hello everyone and welcome back to conversations with Tyler today I'm talking with Mark Rowan who is co-founder and now CEO of Apollo Global Management Mark also has been leading a campaign to reform and improve American higher education Mark welcome thank you so much and while I do lots of interviews this is actually my first podcast you said recently on Bloomberg that higher interest rates don't Hur HT
the profitability of Apollo how do you think about that in terms of your portfolio what you do how do you manage to be in that position so I just look I think globally about the shape of our business so we are today a $650 billion asset manager roughly 500 billion of that is credit and 150 billion of that are various forms of equity quite frankly it just math uh we do better on the 500 billion when rates are higher up
to the point that you have economic distress and most of our Equity uh they are pretty Savvy about how they borrow and how they lock in interest rates and using fixed rate and other hedging instruments so generally we have upside uh to the level of interest rates but how is it you manage to do maturity matching so much better than say alternative institutions I'm not sure it's better I think you have to look at the structure
structure of our business so um I assume by other institutions are really talking about the banking sector sure where people before the rise of private Asset Management well yes and no I mean asset private Asset Management has not caused the decline of the banking system the banking system has been shrinking in the US as a percentage of the total while it's been growing uh for a very long time uh so just to set levels uh the
banking system today is roughly 20% of corporate and Consumer Credit in the US the rest of it is not quote private credit it's investors you know if you think about it at a very macro level uh Regulators governments they're really only two choices for credit you can have credit come from the banking system or you can have come credit come from the investment Marketplace but now to your question if you think about the banking
system the bar banking system borrows short and lends long they are always mismatched if you think about what we do and different than many um half of our money comes from individuals and institutions who are seeking a rate of return they have no maturity they have no defined outcome that they want therefore they are willing to commit their money for lengthy periods of time so long as they are obtaining
the right risk and reward and they are not focused on day-to-day liquidity they're focused on the ultimate return for this piece of their portfolio the other half of our money comes from the insurance industry including our own Affiliated insurer Athen and money we manage for aora our European affiliate as well as a number of third party insurers and insurers unlike the banking system they borrow long and lend long
and everything therefore is asset matched if you look at Apollo today there is nothing that is daily redeemable but there's a traditional history of insurance companies suffering from some kind of duration risk right in the 1990s how is it that Athenian Apollo avoids that what is it you do that's different so um jumping around Insurance um if you have to really look at it over a long period of time almost all of the
problems that have come in the insurance industry of any scale for a 100 years have come from traditional companies who have made poor choices as to their liabilities we spend a lot of time today talking about assets but most poor decisions have come from liabilities think about people who reinsured is bestus risk think about people who provided dno Insurance to the Enron and others of the world think about people
who insured uh Japanese uh earthquake and meltdown risk uh think about all of the mispricing in financial Market markets whether it's what GE did on long-term Healthcare or it's what many companies did on variable annuity these are liability problems the asset problems in the insurance industry are act have actually been quite modest over a really long period of time you have executive life you have mutual benefit
and then you have a small a large number of small companies that add up to essentially nothing assets have not traditionally been a weak spot for the insurance industry it's been liabilities but what's the of your comparative advantage in making better liability choices than say older School insurance companies where does that come from well it comes from a very simple business model um we are at athe um in one
business we're in the business of Retirement services and therefore we we don't guarantee or don't Ure your life we don't ensure your health we don't ensure your home we don't ensure your automobile or any other form of catastrophe we simply ensure your retirement and we do do that through annuities and we do that through pension those simple liabilities are locked in and they are essentially a means for individuals to
save we have a retirement crisis in this country people have not saved enough Social Security is unlikely to provide a good standard of living for the vast majority of people and so we also have a system that encourages retirement savings retirement Savings in Insurance products are tax-free they build up tax-free and someone commits to these policies for 5 10 15 20 years and at the end of that they have ta tax-free
compounding at nice rates of return so given that so few other institutions seem interested in addressing this problem of retirement risk what's the source of the comparative advantage that allows Apollo to do it make money doing so apparently be stable how how do the pieces fit together where's the so-called free lunch coming from well your talent the building you bought or what is it I I assure you it's not my
Talent uh I I have I'm fortunate that nearly 10,000 people make me look good most days not every day uh but most days so if you think about our industry in our industry you need four things to be successful the easiest easiest of those things is capital if you are a responsible investor and you sell investors on a long-term business plan you should be able to raise Capital but if you look at our industry the public
companies in the Retirement Services business over the last decade have raised virtually no Capital fundamentally investors have decided they do not trust the public companies as good stewards of capital and in fact the vast majority of these companies have paid out their current Book value as dividends over the last decade so I start with well Capital should be easy capital for this industry is actually quite hard and so we showed up in 2008
