BRIAN KENNY: Welcome to Cold Call, the podcast where we dive deep into the stories behind groundbreaking Harvard Business School case studies. Apollo Global Management began in 1990 as a bold, if not controversial, private equity firm, built on buying undervalued assets and distressed debt. Fast forward three decades, and under the leadership of CEO Marc Rowan, Apollo has transformed itself into something far more ambitious, and far more complicated.
By 2025, the firm had grown into a financial colossus, managing over $750 billion in assets. But here’s the twist. Apollo’s growth no longer came from private equity deals alone, its biggest engine was a life insurance and annuities business they acquired in 2022. Suddenly, they weren’t just managing investor capital, but the retirement savings and the hopes and dreams of millions of policyholders.
At its heart, this case isn’t just about Apollo, it’s about the future of finance itself. Today on Cold Call, we’ll discuss the case, “Apollo Global Management,” with Professor George Serafeim. I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Podcast Network.
George Serafeim’s research spans the fields of accounting, finance, management, and strategy. He is the author of Purpose and Profit: How Businesses Can Lift Up the World, and a repeat guest here on Cold Call. George, welcome back.
GEORGE SERAFEIM: Thank you for having me, Brian.
BRIAN KENNY: It’s been a little while since you’ve been on the show. Where have you been?
GEORGE SERAFEIM: It has. We both look older, I guess.
BRIAN KENNY: I still have no hair, so that hasn’t changed at all. No, it’s great to see you back. This case, for me, was really, really interesting, because I do think that it’s not an exaggeration to say this is a transformative change in private equity and in financial services, in general. So, thank you for writing it. Thanks for being here to talk about it. Let’s just get started. If you can tell us what motivated you to write the case on Apollo at this particular point in its evolution? I’d love to know what your cold call is, when you start the discussion in class.
GEORGE SERAFEIM: Sure. Brian, the first answer is that Apollo is a window into a much larger transformation of the financial system. With the case, we’re talking about how financial capital is getting manufactured, sourced, and deployed, and ultimately, how companies in the real economy are getting financed. We’re talking not only about the largest companies in the world, but also middle-sized companies, thousands and thousands of them, and the way they are getting their credit, for example.
So, 30 years ago, private markets were small. They were niche. Right now, they are gigantic. And asset managers, insurers, and banks are blending to create the future of financial intermediation. For me, there was also a personal story in my motivation for writing the case. One of the chapters of my thesis was on embedded value accounting in the life insurance industry. What that allows you to understand is to move beyond the quarter, and understand long duration cash flows, and understand the attractiveness of having permanent capital fueling your business engine.
BRIAN KENNY: Yeah. And that’s a big part. We’re going to talk about that further as we get into the case. How do you start the conversation?
GEORGE SERAFEIM: I start the conversation by asking if this is a good idea or not, meaning the merger with Athene, for Apollo? There is quite a bit of tension about it, and it’s a big decision. You’re looking at a firm that goes from roughly 30 to 40 billion in assets in its balance sheet, to 250 billion next year. So, you see the balance sheet transforming completely. And you see that new risks emerging, for example, much tighter regulation because of insurance regulations. But at the same time, have this engine for creating and manufacturing capital, that you can then deploy.
BRIAN KENNY: Yeah. So they don’t have to go out and do rounds of fundraising, that they take that off the plate. I think it’s fair to say that in popular culture, private equity does not get the best representation, if you look at the way they’re represented in movies and other things like that. And so, the early history of Apollo seems to have emerged out of a little bit of that kind of controversy. They basically came into being after the fall of Drexel Burnham Lambert. I’m wondering if you can talk about how that unfolded, and how it shaped their culture and their appetite for investment?
GEORGE SERAFEIM: Yes. In many ways, Apollo, you can think about them as the stereotype that you would find in the movie. Right? Very, very aggressive firm going into distressed situations, leaning towards very complex situations, and trying to get the best price that they can. So this triangle of distress, complexity, and price discipline, are at the core of the firm for many, many years. But then the firm goes public. Becomes a publicly listed company, which is, I guess, a counterintuitive thing. You can think about a private equity firm like in private markets, but it’s becoming a publicly listed company. But with that, there is a transformation. And that transformation happens because complexity doesn’t scale. How many complex situations can you keep finding? So, once you’re a publicly listed company, you understand that the game is changing, and the game is changing also for Apollo.
BRIAN KENNY: And the pressure is changing, once you’re a publicly listed company.
GEORGE SERAFEIM: 100%.
BRIAN KENNY: You’ve got different things driving your motivations, perhaps. Apollo’s founders built a reputation for, I love this term, “vulture investing.” I would love for you to explain what that is, because it doesn’t sound good. I’m wondering how that identity evolved as the firm expanded beyond private equity into other asset classes?
