Business Breakdowns: Apollo — Connoisseurs of Complexity (EP.208)

Date: March 14, 2025
Host: Matt Reustle
Guest: Hunter Hopcroft, Financial Analyst & Writer

Overview

This episode explores Apollo Global Management—one of the world’s largest alternative asset managers—focusing on its origins, growth, business model, and what distinguishes it from competitors like KKR and Blackstone. Host Matt Reustle and guest Hunter Hopcroft assess Apollo’s DNA: a connoisseurship of complexity, a relentless search for value in difficult situations, and their evolving business model, especially after the merger with Athene. The discussion tracks Apollo’s history from the Drexel Burnham roots through to the Mark Rowan era, and dissects how its approach to credit, insurance, and origination is reshaping both the firm and the financial industry as a whole.

Key Themes & Discussion Points

1. Apollo's DNA: Complexity & Balance Sheet Focus

• Apollo was shaped by its founders' roots at Drexel Burnham Lambert, Michael Milken’s junk bond innovations, and an early focus on balance sheet value rather than just income statement growth.
• Quote:
  “Our DNA going back 30 years and even in our Drexel beginnings in the Milken school of studying balance sheets is to find those areas where you're not compromising on credit risk, but you're willing to do something that may have a little more complexity in it or that has a little less liquidity, but it still has the same investment grade rating.”
  —Mark Rowan, cited by Hunter (02:58)

2. Apollo Today: Business Model & Scale

[04:22–06:46]

• Apollo is a leading global alternative asset manager, with ~$750B AUM (750B total, 570B fee-earning).
• Unlike peers, Apollo classifies its AUM into “yield” (credit), “hybrid” (opportunistic/special situations), and “equity” (traditional private equity).
• The firm’s differentiator is its focus on credit, particularly through its insurance/retirement solutions arm (Athene), which now comprises $450B of AUM.
• Apollo’s scale increased 10x since IPO (from 70B in 2011 to 750B in 2025), partly due to the shift to perpetual capital models and insurance.

Notable Quotes

• “Apollo focused on credit... It probably seemed like a less attractive bucket [in the 2000s]. But it looks a lot more fortuitous now as these alternative managers have gotten so big.” —Hunter (06:46)

3. The Formation Story & Early Wins

[09:09–17:12]

• Founded in 1990 by Drexel alumni Leon Black, Josh Harris, and Mark Rowan in the vacuum after Drexel's collapse.
• Early growth stemmed from opportunities to manage distressed debt portfolios for Credit Lyonnais after the Executive Life scandal; complex legal structures and eventual litigation underscored Apollo’s appetite for complexity.
• Early deals (Executive Life, Samsonite, Vail Resorts) involved acquiring control through debt, restructuring, and distressed assets—yielding spectacular fund returns.
• The launch and later split of Ares Management is another legacy of this formative period.

Notable Quotes

• “[Apollo’s] start is stepping into this opportunistic opportunity that's left after Drexel Burnham collapses.” —Hunter (09:27)
• “[Early funds] return 3.6x on the invested capital and... [have] an internal rate of return of 47% before fees, 37% after fees.” —Hunter on early Apollo returns (17:12)

4. Appetite for Complexity & Legal Risk

[18:54–23:15]

• Apollo’s reputation was forged in the cauldron of complex, often contentious situations, such as the leveraged buyout (LBO) of Caesars Palace, which entailed protracted lawsuits and aggressive asset protection schemes.
• Their willingness to re-enter risky sectors post-failure and embrace legal and reputational risks distinguishes the firm.

Notable Moment

• “It's their appetite and willingness for this complexity... and they're kind of okay, that went poorly. But we learned and we're going back in with those learnings that I think really sets them apart.” —Hunter (20:07)

5. Apollo’s IPO & Public Company Transition

[23:58–27:29]

• The 2011 IPO enabled Apollo to access new equity, incentivize talent, and grow platforms.
• Like other alt managers, they shifted from partnership (LP) structures to C-corp for better access to capital and shareholder value.

6. Succession: Rowan’s Ascendance

[27:02–32:26]

• Leon Black’s exit (after Epstein-related scandals) leads to Mark Rowan taking the CEO role in 2021, marking a decisive shift toward credit and insurance integration, whilst Josh Harris departs to pursue external sports deals.