with capital that doesn't guarantee you'll be successful the next piece is is you need long-term lowcost liabilities initially as a startup company in 2008 we had no right to participate in this market but 2008 was a very tumultuous period of time lots of companies were looking to get back to their quote Home Market and people were selling off old blocks of business we bought old blocks of business and we did
it successfully and got to scale and we acquired a large amount of lowcost business today that same Opportunity by the way is no longer available because there are not big blocks for sale the interest rate environment is different there's not the same tumultuous need to sell uh and so we are now the largest originator organic originator the sale of new products through traditional channels in the retirement business last
year we did some 60 plus billion this year we're projected to do 70 plus billion just in the US this is a big Market if you get it right so long-term lowcost liabilities that are predictable that you can invest against third you need a scaled lowcost operating infrastructure even though we are not the largest insurer we are the largest Retirement services company we focus on one product segment you look at other
big insurers they have diverse operations in some cases they don't have scale in any of their businesses even though they are quite large we are as one product based in Iowa really efficient very lowc cost and that allows us to make money but the other thing that you need to be successful an insurance company a Retirement Services Company needs to both be and appear to be and project solvency regulatorily you
need solvency rating agencies you need solvency and if you're backing 20e promises you need solvency so you need lots of lowcost higher yield excuse me lower risk higher yielding assets and we have become at Apollo experts in originating these low higher quality higher yielding assets so-called private credit and have been successful in originating them to the benefit of aine and others in the insurance industry so how did the
macroeconomics of this new world work if you don't have much maturity matching risk you're relatively insensitive to where interest rates are moving so if the FED is controlling interest rates say to disinflate or for any other reason it seems that matters much less than it used to do you agree U to us yes it matters much less than it used to we run in our Retirement Services business a spread business and in that spread
business the absolute level of rates is not all that important what matters is that we are able to earn a spread on our assets versus our liabilities versus our cost of operations such that we are profitable and therefore can both attract New Capital retain the capital we have and provide investors with a reason to invest with us for the long term but say more and more of the economy goes into relatively successful
private credit doesn't the FED have to raise interest rates all the more because there's no impact or no major impact on your lending and the lending of your peers but there's still some banks out there 20% so to get those Banks to respond does monetary policy become tougher and tougher to pull off how do you think about this I think it has become tougher and tougher to to pull off and I think that um to the
extent we lived in a world where Banks were % of the credit Market there was a very direct relationship between fed action and now and what happened in the economy to the extent 80% of credit is now provided by investors forget about private credit for the moment but by investors there is a Less Direct but still incredibly important because the Alternatives you know as rates go up credit becomes more
attractive to investors versus equities as rates go down the reverse happens so there are a lot of ability still of the FED to influence outcomes but it is not the direct correlation that you once had but I also don't think of it in just a monolithic way about well the FED has less control I think about resilient and necessary those are the words that always come back to me I look at the US and relative to almost every other big
Capital Market the US is in an extraordinary position and that is in my opinion um reflective of the diversity of capital sources that we have no other place in the world really has what we have if you look at almost every Asian economy two products equity and Bank debt look at Europe equity and Bank debt yeah there's the beginnings of a fixed income Market there's a high grade but there is not the diversity of capital
sources uh that you have here and so I come back to resilient and necessary if the banking system while really important and not going away and still vital for the country is borrowed short and lent long every dollar that moves out of the banking system and into the investment Marketplace actually Del leverages the entire system think about that a bank has levered 10 to 12 times when you move credit out of the banking system into a
mutual fund it's zero leverage but there's less liquidity in that world right well let's talk about liquidity anyway so this is one of those things yes it it is less liquid but but we're going through a whole rethink of what liquidity means so 2008 we had just an unbelievable series of changes that took place in our economy in response to the financial crisis we essentially redid all of our financial markets Financial
regulation the problem is none of us have experienced that yet for any length of time because right after we changed all the rules we printed $8 trillion and everything went up and the right beginning in 22 we started to experience the new world and in 23 we experienced it more but we all myself included we have a lot to learn about what this new world is but if you just look at the numbers trading Capital the capital used
for Market making is on10th of what it today of what it was in 2008 and why has that gone down so much is that Dodd Frank partly or what El that is dodf Frank more than partly but 10x effect from Dodd Frank trading capital is 10% of what it once was we had incredibly liquid market and now we have a less liquid Public Market by the way we now have public markets that are three times their size doesn't take a
genius to say that's 130th of the liquidity but we haven't experienced it because everything is liquid on the way up when we're printing 8 trillion doll it all was good but now when when things go the other way we're finding out that what we thought was Liquid is not as liquid as it once was and I'm not talking about the top 500 stocks I'm talking specifically about the credit Market I saw an article the other day
