That will kick things off. As I am reading this paragraph, this is not going to be a webcast session. I should have made those edits, I guess, a little bit earlier. Really excited, Stephanie, to have you here again. There is a lot of exciting things that are happening in your world, certainly. As I think about what Apollo has done in identifying some of the opportunities that a lot are pursuing pretty proactively, whether it is 401(k), whether it is insurance wrappers, you guys have really been at the forefront. I know that you have laid out some targets at least a couple of years ago, so wanted to get an update as to how things are progressing and maybe how you see the business scaling over the next, I guess, three years until we get to 2029.
Maybe to start, it might be helpful if you can just speak to strategic priorities, the two or three things that you are spending the most time on, where you are dedicating the most resource.
Yeah. Great to see you and to everyone here for the conference. The first priority, and it has really been the foundation of the build now over the last kind of four to five years, is continuing to build out teams and partnerships around the world. We have done that very successfully, but continue to invest in our talent and the relationships that we have across channels within our wealth business. The strong focus also remains around thinking about the role of private markets in a portfolio. As we think about the opportunity, and we spoke about it when first starting the business, and still highly relevant today, individuals hold $150 trillion of capital, almost identical to what is held by institutions, yet we still have a really wide gap in allocation between what your average family or individual allocates to private markets versus that of an institution.
Circa 3% for the individual versus the 20% or more for institutions. Another key priority is ensuring kind of the education, not just the fundamentals in terms of the role of private markets. We have been on that journey very successfully. Also in today's environment, thinking about the role across asset classes, whether it is private credit in the world of a fixed income or credit portfolio allocation, broadly defined, or the private options within an equity portfolio. I think that is a key priority, and we do not have to look far in terms of what is happening in the public equity markets today to make it a priority to recognize the role that a private exposure can play to reduce volatility, to reduce kind of correlation risk, to increase returns, certainly on a risk-adjusted basis.
I would say another priority continues to be the role of private markets in a portfolio and continuing to advance the dialogue, which is absolutely resonating particularly with the backdrop that we see today in the public markets, both fixed income and equity.
We think about this really large $150 trillion global TAM. You have talked about that penetration going from 3% to 7%. Certainly, that provides significant runway for growth. At the same time, there have been negative private credit headlines, things that might compel at least some retail investors to pause or at least reassess what that allocation should be. Are you sensing that at all based on your conversations, or is there still commitment to or at least acknowledgement that they are underinvested, they are underallocated, and they do need to at least put more money to work within the space?
There is no doubt that the conviction in adding privates to the portfolio is there. There is recognition now that kind of dust has cleared from a lot of the noise earlier in the year, that there is a distinction in terms of what was sentiment-driven at that time, and the residual kind of impact of that—
Right
—versus fundamentals. With each month of performance, there is more and more focus on manager selection, differentiation in terms of how the platform or the advisor chooses an exposure in their portfolio. Thankfully, it is no longer as we read in the headlines, a one-size-fits-all view of an asset class or a structure. The spotlight is on what we think, frankly, is most valuable, which is, how are the portfolios doing? What are the fundamentals? What does the composition look like? In that regard, we think that it is in an excellent place. For example, obviously, the direct origination, for example, right? When we think about a strategy in that space, what is important as a backdrop? The first element is the economy. Our view is that the U.S. economy is strong.
We also believe that there is likely a difference between, and you can see it in many different quantitative factors, between a large-scale company that's issuing their paper versus mid or small. When we think about the economy, a rate environment which we see as higher rates for longer, that and a focus on kind of first lien, top of the capital structure type securities in a diversified portfolio, to us, there's been meaningful, almost 200- basis- point premium delivered to investors vis-a-vis public market equivalents. That is a place to be, and the sentiment from our advisors is irrespective of kind of headlines of earlier in the year. They get that, and they understand the value proposition that it plays in the portfolios.
From a relative value as well as absolute, it's so incredibly important for them, and they are, to think about what type of yield, often high single digits, can be achieved with that strategy, especially relative to other public market fixed income credit options.
Given that value proposition, maybe let's marry the top-down view on the industry bottom-up with some of the targets that you guys have put out there. You have a $150 billion target for 2029. It implies about $30 billion or so of gross flows per annum. You're running at about 60%-ish of that rate. I know it's expected to build over time as you introduce new products, as other products continue to scale. Speak to your confidence level or conviction level around the targets, even amidst some of the recent disruption that we've seen, and what's the glide path to getting there?