GEORGE SERAFEIM: “Vulture investing” is associated with this idea of distress. So you find basically distressed firms, you can buy their debt. And through their debt you get control, basically, of the company. So you’re a vulture.
BRIAN KENNY: We need to rebrand that, I think.
GEORGE SERAFEIM: Yes. Yes. Some marketing people, far beyond my expertise. But the way that you can think about the identity as well, is to go back to this idea of scalability. What is scalable here? Complexity is not scalable. As a sourcing strategy, it does not scale well for a public company. Why? Because it is episodic, it is volatile, and also critically, it leads to lower earnings quality. Why that is? Because you have a lot of volatility. In some years you might make a lot of money because you have a performance interest in the company that you acquired, and then you exit that company by selling it, and you make a lot of money. And another year you don’t. Public market investors, when you have volatile earnings, attach a lower multiple on those earnings. So, what happens when you become a publicly listed company, you realize that you would be better off by having recurring revenues, recurring earnings, and also growing segments of the business that you can deploy a lot of capital. Not try to identify niche situations of complexity. That leads us to where we are. Basically it goes from an opportunistic business to a business that is trying to think about systematic value creation across equity and credit, and many other strategies.
BRIAN KENNY: So this gets a little bit to the strategic transformation piece that the case really delves into. I’m wondering what prompted Marc Rowan, CEO at the time, and the protagonist in the case, to pivot Apollo towards the insurance and retirement services space, and ultimately the acquisition of Athene?
GEORGE SERAFEIM: As with all stories of strategic transformation, there is a confluence of opportunities. And time matters a lot. The first one is that there is an opportunity because banks are retrenching after the great financial crisis, and banks are pulling back because of regulation. So, they are pulling back and leaving some white space for lending, especially to mid-sized companies, and mid-market companies.The second element that is happening, is that insurers are looking for yield. Because if you think about the basic life insurance annuity business, is you provide some kind of a promise to your policyholder that in X number of years, and usually that X is a long number of years, might be 10, 20, 30 years, or so forth, you will get some types of cash flows. So you need to invest that money in order to be able to fulfill that promise. So, insurers are looking for yield for those long-dated annuity promises. But interest rates are now going down. So, where are you going to find that yield? So, insurers are having a need for that. The third factor is that a lot of us are retiring. There are a lot of people that are retiring. So this is a growing market of retirees that are looking for many of those products, and that is a great opportunity. So Marc Rowan and the whole team there probably is having a realization. A realization that, “Look. Look at all this capital. This is a gigantic market that can provide long-duration capital, meaning those cash flows can be coming to us for many, many years when people are becoming policyholders.” And also they are not only long-duration capital, but they are also lower cost of capital, compared to our traditional closed-end fund that people are expecting 15% or 20% required rates of return. These ones might be 4% or 5%. That allows us to actually go and invest that money in investment-grade debt, which is becoming a very, very crucial deployment mechanism for Apollo.
BRIAN KENNY: Okay. And now they’re dealing with a completely different set of expectations as well, and they’ve got more people watching them. So governance becomes a challenge in this situation, because now you are in a regulated space. How did the acquisition of Athene change the culture there, with respect towards governance, but also the financial profile of the firm?
GEORGE SERAFEIM: The first one, just to give you a sense of that, in 2024, 26 billion of revenue. 22 billion of that is coming from the retirement business.
BRIAN KENNY: Wow. Enormous, yeah.
GEORGE SERAFEIM: Okay? So, we’re talking about five times the revenues of the traditional asset management business, that’s coming from that. That is giving you a sense of the transformation from just a business perspective. But also, there is a transformation of governance, as you are saying. Because now, you are just not a partnership for a private equity firm. Now you’re becoming a financial services organization. So as a result, governance needs to adapt as well. So you observe a couple of things. First, more shareholder voting power. So they are distributing more shareholder voting power to make sure that actually the organization is seen as governance-friendly, that if I invest in the company, I have a say in that. You observe a stronger independent board. So, the traditional things that we tend to think about as good governance, you see compensation reforms, for example. You see much more now of the compensation going towards deferred equity, in the form of restricted share units. So you observe several of those dimensions of governance. And critically, you also observe that the organization is setting up separate investment committees, for the asset management side of the business and the retirement side of the business. Because sometimes those interests might be aligned, but sometimes they might be misaligned. So you need to make sure that you have a proper governance structure, in order now to manage all these sometimes conflicting incentives.