was saying that the average average length of time to sell an investment grade public corporate bond is now 5 days we have had the first wholesale failure in a market of liquidity think about what happened in the UK in their pension meltdown institutions in in the UK thought they had Market liquidity at or near the market price they tried to sell AAA and double A obligations the market gapped down they tried to sell more the
market Market that gap down again Bank of England had to step in and St stabilize the market before major damage happened but why is there so much adjustment in the quantity of liquidity and not more in the price so a 30X decrease is a massive adjustment in the queue or the quantity we we we have so why don't you just pay people to get more liquidity that might be inefficient a higher price but isn't that what's
happening Ian isn't that what ldi in the UK showed us is that there is liquidity it's just not at or near the market price and I do expect that in Risk off in environments we will actually see much greater price adjustment and so this comes back I don't want to go down the rabbit hole of liquidity but I want to contrast this to what I see taking place in the world we have this impression this is now this is
my 40th year doing this and we have an impression in the investment Marketplace that private is risky and public is safe well was that the case that probably was when I started in business that probably is true most things that were private were private Equity venture capital and hedge funds and things that were public were generally public for the right reasons well is it true today right now I look at the S&P 500 I look
at 10 stocks that are nearly 35% of the S&P I look at those 10 stocks that trade north of a 50p and I said to myself is that actually safe or is that just a reflection of a liquidity bubble and everyone piling into p passive management and everything else I don't have to conclude that but my belief of where the world is today is public is safe and risky and we've seen that look at all the tech correction
that took place in it's correlated right everything is correlated but I'll make the point on safe and risky in public and safe on risky in private because something is private no longer means it's risky private goes from double A to lever Equity public double A to lever Equity we're just talking about degrees of liquidity and what whether liquidity or illiquidity is a risk or not so to a wealthy individual how many wealthy
individuals High net worth investors need 100% of their money on Tuesday probably none therefore they should be looking at using liquidity as a choice are they getting paid for giving up that option to be more liquid same for institutions if you're a pension fund if you're an endowment if you're a sovereign wealth fund sure you want to portion of your portfolio that's liquid but how much of it actually needs
to be liquid and so I find myself asking and talking to C CI today and CEOs today not so much about public or private or liquid orid but are you being adequately compensated for having less liquidity and are you structurally able to be less liquid prudently so if we're thinking about pre- aollo pree traditional insurance companies you're saying they were investing too much in too many liquid asset and what's the reason for that market
failure why did they make that mistake it's not a question of market failure this is when you grow up in a world and private is perceived as risky insurance companies have always been investors in private placements it's just the size of the traditional private Market has been very very small and so a small portion of their asset so they found themselves invested primarily in public assets because 20 years ago public was safe and private was
risky well the world we're in today does not look like that even the term private credit they're just two English language words that sound like they mean something but for the most part they mean nothing in the popular press people use private credit to refer to a very small sliver of a market they refer to private credit as direct lending or so-called lending to buyouts this is a below investment grade activity
sometimes it's really attractive sometimes it's not so attractive but it is a $1.5 trillion Market a large Market but the Market that I'm talking about for private credit is 40 trillion everything that's on a bank balance sheet is actually private credit think about that loans to companies private credit loans to Consumers private credit we haven't yet gotten to a more sophisticated view of the market where
private can be double A just less liquid public can be triple Fe just more liquid there is nothing inherently credit sensitive about being public or private it's just differing degrees of liquidity so in the old banking model say I get a checking account my local Chinese restaurant gets a small-sized loan in relative terms is there now less of that I mean what's the opportunity cost of moving to more maturity match higher
yielding assets what what is the economy giving up even if it's a good tradeoff I think it's clear that the largest companies in the world have access to both the banking system and to the investment grade bond market every day medium size and smaller companies no matter how creditworthy have less access to the banking system and have virtually no access directly to the bond market and so they increasingly will come
through intermediaries some of that activity is below investment cred and speculative that's a perfectly fine business it's not primarily the business we're in some of that business is investment grade and secured and that is primarily the business that we are in and so I don't think it's better or worse I think that we're just is looking at Evolution and we I'm constantly reminded that Financial Services is not
a status quo business I go back to when I started beginning a higho bond market not a lot of higho bonds no leverage loans no ETFs not a lot of securitized product those four products today we take as mainstream products why do we expect that 15 years from now or 20 years from now the same four products will be as dominant we will end up with a new set of products and a new set of markets that reflect differing market
conditions and different regulatory conditions and different conditions of financial institutions it's just change how stable is all this as a political equilibrium if you think about the four major Banks as you well know they're very serious stress tests applied to them Capital requirements the FED is a major regulator at least for insurance it tends to be at the state level one can reinsure through Bermuda Capital