Look, I think the interest in private markets from the wealth community is going up and to the right? We recognize, based on the feedback we receive across the wealth channels, whether that's the banks and wires or the independent wealth channel, there is a great desire, whether it's credit, equity, and/or real assets across, frankly, both perpetual as well as drawdown, to have those allocations in their portfolios. And I have confidence in the continued interest just based on all the conversations and the needs of the clients that we speak with.
What I found also, as a very meaningful trend, is where the business is going. I think there is a real shift that we started to speak about even last year, but I see it gaining more traction even over the course of this year, which is a mind shift from a single strategy conversation to a more holistic portfolio solution. What I mean by that is the conversations are very much focused on what is that financial advisor or that client trying to achieve in terms of the outcome? What are they looking for in terms of growth? What are they looking for in income? Over what period of time? Is it for this generation or next?
What that allows us to do is shift from, do they want the alternative exposure or the private market exposure, to how are they going to achieve it, in what balance vis-a-vis their public holdings, and then ultimately a conversation about location. Do they want it in the brokerage? Do they want it in the discretionary? Do they want it in a model? Do they want it in defined contribution, IRA, et cetera? That is a far more expansive conversation, which leads to many more untapped pools of capital. Going back to your question, I see continued growth over the long term that only continues to underpin our thesis of how complementary the wealth business is overall to what we have built in institutional over the years.
Really interesting. I recall vividly last year, Stephanie, you mentioned, I think the way you described it was a shift from parts to solutions-based. In that context, how does that inform your expectation around model portfolio demand? Do you expect this to be a meaningful growth driver of flows for the firm, at least over the next couple of years? Are there any wrappers that you are not comfortable being a part of when you recognize you have to protect the brand and maybe do not want that juxtaposition with some others, either in the industry or just it is a wrapper in terms of how it is structured where you are not necessarily comfortable being associated?
Look, we definitely are very thoughtful around how we innovate, how we partner. In terms of models, I think increasingly we are going to see the role, and we are, of the private market exposure in all types of models. Some will be customized and bespoke, some might be SMA format. The TAMPs are interesting because they kind of solve for the infrastructure—
Right
—that is required. Look, I think that is the journey that we are on. In my view, there is no debate as to whether private markets will be included in models over time. We are already seeing it. Morningstar was one that was made public recently, and there we are partnered with others, with JP Morgan, with Franklin Templeton, and there is a blend of public and private there through a model approach vis-a-vis Morningstar. That is one, I think, of many different types, either all private, some public-private. As I mentioned, it goes back to what is the platform ultimately looking to deliver to the end client? I think there will be a range of underlying goals and outcomes that ultimately drive the underlying composition of which that private credit or equity or real assets or all of the above will be included.
I think it is making sure that the underlying infrastructure and rails can deliver the private exposures in that model as efficiently as the publics.
That is great. Definitely want to dig into that a little bit later in the conversation. One area I did want, it would be remiss if I did not touch on, is AI. Just given the focus on AI efficiencies, it would be helpful to get some perspective as to how you are leveraging AI within your own business. What are some of the strongest use cases, and where are you seeing the most tangible benefits, at least across the platform?
Early days, I had an AI mentor within the firm, within my team, which just in terms of day-to-day productivity, personal productivity, was phenomenal.
Mine is Derek.
Yeah, I think mine is at least 10 years, if not 20 years, my junior. It was a great early window for me into just kind of day-to-day practical applications. More seriously, I think throughout the firm, we started with grassroots of how we could create incremental productivity into our day in terms of process flows or data capture, management profiles, et cetera. The way I think about it is kind of in layers. We have a view of what's kind of day-to-day efficiency that we can capture, and we're doing a lot of that already. It's just incredible that within a year's time, how dramatically different kind of the usage is for all of us day-to-day and internally.
Increasingly, there will no doubt be ways for us to use that technology and AI-enabled to deliver information to our partners, to ultimately our community of partners also in a more seamless way, create self-service, and ultimately create more efficiency for them as well as for our teams. I think we'll just build on that in an appropriate way over time. Ultimately, it's a complement to how we do business, and there may be things that we can change kind of more radically to make things easier for both sides.
That's great. I know another priority, at least for the management team, has been around introducing this concept of daily NAV and liquidity. I view that more as like an institutional capability, but didn't know if there were any practical applications for your side of the business, if that's something that you're hearing from at least some of your wealth clients, that there's a desire to have more visibility around that mark to market, and how that's something that you can potentially exploit or take advantage of.
