Marc Rowan, chief executive officer of Apollo Global Management LLC, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, U.S., on Tuesday, April 5, 2022. Jeenah Moon/Bloomberg via Getty Images
Jeenah Moon | Bloomberg | Getty Images
Apollo Global Management CEO Marc Rowan on Wednesday warned investors that he was preparing his giant asset management firm for a potential market downturn and sharply criticized what he called the “egregious” practices of some rival insurers.
The current solid economic backdrop — which helped Apollo report a banner quarter, in which the firm reached $1 trillion in assets under management and record fee-related earnings — is masking a growing risk of what he called “out of the box” shocks.
“Everything we see in front of us is actually quite strong,” Rowan said. But there is “a much greater chance, in our opinion, of out-of-sideline results.”
Rowan, who co-founded Apollo in 1990 and oversaw its transformation into an alternative asset and insurance giant, said he is now more concerned about outside factors derailing the economy than at any time in his four decades on Wall Street.
His comments, which come as the U.S. stock market is trading near record highs, add to concerns voiced by financial executives including JPMorgan Chase CEO Jamie Dimon.
Rowan put the odds of an exogenous shock at somewhere between 30% and 35%, far higher than the usual level of risk, he said.
A convergence of forces could destabilize markets, according to Rowan, including a “total geopolitical reset,” policies that could prove inflationary by restricting labor and trade, and the sweeping artificial intelligence cycle reshaping jobs and economic growth.
“Almost everything we’re doing, whether intentional or not, has the potential to be inflationary,” Rowan said, an apparent reference to President Donald Trump’s tariff and U.S. immigration policies.
“Restricting the supply of goods, restricting the supply of labor and the free movement of goods and labor — maybe for good and valid reasons that need to be done — are all inflationary in the short term, even if we are not seeing signs of it,” he said.
On AI, Rowan predicted socioeconomic upheaval: “Almost every job will be enhanced or replaced. We’re going to see a complete flip — blue-collar ascendancy and white-collar stress.”
The balance sheets of companies and consumers remain strong, while governments’ finances are strained, he added.
Contagion fears
While Apollo is experiencing robust results today, Rowan said, he is preparing for choppier times ahead.
The firm has moved up the credit quality of its fixed income investments, cut exposure to riskier sectors like software, and stockpiled about $40 billion of cash in its insurance business.
“It means we’re investing with an eye toward protecting our capital and making sure that we are here to ride through cycles if there are corrections, which we quite frankly expect,” Rowan said.
But Rowan — who transformed Apollo by expanding into insurance in 2009 through Athene, a seller of annuities and retirement products — reserved his sharpest remarks for other insurers. The insurance business provides Apollo with a large, stable pool of capital to invest, akin to the insurance “float” model popularized by Berkshire Hathaway, and is now central to its strategy.
“Not everyone in our industry is doing what they should do. Not everyone runs their business the way we have run our business,” Rowan said. “We do worry about contagion.”
Contagion would mean that stress spreads through the industry, raising the risk that regulators or central banks have to intervene to protect insurance and retirement customers.
Rowan did not name specific firms that he thought were acting badly.
But he suggested some insurers are relying on what he called “egregious” practices — including offshore Cayman structures, complex collateralized loans and aggressive credit assumptions — that could make some balance sheets look stronger than they are.
“What we can do is be transparent, be committed to higher ratings, build our capital ways and run the business for the long term,” Rowan said.