requirements are very different competence of the state Regulators arguably is lower than that that of the FED whether or not one wants more regulation and generally I don't but is this a stable situation how's it going to evolve well I first I I would have to correct almost everything you've said along the way to set the table for what I'm going to talk about so first the difference between not so much the
banking system and insurance but the banking system and the investment Marketplace there are plenty of ways let's start with this there are plenty of ways for investors to lose money investors can buy speculative stocks they could buy the P they can speculate in almost anything so the the making or losing of money is not in and of itself a systemically risky activity because we allow and I'm for good reason we allow
speculative investing every single day things go up things go down you can lose money in credit as well as in equity okay now we come to mutual funds if a mutual fund which is daily liquid owns credit and investors want to get their money back you're right right price just adjusts mutual funds are not price guarantors are they regulated mutual funds are regulated are they disclosed and transparent yes they're disclosed
and transparent the Holdings of a mutual fund are completely visible and they're delevered is that a risky activity because it moved out of the banking system and into a mutual fund I don't think so I actually think it has der risked it's made our economy and our financial system more resilient so now I'll come to your question on political equilibrium insurance if you just focus on insurance has no federal guarantee does not borrow
short and lend long has no access to the fed and does not do liquidity transformation or maturity mismatch and they are forced to hold amounts of capital so if you look and I'll give you a comparison just for us not for the whole industry who holds more Capital aien our insurer as a percentage of assets or the typical Bank you would think the typical bank but you would be wrong we hold more Capital per
dollar of assets than anyone else who holds more investment grade assets 90% of our book is investment grade the typical bank is two-thirds investment grade sure but that's all time slight let's let's let's keep going money market funds have been a source of systemic risk AIG has been I can I can't I can't tell you there's not risks in the economy we have a choice we can have risk dispersed among lots of Institutions or we can have it
concentrated in the government back borrow short Land Long government guaranteed banking system every time we disperse that risk we make the system more resilient if you want to focus on insurance which is your question on political equilibrium there's more Capital there's no Alm mismatch there's more investment grade and there is appropriate state-based regulation for institutions that do not have government
guarantees or borrow from the fed or do anything else insurance is very slow moving we're talking about on average 10-year assets this is a very slow moving process and again most of the issues that have happened in the insurance industry have not been asset issues they've been liability issues exactly the kind of thing that Insurance Specialist regulation is designed to detect but say you're a risk averse regulator maybe too
risk averse you're worried about off-balance sheet risk you're not very good as a regulator at monitoring off-balance sheet risk so you overreact by extending your own reach wanting to impose Capital requirements on everyone then you want honor to them more and eventually these private institutions which are basically healthy they become more and more like banks no you so we have this example we have um solvency 2
in Europe solvency 2 in Europe has been terrible for the Retirement Services industry capacity just the mere availability of product is down almost 40% that's an outcome that's not the outcome we've Chosen and the question and credit at the end of the day which is really what we're talking about credit is a function of GDP if you want GDP credit can only come from two sources the government backed government
guaranteed borrow short L long banking system or the investment Marketplace there's no third choice make your choice if we want less GDP that's a choice it doesn't seem like a good choice given the other options that are available will crypto play a role in the future of the US financial sector out of my depth just don't absolutely no idea but you interact with plenty of financial institutions that have opinions on crypto right you you
face the possibility of investing in crypto yourselves you might not do it but that itself is a St I'll I'll give you my my uneducated uh spectator from the sideline view things like stable coins things like onramp things that are convertible back into fiat currency are absolutely going to play a view I see every opportunity for them them to reduce the cost to reduce the friction of dealing with the financial system to
be an amazing on-ramp for the US I don't really see in a kyc AML World a value of an alternative currency if you're in other parts of the world maybe an alternative currency has more appeal than but in any case apala is not doing it Apollo is not engaged in crypto why would you spend a given free day in Japan and where in Japan and what would you do well first Japan is an amazing place as you know uh it's it's
just so different and I'm surprised by something every time I'm there but as as a financial matter you look at at a society that is older that has needs for retirement that has lived through repressed yields for more than 20 years and so you have a yield starve Society in an older population nearing retirement they need yield they are very comfortable in dollar and to the extent we are providing safe
yield Total return um investment grade private credit whatever buckets you want to talk Japan is absolutely the perfect market for what we do and I think it's a matter of education and that education is taking place Japan also has an insurance industry that is in the middle of a capital transition has had a very very difficult time raising capital and so that's also a fabulous reinsurance Market so between my my love of culture
uh my love of the food uh the need for safe yield and the need for reinsurance Capital it feels like a highly productive place to be as you know Japan has a total fertility rate of 1.3 South Korea now is at 0.7 and falling that's astonishing do any Financial models work when your total fertility rate is 0.7 you know again I want to I want to stick to that which I think I'm good at So Over the Horizon as a country as a
