Enterprising Investor Podcast Summary
Episode: Eric Hanno, CFA: Unlocking Opportunities in a Volatile Market
Release Date: May 1, 2025
Host: Mike Wahlberg
Guest: Eric Hanno, CFA, Partner at Apollo Global Management
Introduction to the Episode
In this insightful episode of Enterprising Investor, Mike Wahlberg engages in a deep conversation with Eric Hanno, a prominent partner at Apollo Global Management. As co-head of Apollo's Aligned Alternatives (AAA) Strategy, Eric brings a wealth of experience from his tenure at Carlyle Group, Partners Group, and Goldman Sachs. The discussion centers around navigating volatile markets, the evolving landscape of private and public investments, and the innovative financial instruments that bridge these two realms.
Market Overview and Apollo’s Strategic Positioning
Economic Climate and Market Volatility
Eric Hanno begins by addressing the current economic climate, highlighting the shift from a strong start in 2025 to emerging challenges such as declining consumer and business confidence, tariff retaliations, and layoffs. He observes:
"We think there's a higher probability of recession... This, historically, over our 35-year history has been a period where we've had great opportunities to deploy capital."
— Eric Hanno, [04:03]
Despite the uncertainties, Hanno emphasizes Apollo's optimistic stance rooted in value investing. Apollo views periods of volatility as prime opportunities to invest and deploy capital strategically.
Apollo’s Internal Environment
Hanno shares insights into Apollo’s internal morale and strategic focus during turbulent times:
"The vibe at Apollo... everyone's just dialed in and focused... this is the most exciting time for us."
— Eric Hanno, [04:03]
Apollo maintains a defensive portfolio positioning while being prepared to seize investment opportunities as they arise.
Private vs. Public Markets: Shifting Dynamics
Investor Appetite Amid Macro Uncertainties
The discussion transitions to how macroeconomic uncertainties influence investor preferences between private and public assets. Hanno notes a general pause among investors during significant market events but underscores the long-term potential of private markets:
"We think private asset value should come down... You just don't have to go to private markets for that reward."
— Eric Hanno, [08:54]
He highlights the convergence of public and private markets, particularly in fixed income, where both sectors offer similar risk-return profiles due to standardized ratings.
Convergence Trends in Fixed Income and Equity
Hanno elaborates on the merging lines between public and private investments:
"There's this mega trend of convergence between public and private on the fixed income side."
— Eric Hanno, [06:45]
On the equity side, he advocates for a nuanced approach, suggesting that both public and private equities contain both risky and safe elements. Apollo’s innovative hybrid strategies aim to blend equity-like returns with fixed-income-like stability.
Semi-Liquid Investments: Bridging the Gap
Introduction to Semi-Liquid Funds
A significant portion of the conversation delves into semi-liquid investments, which offer a middle ground between the liquidity of public markets and the long-term commitment of traditional private assets. Hanno explains:
"Semi liquid funds... allows you to buy in and get fully invested day one... typically sell up to 5% per quarter."
— Eric Hanno, [11:10]
These funds eliminate the traditional J-curve effect by fully deploying capital from the outset, providing enhanced liquidity options for investors.
Managerial Strategies and Scalability
Addressing potential challenges from a manager’s perspective, Hanno reassures that scaling semi-liquid funds requires thoughtful management to balance inflows with investment opportunities:
"We have to establish a fund... to match investor inflows with investment opportunities."
— Eric Hanno, [13:14]
Apollo’s extensive infrastructure and investment professional base enable effective scaling and management of these funds.
Allocation Strategies Across Investor Types
Institutional vs. Individual Investors
Hanno breaks down allocation strategies, distinguishing between institutional investors and high-net-worth individuals:
"Ultra high net worth... often around 50% of their portfolio will be in private markets."
— Eric Hanno, [15:01]
While institutions maintain significant allocations, individual investors traditionally allocate less due to liquidity needs. However, semi-liquid structures are poised to bridge this gap, potentially increasing private market allocations among high-net-worth individuals.
Future of Private Markets in Retirement Plans
Hanno envisions a future where private markets become integral to retirement plans, offering higher returns by slightly compromising on liquidity:
"This is a pool of assets you're not expecting to need until retirement... we are going to break down some barriers."
— Eric Hanno, [15:55]
Apollo is actively involved in educating and facilitating the integration of private assets into broader investment portfolios.
Private Credit: Stability Amid Volatility
Apollo’s Leadership in Private Credit
Addressing private credit, Hanno asserts Apollo’s dominance in the field, particularly in investment-grade private credit within the broader $40 trillion market:
"Apollo is the largest private credit manager in the world... we've been able to find excess return per unit of risk in private investment grade."
— Eric Hanno, [20:30]
He differentiates between direct lending and investment-grade segments, emphasizing Apollo’s defensive positioning and extensive origination capabilities.
Opportunities in Credit Cycles
Hanno discusses the potential for growth in private credit amid increasing credit cycle volatility:
"One of the initial things you can do is you can potentially buy... first lien debt at huge discounts."
— Eric Hanno, [23:05]
Apollo remains vigilant and prepared to capitalize on opportunities that arise from market fluctuations.
Career Insights and Personal Advice
In a reflective segment, Mike Wahlberg invites Eric Hanno to share his career journey and personal advice:
"Work hard, but keep an eye out for the big megatrends in the industry and try to position yourself in a way that you can take advantage of it."
— Eric Hanno, [24:20]
Hanno recounts his early days at Goldman Sachs and underscores the importance of recognizing and adapting to industry trends to achieve long-term success.
Conclusion
Mike Wahlberg wraps up the episode by thanking Eric Hanno for his valuable insights into navigating volatile markets, the evolving interplay between private and public investments, and the promising future of semi-liquid and private credit markets. Listeners gain a comprehensive understanding of Apollo Global Management's strategies and the broader investment landscape shaped by current economic challenges.
Key Takeaways:
- Value Investing in Volatile Markets: Apollo thrives by deploying capital strategically during periods of economic uncertainty.
- Convergence of Public and Private Markets: Increasing similarities in risk-return profiles are blurring traditional investment distinctions.
- Semi-Liquid Investments: These innovative funds offer a balance between liquidity and long-term growth, making private assets more accessible.
- Private Credit Opportunities: Investment-grade private credit remains a stable and growing sector, with significant potential for excess returns.
- Strategic Allocation: Tailored investment strategies for different investor types can optimize portfolio performance amid market shifts.
- Career Advice: Recognizing and adapting to industry megatrends is crucial for sustained success in the financial sector.
Notable Quotes:
- "This is the most exciting time for us at Apollo." — Eric Hanno, [04:03]
- "There is this mega trend of convergence between public and private on the fixed income side." — Eric Hanno, [06:45]
- "Put your head down, work hard. But pay attention to the trends." — Eric Hanno, [24:20]
This episode of Enterprising Investor offers valuable perspectives for investment professionals seeking to navigate and capitalize on the complexities of a volatile market environment.