Notable Quotes

• “We're going to continue to make this shift towards a credit focus...” —Hunter (29:25)
• “Rowan is almost a preacher, an evangelist for what they're doing in a way that I don't think John Gray has [at Blackstone].” —Hunter (32:26)

7. The Athene Merger: Insurance as Strategy

[33:34–43:34]

• Athene, acquired in 2022, transformed Apollo into an integrated insurer-asset manager, echoing the Berkshire Hathaway model but with a more complex structure and lower multiple.
• This gives Apollo access to vast, low-cost, long-duration “float” capital from annuities—a perpetual source for credit origination.
• Rowan’s visionary twist: Use the “equity” portion (5-10%) of insurance portfolios to create and seed asset origination platforms, allowing Apollo not just to invest but to manufacture and distribute credit at scale.

Notable Quotes

• “So all alt managers post GFC make varying degrees of investment into the insurance business. [But] what Rowan's decided is... he starts building, acquiring and seeding asset origination platforms.” —Hunter (41:00)
• “Rowan has figured out a way to buy $100 of insurance assets and basically turn it into more like $30 of equity by running it through this private equity structure...” —Hunter (42:31)

8. Complexity and Financial Engineering

[43:43–48:05]

• Apollo’s business now involves advanced structures of leverage using insurance capital, origination platforms, and sophisticated fee/carry mechanisms.
• Rowan is intent on blurring the lines between public and private markets, increasing liquidity in private credit (e.g., through ETFs), and meeting soaring annuity-driven demand for new credit assets.

Notable Quotes

• “...what Rowan's vision is really here... their ability to originate in more creative ways and then take that debt and structure it and basically feed the various tranches to the pools of capital that it meets their requirements...” —Hunter (51:00)

9. Risks, Constraints, and the “Credit Perpetual Motion Machine”

[53:35–59:35]

• The firm’s primary growth limiter is no longer fundraising, but origination—can they manufacture enough high-quality credit to meet annuity demand?
• Hunter warns the bigger systemic risk could be a slow “degradation of returns,” as demand for debt-based assets outpaces the supply of attractive opportunities rather than a sudden collapse (“Minsky moment”).
• Apollo’s complexity introduces managerial, operational, and regulatory risk, but post-2008 changes have diffused systemic risk across the market.

Notable Quote

• “I think the bigger risk here... is just a slow degradation of returns... as debt eats more and more of the benefits of asset ownership or activities of these businesses.” —Hunter (59:36)

10. Competitive Positioning, Reputation, and Image

[66:59–69:27]

• Apollo’s reputation is of toughness and complexity, with counterparties wary of their negotiating prowess and legal muscle.
• Mark Rowan is trying to evolve the firm's image—from “adversarial” to “partner”—especially as Apollo pursues investment-grade and upmarket lending.

Notable Quote

• “Apollo still very much has its reputation of being very smart, again, drawn to complexity, willing to take on a difficult situation... At the same time, they need to be seen as a partner now to a lot of these businesses, not as an adversary...” —Hunter (67:51)

Notable Quotes & Moments

• “If you're on the other side of the table from them [Apollo], you never feel fully comfortable. It's like having a 20-point lead in the fourth quarter against a team that you know will find a way to come back...” —Matt (00:52)
• “Private equity is a way of bootstrapping a call option... for every $100 of insurance assets you bought, you would get $10 of equity to do your alternative manager strategies…” —Hunter (44:43)
• “The biggest single constraint on growth is… can you originate enough attractive assets to meet your need?... That’s our whole business: delivering excess return per unit of risk.” —Mark Rowan, cited by Hunter (52:37)

Lessons & Takeaways

[70:28–73:10]

• Apollo is a masterclass in evolving with—and shaping—the financial markets, learning from setbacks and continuously innovating with capital structures and business models.
• The business underscores the primacy of the balance sheet—not just earnings—in value creation.
• Apollo’s trajectory—from Drexel-driven opportunism, to private equity via distress, to today’s insurance-centered perpetual motion machine—mirrors broader shifts in how markets allocate capital.
• The “alternative” label is eroding; firms like Apollo are now central players in mainstream finance.

Quote

• “They have really come full circle into being this huge player in debt markets that is really reshaping how financial markets operate.” —Hunter (70:28)
• “For Apollo... a lot of value gets created in asset conversions, in refinances and M&As and changing the capital structure... not necessarily just having really rapidly growing top line that gets a multiple applied to it.” —Hunter (71:10)

Summary prepared by Business Breakdowns Podcast Summarizer — For a full breakdown archive, visit joincolossus.com