matter probably not the population projections I have seen for lots of places in the world are just shocking but in the little corner of the universe that Apollo participates in a 10-year period a 20-year period is not really all that different than it is today your grandfather Emanuel Stein he was an economist what did he taught at NYU labor economics Labor Relations what did you learn from him well that he was
my uh first job I I was living in South Florida I would come to New York for the summer and he was a labor arbitrator and so I would come work for him this Summer he would dump a bunch of briefs on me and I would summarize the arguments and then I would debate the cases with him and then he would go off and write the opinions so it was a a pretty good way to uh get a good view of the world as between labor and management what made
him a good labor arbitrator patience he was uh just a remarkable individual multilingual a Torah scholar just had an incredible amounts of patience and humility and your free day in Japan when the work is done uh where do you eat what's the best food in Tokyo you know I I I kind of take it from the coners at wherever I'm staying I look for one traditional Japanese experience and one give me the latest newest greatest
because Japan does create new and great in addition to traditional the best French food I've ever had was in Tokyo in fact it's amazing isn't it you never know what you're gonna find that's right your interest in architecture is brutalist architecture overrated or underrated is it actually good so I I don't know that I would say I'm interested in brutalist architecture but I am interested in building things
so uh for whatever reason um I am not a collector of anything I I don't collect wine I don't collect art I don't collect cars but I do like building things things and have always liked building things starting from my late 20s when I built my first house uh I built lots of houses lots of restaurants lots of stores small Office Buildings and I just keep going whatever itch it scratches uh I find it to be just an
incredibly creative Outlet really enjoyable and everyone always says don't you get aggravated building these things and I said well only if you have to move in on a certain date but if you're flexible uh as a Rel to brutalist architecture you're referring to the apartment in New York City on fth Avenue fth Avenue um the answer is I don't know that I would have chosen it but there's something about it that I just found
incredibly appealing this was uh a full apartment built with no right angles everything curved in very simple materials but very beautiful materials and you feel it's held up visually uh it it's had to be redone visually it's held up beautifully but but maintenance every surface that was uh everything that was used to build in the 1950s 1960s 1970s is now gone it's been rebuilt in the traditional in the same style but with new materials
and new techniques how do you think about whether or not there should be a red hawk nest at that building I I don't think about it at all uh I've I've rarely see the hawk uh or Hawks and it it does not interfere with my life and you just never worried about the red hawk nest oh there's so much else to worry about but uh I never worry about the red hawk nest at 927 here's a question I've asked a number of guests uh both Patrick
Collison and I both have made the observation it seems there are really very very few attractive residential neighborhoods built after World War II in this country or if you look at Europe places rebuilt after wartime damage they're mostly ugly or mediocre or maybe at best okay you might challenge the premise but why do you think we've lost the ability to build beautiful neighborhoods plenty of lovely homes lovely individual corporate
buildings but neighborhoods all the good ones are old why uh well uh you you got here first whoever got here first took the good neighbor took the good physical location I think we're in a rebuilding mode certainly in most of this country and certainly in Western Europe uh there are beautiful things and beautiful neighbor hoods being created uh I'm back from 12 days in the Middle East What's happen we
can like or not like the style of what's being built but the scale the ambition the new neighborhoods the ability to create new is extraordinary and where impressed you there so to see what's happening in Riad in Dura which is their traditional neighborhood has 9 million people on the way to 13 million people to see what's going going on in Abu Dhabi on museum Island and Sadat and and other places the scale of ambition there
is actually quite impressive I don't love everything but I am impressed of their ability to get things done and to actually reinv Vision on a grand scale something we really haven't done in this country in a very long time in the United States do you think we're on the verge of building a new Shaker Heights which is not on a spectacular plot of land right it's outside of Cleveland gorgeous homes wonderful
neighborhoods trees perfectly integrated and they were quite poor compared to us why now Shaker Heights today or do you think we're doing one I'm not sure don't know I mean I certainly I look at the places where you have population increases most of what what I've seen that I really like Austin Texas we're going to have whole new neighborhoods in Austin Texas places that are physically beautiful that were
just outside the core and now are being built again we can say that's prog ress or not progress uh if you're commuting into the downtown Austin you're you're not so excited about that but I think in places that are still growing it is pretty Dynamic and will we or should we repurpose these big box big glass modernist Office Buildings are they permanent or they've passed their due date or how should we think about those
I I worry less about the look and feel of the office I I think an office is an internal thing does it encourage the kind of collaboration the kind of uh work environment that you ultimately want for a company I look at you you've just come from our cafeteria uh and the productivity increase that we've experienced from the Casual collisions of people seeing each other every day needs to happen inside a physical
space in this office does the exterior of the building really matter to me no not really so what else have you done here at Apollo where we're sitting at the moment uh to make it a better internal office how do you think about that design well first um you're you're going from a very low bar to a much better situation we were spread throughout this office building on non-contiguous floors with separate cafeterias in what I would call you know
