private equity model of carried interest, which hands out a slice of profits from each fund — called his first year in charge a “transformative year for compensation design.”
It eliminated its global carry pool and offered employees in that program a chance to swap into stock-based awards, one of a few moves aimed at aligning top earners with the firm’s overall fortunes. The changes rankled some employees, who were used to focusing on their slice of performance fees.
Under Rowan, executives have been taking pains to assure potential counterparties that Apollo’s credit business simply wants to collect its interest and principal and move on. Investors say they’ve noticed a shift in the credit markets. A Moody’s Investors Service study of sponsor-backed buyouts between 2020 and 2022 found that Apollo was among the better firms in offering protections for investors who finance its deals.
Bankruptcy Brawls
Still, old ways – and old reputations — can be difficult to shed. That’s particularly so after major banks got stuck holding billions of dollars of leveraged buyout-related debt when interest rates began to rise last year.
One deal that’s left a bad taste: Apollo’s 2021 acquisition of phone-and-broadband assets, which are now known as Brightspeed, from Lumen Technologies Inc. Existing creditors sued, claiming Apollo illegally structured the new debt to jump the queue to get paid before them. Another: Apollo’s 2022 acquisition of
And Apollo has shown it’s still willing to brawl in bankruptcy court. It spent years embroiled in an creditor-on-creditor fight over a 2020 debt transaction undertaken by
Rowan and Co-President
In the meantime, Kleinman said on the first-quarter earnings call, Apollo will be prowling for deals in traditional private equity. The firm has already committed more than $5 billion in the first half of the year for deals including US chemical distributor
An uneasy economy can spell opportunity. “We’re one of the few firms who can play offense in these periods of uncertainty,” Kleinman said. Private equity investments offer high-octane returns that investment-grade credit deals generally can’t match.
Nevertheless, Apollo’s CEO is clear that the firm’s future won’t be found in the bankruptcy battles that built its name.
“It is up to us now, over this next period of time, to actually change the perception for the reality of what the business is,” Rowan said at the Economic Club of New York lunch. “We are primarily an investment-grade provider of private credit.”
(Updates with news on potential bankruptcy loan for Yellow in fourth paragraph after first chart)
–With assistance from
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