BRIAN KENNY: Yeah. Now, they’re not the only ones that are doing this in their space. There are competitors, KKR, Blackstone, others, that have also taken a similar approach. What have they done differently than those other competitors?
GEORGE SERAFEIM: The simplest distinction that I can make is asset-heavy versus asset-light.
BRIAN KENNY: Okay.
GEORGE SERAFEIM: So, you can think about Apollo and KKR as adopting an asset-heavy perspective. So what they have done, is they have just bought an insurance company and they have integrated it. So, as a result, their balance sheets are gigantic. They are in the hundreds of billions of assets and liabilities. Now, compare that with Blackstone, that they have, for example, acquired minority interests in some insurance businesses, and then they have signed separate investment management agreements. That makes a big difference. Let me give you one statistic to make that real. So when you look at the asset to equity ratio, a reflection of how much leverage is basically the balance sheet, that for Apollo is about 12 to 13 times. When you look at Blackstone, that’s about two.
BRIAN KENNY: Wow.
GEORGE SERAFEIM: That makes a big difference when you’re thinking about that. So, how can you think about the pros and cons when you’re thinking about that? And this is a lot of discussion that is happening in the classroom, because this is a decision that many businesses outside of financial services are always making. Do I have an asset-light business, or an asset-heavy business? And there are pros and cons when you’re thinking about that. So the weakness of the asset-heavy business is that, well, you have a much larger, more levered balance sheet, and insurance regulatory exposure. So now you’re regulated, and you have very, very strict requirements around that. And when you think about it, when you have an asset-light, you have a fee stream, basically. You rely on that fee stream. That might come with higher valuation multiples, higher, for example, price-to-earnings ratios. That comes with lower capital intensity, and less regulatory complexity. But what you’re not getting? You’re not getting that permanent capital flywheel.
BRIAN KENNY: Yeah. The growth engine. Right.
GEORGE SERAFEIM: Right? The growth engine.
BRIAN KENNY: Yeah. Do you know, you may not have insight into this from regarding the case, but I’ll ask anyway. Because the case mentions that the culture at Apollo, particularly with the original partners, was a very aggressive culture. There were shouting matches in the boardroom as they tried to make their best case for where they were going to invest and how they were going to invest their money. Do you know if this development changed any aspect of that culture? Did they have to think differently about where they were going to place their bets?
GEORGE SERAFEIM: Yeah, it is very different. It’s very different and very interesting, Brian, around that. Because think about it for one moment. So, Apollo 1.0, let’s say, so, what are you doing? You are actually going to firms, let’s say a mid-sized firm. You have a couple of hundred million of revenue, and some EBITDA, and so forth. And you are antagonistic to them. You’re buying their debt, and you’re trying to get control. So you’re the enemy, effectively. Now what are you? You’re actually the friend. You go to the management and you say, “How can I provide credit to you, in order to help you grow?” I think that requires a different personality and different temperament, different types of incentives, and fundamentally, a different way of approaching the identity of the firm, and how do you do businesses with firms in the real economy?
BRIAN KENNY: Yeah. Did Marc Rowan sort of drive that cultural change within the organization? Was it his leadership that pointed them in that direction?
GEORGE SERAFEIM: Yeah, we always tend to idolize a single person in companies. The Steve Jobs effect. He created the iPhone, and so forth. And probably he played a big role in that, because you do need leadership, especially when it comes to changing a whole identity of a company. But it’s a collective effort. There were several key people there that were behind the strategy. Because at the end of the day, if a critical number of people don’t coalesce behind the new strategy, nothing is going to happen. So, definitely he played a critical role, and he has been a very vocal advocate of that, of seeing basically the gigantic growth market that retirement markets are representing.
The fact that actually when you’re thinking, for example, about private credit, you’re not just thinking about what some people are thinking sometimes, which is basically providing credit to other private equity firms that are going to buy some companies. But actually thinking about the totality of what exists in the bank balance sheets, which is about 40 trillion in assets.
BRIAN KENNY: So it’s a growth mindset at this point.
GEORGE SERAFEIM: It’s a growth mindset.
BRIAN KENNY: The case describes Apollo’s focus on credit origination at scale. I don’t claim to know what that means. I’m wondering, maybe you can explain that to us? But also explain why it’s become central to the firm’s strategy?
GEORGE SERAFEIM: I think it’s super important, because it is the distinction between making the assets, versus waiting for them to show up. So, if you don’t have credit origination at scale, what are you going to do? You’re just going to basically wait for the banks, for example, to originate that credit. If you have credit origination at scale, you are actually going to create those assets.
BRIAN KENNY: I see.