traditional Executive offices for the more senior people and bullpens for the more Junior people nothing that I've just said is now true we are now in a contiguous lowrise of this building on nine contiguous floors is all connected by staircase we have lots of places where casual collisions take place we have our coffee bar we have our cafeteria and for the most part we've become much more Garian with respect to
offices one of the things that I've done when I took over as CEO I have a windowless office off the trading floor and next to me is Jay Clayton former head of the SEC he has the same size windowless office off the it's given me tremendous moral Authority when it comes to the uh arrangement of people's offices to say you're welcome to take mine and I think that culturally uh leadership here has embraced it we now
sit not with each other we sit with our teams we are spread throughout this building in a good way if you need to hire a new person to make major decisions significant commitments of funds what non-obvious quality do you look for in that higher so I wish there were I wish it were that straightforward and we could we could test for this do it so but you must use your intuition at some level right we all do what does your intuition
tell us that I wouldn't learn from someone else no one gets hired to make major decisions right away so let's start with that I I will say jokingly your first year at Apollo is mostly useless your second year you're at 30% capacity by the third year you feel like you've been here 10 years we have lots of smart people and there are lots of smart people in financial services this is about cultural fit and it's
understanding where we're going going and whether the organization can absorb the specific decision the amount of change or whether it has to be prepped in a certain way we are not chess pieces that can be moved around and I we I just got back from a an offsite with all 2011 Apollo Partners in Abu Dhabi really interesting way to get together three most valuable days of the year for me first thing I said a small
group of us cannot run this business there are too many important decisions to your point that are taking place at levels that I will never see and that could never absorb I have to get the Buy in of 200 people to successfully run this organization and so when I present or the leadership here presents a strategic plan we're in debate mode there's very little that gets done in the way of dicta here you're hiring a 22-year-old for an
entry-level position but a potentially significant one what non obvious qualities do you look for yes they're smart they work hard maybe went to a good school what else so they have to love their job to you can't fake this job for very long um you know people say like isn't it really hard isn't it you know take over your life and everything else absolutely and so if you don't like it this is probably not a good place for
you at the end of the day though being able to take a blank piece of paper and think about what's not there is the skill that gets them from Mastery of numbers of analytics to actually decision- making and I think back and I'll I'll related it personally for me uh I started at Drexel Burnham and at Drexel we financed companies where there was a non-zero chance their business would not exist
you spent an awful lot of time thinking about the future the business plan the specifics we were not banking Exxon Exxon was there then it's there now we that's a process of of maximizing the efficiency of exxon's particular corporate action that's needed something that forces you to think about where something is going whether the business will exist how things will change how you make Capital commitments in the context of
uncertainty is really what you want to see you don't see that in a 22y old because you see them as masters of their craft you don't actually know till a number of years after someone's here whether they possess that ability which is to bring all their outside influences their knowledge of what's going on in the world to bear in the business along with relationship at the end of the day this is a complex business but it's also
a really easy business people do business with people they like are you likable are you relatable are you good at building relationships having the right answer is helpful being able ble to convey that answer in a way that someone else will absorb and to engage in a dialogue with them much more important here's a quotation from you I think if you could explain it to us quote our business like the real estate
business and some other business is hours of boredom followed by moments of Terror we really only make 20 decisions a year what are you getting on about there well I I was really talking about uh it's taken out of context but it is it is what I give us the context so the context is I was talking about the difference between being an equity investor and a debt investor so in the private Equity business you look at you
work incredibly hard but if you look at what we do as a firm and we're one of the largest in the private Equity area we make 10 or 20 decisions a year everything else is ceremony and so hours of boredom Follow by moments of Terror when you actually have to decide but if you think about that business if I come in on Monday and I don't like what I see I go home Tuesday same thing and I keep doing that until I
like what I see and then I make an investment because I'm only making 10 or 15 Investments a year and now I'll contrast that with the credit business in the credit business I come in on Monday and I take the least bad alternative on Monday and the same on Tuesday and the same on Wednesday so my job in the credit business is to create more leas bad alternatives to create more origination to create more diversification to create more options
because I know if I'm serving insurance companies our own insurance company or someone else a theme needs six or S billion a month that's what I need to create and so it's it's two different speeds it's two different ways of looking at the business it's two different ways of thinking but I also want people to know that in the equity business hours of board invol by moments of Terror given recent developments and you've been
involved in some of these do you ever feel that Apollo and other top firms in the New York financial sector that they're just hiring too many people from so-called top schools are you thinking that I I really don't think that because we we as a firm we've branched out so much and I'm sure the other firms have branched out as well which is yes um when we started it was easy to hire from a core number of