Yeah. Look, I think few in the industry are positioned to do this at scale. It really takes a commitment from the top through the organization to successfully migrate, in this case, to a daily NAV concept. The underpinnings of it is to ensure that there's transparency on pricing through, at this point, our entire credit platform. As you know, Marc publicly went out with goals and deadlines, which we have met as an organization, and we believe that it makes us far better for it because our data capture, our transparency of our pricing. If you look at any asset class over time, good things happen when there's that type of transparency. We can also note, like we now certainly starting with private IG, have market-making, right?
We have a partnership with ICE so that we can have consistency of data as we capture our private exposure through ICE IDs. We have the makings here of consistency of data, of transparency, of pricing, which we believe only bodes well for certainly our clients and really the industry over time. Because the closer we can get the private markets to the efficiency of public, the more scale and ease of transaction that we'll see. When we think of the evolution of the underlying clients that we serve, as certainly when I think about the growth at Apollo, we've gone from typically the alt buyer at an institution, at a public pension, at a sovereign, to now five or six different buyers that span individuals, defined contribution plans, the fixed income buyer at our institution, the insurer.
Clearly, the wealth business in and of itself is made up of those individuals and pools of capital, and the ease in which they've historically transacted is with that type of transparency. So, part of this is a mantra of let's meet our clients where they are and make it as efficient as we can, recognizing that we believe the premium and the premia that we can deliver in terms of return profile comes through origination. We are very comfortable that our proprietary origination allows for that excess return per unit of risk as we make it easier and more efficient to transact.
Yeah. I know another area where you've been quite active is on the public-private partnerships, and I want to make sure that I tick through all the ones on the list. I know State Street, Lord Abbett, as well as Schroders. It might be helpful if you could just speak to what informs the partnerships that you have forged thus far, and do you see this as an avenue or entree to maybe forge additional partnerships, and where might that make the most sense and why?
If you think about each of them, it is kind of putting our chocolate with their peanut butter or vice versa. Ultimately, it is a complement of investment capability, of experience, of how are we going to deliver the risk-return profile that is complementary within the overall partnership or portfolio. Given our DNA, we are bringing that private markets expertise and capability, and often they are bringing the public equivalent and/or a structural wrapper or expertise. I think we are growing and learning as an industry with each of these. We have certainly benefited. We see the scale, especially with the State Street partnership now kind of well over 12 months and exceeding at least $1 billion, I believe, at this point. The kind of market-making component behind that private IG is also working and working well.
I think we make sure that we are very thoughtful about how each of these partnerships create their value and how they are complementary to one another.
The next piece I wanted to click into is 401(k). I recall vividly at the Investor Day, Marc spoke extensively about why particularly alternatives are a natural fit in 401(k) accounts. I do not think that is something that is being disputed, but certainly you have to get the plan sponsors comfortable at the same time. The good news is we are going to get guidance from the DOL relatively soon. Once we cross that bridge, how do you see it unfolding in terms of how quickly we could see adoption? What are still some of the barriers that have to be overcome? Any context you can offer around that, Stephanie, would be great.
Look, I am definitely seeing that shift. It is still early, but you have the managed accounts kind of within the wealth community as well as the target date accounts, and each of them have kind of structures that work and the plumbing that is required to make sure that the access points to private markets work. They are available now, whether it is the CIT or other formats during both the accumulation phase of a defined contribution account as well as the decumulation phase. I think there is more and more knowledge building in terms of how do we help retirees ultimately build wealth and then exit gracefully so that they can plan for their retirement and have enough savings over time to guarantee that glide path.
Right.
The access points and the tools are available. The mind shift is one from a fiduciary's perspective at the DC level, from one that's historically been very focused on minimizing fees, given the backdrop that they're operating in, to maximizing the outcome for the retiree. If you ask any CIO of a traditional regular way plan what their goal is, of course they will tell you they want to maximize the outcome, right? That is naturally occurring, but we do need more and more of that comfort from the regulators so that ultimately, the plan sponsors who are starting to allocate feel that much more comfortable because that's where they want to be. They recognize that these assets are decades in terms of tenure, yet they're being managed to daily liquid options. To have a broader toolkit is in the retiree's best interest.
Wanted to open up to the rest of the group and see if anybody had any questions.