GEORGE SERAFEIM: So you’re going to establish those relationships. They have created, I believe by now it’s 16 specialized origination platforms. You can think about it, credit that goes towards aviation, equipment, energy infrastructure, warehouse finance, and others, in order to create investment-grade loans. Having investment-grade loans is very, very important, because going back to who the customer is. Policyholders, to a large extent, right? So you cannot actually deploy large amounts of capitals in extremely risky types of investments. So, you want actually to have investment-grade debt there. To give you a sense of the scale, I believe that the firm now originates about 100 billion annually, in terms of credit.
BRIAN KENNY: Wow.
GEORGE SERAFEIM: They have a target within five years to go to about 200, 250 billion of origination.
BRIAN KENNY: Where does that put them, if you look at the financial services, the banking industry more generally, where does that put them in the context of maybe JP Morgan, or some of the other big players in the space?
GEORGE SERAFEIM: It’s actually hard to make the exact benchmark, because banks also make all kinds of loans on the personal side, on the commercial side, and so forth.
BRIAN KENNY: Sure.
GEORGE SERAFEIM: But I would say, in general, private credit is the fastest-growing type of credit. It’s actually approaching other markets like leverage loans, or in some cases it has surpassed those markets. So, it is becoming a very, very significant component of how credit is flowing into the real economy.
BRIAN KENNY: Yeah. I want to talk a little bit more about governance and culture. We’ve touched on it a little bit, but one of the things that the case goes into is the major governance changes they made internally, compensation reforms. You talked about them creating subcommittees, which is a new approach for them. Can you maybe go into a little bit more detail about the motivations behind some of those changes?
GEORGE SERAFEIM: I think there are two motivations, primarily. So, one is credibility, and the second one is time horizon. The first one is, you are running now, what I call, a very trust-sensitive business.
BRIAN KENNY: Yes.
GEORGE SERAFEIM: The insurance is a trust-sensitive business. Somebody is not going to basically tie their future in retirement with an untrustworthy institution. So, you need to be able to signal, both to your policyholders, but also to agents, and also regulators, that you’re trustworthy. So, you need to implement all of the types of things that we talked about, such as, for example, building your compensation towards restricted share units that are going to vest over time, establish independent investment committees, all of those types of changes, in order to create credibility. The second element is because the capital is long-duration capital, you want to make sure that the time horizon of the incentives also aligns with that idea that I have the long-duration capital that I’m going to deploy on the other side. So, you see this almost fundamental thing that we teach at HBS, which is basically strategy, capital formation and capital deployment, and then governance, need to be all aligned on the time horizon space. Another interesting thing is that, for example, senior leaders, they are required to co-invest in the funds, alongside clients. So you see multiple mechanisms at play there, to try and signal credibility, and signal also that the time horizon is aligned.
BRIAN KENNY: Right. That they’re invested in this as much as their clients are. We talked about the tension early on. Certainly there is tension where it comes to incentives across these three groups, where you’ve got some people that are looking at the long-time horizon, like the policyholders. But you’ve also got shareholders, you’ve got investors who work for you, who are looking at a much shorter time horizon. How did they balance the tension across those sort of competing interests?
GEORGE SERAFEIM: I think one of the interesting elements here is, and I think that happens in many organizations, is that you can try and write as many contracts as you can. But at the same time, it goes back to culture. There is an important element of culture here, which is in Apollo, something very important over time has been this idea, and the North Star being excess return per unit of risk. That is a very important element, because it shows that basically you need to care both about generating excess returns, but you also need to care about how much risk you’re taking when you are doing that. So that is a well-ingrained idea on the almost philosophy side of things. Now, on the structure side of things, because of many of the governance things that we have already talked about, laid over with insurance regulation, capital buffers, risk-based capital, all of those kinds of things, create a structure to try and align incentives. But at the end of the day, Brian, policyholders want certainty. Investors want some kind of excess returns or alpha, as it’s called in the asset management industry. And shareholders, which also have different interests in Apollo, compared to the investors in the fund, want scalable recurring earnings. So, the only way to manage sometimes the tensions that are going to be created, is by being explicit that the tensions exist.
BRIAN KENNY: Yes. Yeah. I can tell you, from one person’s perspective, my 89-year-old mother lives on an annuity, and she’s always afraid they’re going to run out of money. “What if they sell it? What if…” So there’s definitely that concern, right? In the case, Marc Rowan talks about the distinction between public and private risk, and he says that’s diminishing. I’m wondering if you, in looking at the sector itself, do you agree with that? And what implications do you think that has for the financial system?
GEORGE SERAFEIM: Directionally, yes, I agree with that. Public can be safe or risky, and private can be safe or risky. So, you can see that in, for example, many of the companies that have been publicly listed now, and if you try to invest in them, some of them are highly speculative, they have almost zero revenues, and you’re up for a ride, basically, right?