schools into the private Equity business and it was very self- selecting so I came from the University of Pennsylvania and it would not surprise you that when I ran recruiting 50% of the firm came from the University of Pennsylvania then you know we democratized we had a few people from duke and a few people from Virginia and now it is uh a a complete democratization from all over the country all over the world the fastest
growth in our business right now is taking place in India and people say well that's back office no it's just an office we're 500 people in Mumbai we'll be a thousand people in Mumbai in three years and those people are coming from all over the world what makes you bullish on the India office what it's just it's just an incredible labor pool we have a place that grew up as a back office for
everyone where it's now just become another office the english- speaking the time zone the work ethic quality of people and we're scaling almost every business in India professional businesses risk businesses technology businesses and what you would consider traditional back office it's all happening what's the biggest obstacle to doing business in India um the biggest obstacle is just Capital markets I'm not sure we're going
to deploy all that much in India so if I think again about the Indian economy um like many other uh Asian economies you have equity and you have Bank debt so now I'll talk about our strategy particularly in India it used to be that we were there supplying Equity but guess what local Indian entrepreneurs the wealthy families they have amassed significant amounts of capital there is no shortage of equity in India and my
guess is if there's an interesting opportunity in India we would not be the first ones to see it therefore it tells me we're not a great Equity investor in India other than around the margins on the other hand the banking system banking system is very lowc cost and if the bank is willing to supply something we should let the bank do it and not compete with them so our business plan in India is to be between equity and
between bank because there is virtually nothing that exists of size and scale so when Adon buys the Mumbai airport we lend him 750 million us when families in Mumbai want to consolidate their real estate holdings we lend them 400 million us these are there's a lot of business to do but it is not we can go there and say we're in the equity business or we're in the Bank debt business but that's not the opportunity it's also not
the opportunity in most of Asia now is this your correct title you're chairman of the board of overseers at the Wharton SK at upen is that correct we we no longer use the word overseer okay what is it I'm chairman of the board of advisers at the Wharton School at the University of Pennsylvania why you have so many University boards they seem to have fallen asleep on the job or they're even part of the problem or it's
hard to reform them structurally what's gone wrong guilty is charged so I was and you know I've been very public in this um I was a member not just of the the chair of the w board but also a trustee of the University of Pennsylvania there were approximately 50 trustees and the way you get to be a trustee for the most part is you put in service at one of the other boards and then you are graduated over time to the
trustee board every other board at a university is a non-fiduciary board it's an Advisory Board including the board that I chair at the University of Pennsylvania's Wharton School it's an Advisory board when you move to the trustees you actually become a fiduciary no one tells you that the boards don't behave any differently with 50 members it's very difficult to engage in substantive debates and for the most
part and I put myself in the negatives here as well trustees have actually not fulfilled their duties so if you take upen as an example upenn's Charter is actually quite interesting if you look at the questions that I've written to the board the trustees about and questions that I think they should answer in thinking about where the university goes and who how they choose the next president those are for the
most part not questions that Mark Rowan dreamed up these are questions posed directly from Penn's Charter trustees are supposed to set standards for admission they're supposed to set standards for faculty promotion they're supposed to set a strategy for the school they're supposed to evaluate the efficacy of various academic departments can they actually do that the answer is sure they can can 50 people do that no
50 people cannot do that so the boards are too big you think they should be smaller on average I I think boards have to be of a level where people can actually have a debate and set a series of guidelines and like every board of directors they are not doing and micromanaging these universities just like Boards of directors do not micromanage companies they set strategy they set tone they set policy and they pick a leader so imagine
if you were the past president of the University of Pennsylvania you arrive after two very long serving presidents you are hired by this Board of Trustees and you go to work what's your goal what's your plan how is Success judged what's the University's policy on Viewpoint diversity what's the University's policy on Free Speech the Board of Trustees myself included we never actually provided a road map for the president to be judged
against so it does not surprise me when confronted with difficult situations that there was no guide I can't imagine that's a recipe for success and so my own View and this is what I've written at the at upen is trustees should first answer fundamental questions about policy and where they want the university to go in partnership with their academic peers because AC the academy also has a series of Rights and
responsibilities and once the university knows where it wants to go hire the next president against a business plan a strategic plan as to what they should do and what they should accomplished it's unfair to leave them directionless now fortunately upen has a very is in a very good place right now has a very stable Pair of Hands and Larry Jameson who's the interim president so they'll have time to do this why are academics as a
whole so cowardly and conformist you said that not me that's fine I'll say it look but it's true in my opinion the answer is I think it's career risk I do think that they've bet their careers on achieving tenure and achieving the notoriety or reputation amongst their colleagues and they're loath to lose that so what's been interesting about this entire process um the number of professors department