While you come up with any questions you might have, I just wanted to point out on that last question that what's interesting is that this trend within defined contribution is not new when we look globally, right? If you look at Australia or if you look at parts of Europe that have been at it for a very long time, they've seen the benefits of being able to include private markets in these portfolios, and they've been doing it at scale for a long time. We actually see a number of countries, even France and the U.K., setting out requirements for inclusion of private markets in a way that we are just really starting to see in the U.S.
That's great. One of the other themes that's been covered across multiple sessions has really been around tax- advantaged products, whether it's TA long/short strategies that have seen widespread adoption and really strong demand. We've seen that with Ares has an ACI tax- advantaged product that's seen some strong flows. You guys also have Altitude, and that's something which I know when we spoke last, you had indicated that you were spending a lot of time educating folks on the platforms and advisors around the benefits. Maybe just give us a mark to market or an update in terms of how that's progressing.
So, look, the focus clearly from an individual's perspective, the tax implications of any investment are top of mind. As we work with advisors, thinking about placement and maximizing the kind of after-tax outcome is part of the conversation. There are multiple ways, whether it is through the variable annuity contract that we've been speaking about, which continues to gain traction with our partners, albeit still early in that cycle. The insurance itself, the idea of putting kind of an insurance policy as a wrapper is another opportunity. Also, within specifically the world of real estate, whether it's DST, for example, and the opportunities post a sale, a real estate sale, to reinvest that in kind of a tax-aware way. I think showing up as a partner, it goes back to kind of thinking holistically about the solution. Ultimately, we know the long-term financial goals, right?
If we can be helpful and not just kind of the underlying strategy itself, but delivering it in a bespoke way that creates the most alpha for this generation or in some cases the next, we see that as part of the partnership dialogue.
I know another area of focus has been tokenization. That certainly has gotten a decent amount of airplay today as well. Where you guys are in that journey, I know that you had invested, I believe it was $1 billion, give or take. How much demand are you hearing from the advisors around tokenized offerings and how you're trying to position yourselves for that opportunity?
Yeah. The $1 billion of spend was kind of in the WealthT ech ecosystem, broadly speaking, right? We, starting four or five years ago, recognized that not just for Apollo's sake, but frankly for the sake of the industry, we wanted to make the access and transaction in private markets that much easier. So step one was to make that investment in partnerships or in underlying asset classes that would help us all on that journey and across the life cycle of how the investor can ultimately buy kind of private markets. Specifically, kind of as it relates to tokenization, I think there is an interest across a wide range of our partners to make sure that they're finding solutions that capture both the cash wallet and the digital wallet, and doing that in a way that gives smart options to a community of buyers.
At the same time, that clearly, just from an infrastructure perspective, we think about digital and how we ultimately see the rails for more of the kind of efficiency side of the business. I think there are multiple ways to look at digital, and ultimately, it's a journey and an evolution, and we want to be smart in thinking about both kind of the infrastructure components of that as well as the wallet of buyers over time.
Looks like I got time for just one more, but I'd be remiss if I didn't ask about digital infra opportunity, just recognizing that you guys have really been at the forefront as a firm in trying to at least finance a lot of the digital infrastructure build-out that we're seeing take place. Arguably, you guys have the greatest expertise in that area. Just curious what you're hearing from your retail LPs or at least some of the advisors in terms of their interest in investing in that space, and are you contemplating at least having a dedicated wrapper or vehicle that could potentially enable more advisors to get access?
So, for the moment, we include it as part of broader portfolios.
Right.
It is a part of what we see as really a renaissance in the industrial economy and our ability to finance that Global Industrial Renaissance, as we refer to it. The number of conversations that we are a part of, given the breadth of our financing toolkit, is phenomenal, and it's global. I think it's also based on our scale, our flexibility. So we are invited into boardrooms around the world to be a thought partner in how they're solving for their financial needs. Obviously, the world of AI is a part of that, along with many industries that complement kind of our ability to finance solutions. Ultimately, we are incredibly disciplined. We like to focus on opportunities that are secured, that ultimately provide the type of reward for the risk we're taking.
If ultimately these are credit-like returns, then we are going to take credit-like risk and certainly not equity-like risk. We are very measured, as you would expect us to be, and like to focus on those opportunities for us that have the appropriate downside protection as we structure them. We think it has been an exciting space, but very much see it as a part of what we are doing globally with issuers and companies around the world.
Fair enough. Well, that is all I had. Stephanie, thanks so much for being here. Really appreciate it.
Thanks for having me. Take care.