BRIAN KENNY: Right. Right.
GEORGE SERAFEIM: And then in private, you see some companies that are already on very solid financial grounds, basically. So, I think Marc Rowan is making this argument that we used to think that private is just risky and public is safe, and that is just not true anymore, in terms of how the market has developed. At the same time, what you’re observing as well, is that if you have a retirement portfolio, and for example, you put it in the S&P 500, and you look at the big bet that you’re making, given how a few companies, a few technology firms, are dominating those indices, you are making a big bet, basically on those technology companies that are very richly priced. Some of them might trade at 40 times earnings, 50 times earnings, 60 times earnings. So he’s looking at that, and he’s saying, “Is that really safe? Doesn’t seem so.” I think directionally there is a useful concept to start thinking about public and private as being both safe or risky. Both of them. And to understand that the real difference between them to a large extent, is liquidity, basically. That you basically have liquidity in public markets that you can get in and out, you can sell, as you said, basically. Your mother might be able to sell her annuity at some point. In private debt or in private equity, you just don’t have the same level of liquidity.
BRIAN KENNY: Yeah. So, do you think that this integrated model is resilient enough to face a liquidity crisis, if one were to come up?
GEORGE SERAFEIM: It’s really interesting, because a lot of these changes that have happened, we have been in a relatively very long cycle right now, right?
BRIAN KENNY: Yes.
GEORGE SERAFEIM: So, there’s an open question. If the economy slows down in a pretty significant way, what we were going to see in terms of, for example, credit defaults and so forth, or how things are going to slow down on economic activity. That is a question. The real solution to that is strict underwriting, and having strict risks established.
BRIAN KENNY: Which we didn’t have in 2008, right?
GEORGE SERAFEIM: Correct. So now, the question is how, when Apollo, for example, is saying that we are having investment grade debt that is senior, is well-protected, and so forth, when a potential tsunami comes, you say, is that indeed the case? I think what you’re probably going to find in the future, because as in all bull markets, there are down markets as well, and the economy slows down, is that when the economy slows down, is that some firms will have done a better job at managing risks, and having proper underwriting than some other firms have done.
BRIAN KENNY: Yeah. George, this has been a great conversation. I feel like I’ve learned a lot about just the system itself. So, thank you. I’ve got one last question before our time is up here, and that would be, if you look at the broader lessons, what does Apollo’s transformation offer about the future of financial intermediation, and the role of alternative asset managers in the global economy?
GEORGE SERAFEIM: I think a couple of lessons, Brian. I think the first one is what we talked about in terms of origination. I think the ability to originate will be a critical source of competitive advantage. Firms that can consistently manufacture the right assets at scale will be at a competitive advantage. The second one is that I think a lot of people are still thinking about many of those firms as private equity firms. They even call them private equity firms. They are not anymore. They are actually financial services companies. And as a result, from that perspective, they are great laboratory for understanding business transformation, and how do you change the identity of a company, how do you change governance, how do you change incentives? And really understanding all elements of business model transformation. The other thing that you will see is that there is this very interesting phenomenon that actually the nature of the liabilities that you have can shape your strategy. This is a very interesting element. So, we always tend to think about it as, “Okay, what do you want to do?” And then get the capital for what you’re trying to do, right?
BRIAN KENNY: Right. Right.
GEORGE SERAFEIM: But what if you actually stumble upon a superior source of capital that now allows you to do many different things that you haven’t thought about before? This is exactly what is happening here, that we’re actually understanding that there is capital that can be sourced that, for example, in a very simple way, what is happening here, is that the different source of capital allows for those companies to expand product scope, to go from just traditional private equity into much more credit and infrastructure and real assets. So what you will find now, companies like Apollo do, is give a credit, for example, to build infrastructure for the electricity grid in Germany, for example. What you will see now is many of those deals happening, and those, importantly, are at scale.
BRIAN KENNY: Yeah. So you see more of this coming, it sounds like?
GEORGE SERAFEIM: It seems so.
BRIAN KENNY: Yeah. George, thanks for joining me on Cold Call.
GEORGE SERAFEIM: It was my pleasure.
BRIAN KENNY: If you enjoy Cold Call, you might like our other podcasts: Climate Rising, Coaching Real Leaders, IdeaCast, Managing the Future of Work, Skydeck, and Think Big, Buy Small. Find them wherever you get your podcasts.
If you have any suggestions or just want to say hello, we want to hear from you. Email us at [email protected]. Thanks again for joining us. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School and part of the HBR Podcast Network.