heads Department chairs who have reached out and just said Thank you thank you for saying what needed to be said and I'll say thank you while we're on the record but please continue I say to them I said well you don't know how many of of you there are if you're a A Wharton faculty member what are you interested in you're interested in academic excellence in research if you're an engineering faculty member same thing if you're a
doctor in the med school you're a professor Professor same thing there are there's such a large group that is actually interested in getting to the core mission of a University academic excellence and research and without a guiding set of principles every day the university is facing some sort of Crisis where do they stand on Free Speech how what is the what are are there any limits to academic freedom how do we what is the
goal of the University is the University Viewpoint neutral there is no policy and in the absence of policy many things seem arbitrary and say you're talking to your grandkids or your kids or someday your great-grandkids and they ask you where should I think about going to school and I put aside you pan which obviously you might recommend for a bunch of reasons but what Insight do you have into this
where should they go what what do you need to learn I mean if you think about how much the world has changed the world has changed massively in almost every sector not so much in Academia we still have professors standing in front of classrooms and while the tools are better it's not like high yield bonds right it stayed the same it's not like technology so I I'll give you an analogy to what's happening uh I am involved in
in Academia in Israel for the past 38 years I have either chaired or co-chaired um what has become Israel's best private school network public chart public charter is probably a better way to describe it um we're 50 schools we're roughly 30,000 kids in school we're 3,000 teachers we only work in the periphery of Israel Ethiopians jenes Drews bedwin Eastern Europeans and we teach we use Union teachers we teach the state
curriculum and our kids from these poor neighborhoods who have a historical track record of not performing are now performing at among the best levels in Israel overall the network is roughly 90% matriculation rate for their bugout their University test and we've wholesale changed communities and I've we've now seen this over 38 years so this not and how did you do that that's that's the punchline so how we have to teach the state
curriculum with State teachers the only way we can do this is we can teach it any way we want to teach it if you go into a darker School you are unlikely to find a teacher standing in front of a classroom in any class technology has been brought into the classroom new ways of teaching has been C experimentation has been brought into the classroom games have been brought into the classroom we trial lots
of things and we double down on those things that work we are essentially a laboratory for changes in Academia so I I can imagine the status quo is going to hold that 20 years from now we're going to have professors standing in front of classrooms doing what they do the tools are just so different the amount of intelligence that people can gather from outside the class and research is so different what do they need to know how
to figure out what's true critical reasoning how to use the resources and apply critical criteria to those resources is the memorization of dates and times and places and orders all that important probably not critical reasoning context if someone's doing a trip to Israel they might typically go to Jerusalem Tel Aviv where should they go that you know about and maybe they don't um they need to go to the desert by a lot I am um of
the things that I do and I don't do all that many things well but of the things I do well age adjusted I mountain bike pretty well in uh timna park near a lot is a landscape that is otherworldly desert rock sand formations unbelievable and beautiful new hotel there also how many restaurants do you own in Long Island three another uh as I joke I'm The Accidental restaurant tour uh two two under the name durias one in
Monto one in orian point and then Lulu on on the Main Street in Sag Harbor what have you learned about the economics of restaurants from those I actually learned that the restaurant business is a Better Business than most people give it credit for and I make the following observation most it is the restaurant business most people who go into the restaurant business don't know anything about the business
side of restaurants most people who go into the business are under capitalized and therefore the first time that they experience some sort of difficulty they go under and also a lot of it is very parochial people haven't traveled the world to see what's out there and the best thing I've learned is find the right partner who knows something about running a restaurant because I know nothing about running a restaurant but I know a lot about
business how much of your profit do you make on wine and drinks compared to food that's the old cliche right the food is Break Even is it true or not um no it's not true I mean I I think about uh the decisions we've made out in mon talk where where um reputationally we've decided only to serve um wine and beer no hard liquor could we make more money serving liquor absolutely but it's not how we run people want to come there for
the experience and we do just fine on the food as well and what kind of food is it uh think of sop meets Cape Cod okay 70% of it is some form of lobster which of course I don't eat but that's a whole another story and the chef is French or uh my partner is is is French and my partner uh and the the key Chef who's overseen all the culinary experience is French as well and what have you learned about design by having
three restaurants in Long Island um each one is different so uh Mok as I've suggested is a very traditional Cape Cod style uh orian Point uh mixes a North Fork style uh with tidbits of mikinos and what's been done there and Lulu uh could be on the main drag in Tel Aviv and last question what is the next thing you want to learn well I am well language wise I'm uh 12200 days into Spanish and so I now
need to go spend 30 days someplace where people just talk to me in Spanish and I think I have a chance where will you go there's many candidate places right Latin America the English proficiency is not that Spain Sunny Spain I can bring my mountain bike as well uhhuh so learn Spanish is the next thing you want to learn Spanish is the next thing I want to learn Mark Rowan thank you very much absolute pleasure thank you