CNBC LEADERS: Mark Rowan 9/19/24

David Faber (0:00)

In his three and a half years as CEO of Apollo Global Management, Mark Rowan has transformed the alternative asset manager and sent the company's stock price to new heights.

Marc Rowan (0:10)

Origination is where I believe excess return comes from. And for us, we are very focused on scaling origination.

David Faber (0:18)

The $700 billion firm is a champion of the private markets. But Rowan says they're just getting started, and America's retirees are poised to be the beneficiaries.

Marc Rowan (0:28)

There's a massive white space for retirement services innovation.

David Faber (0:32)

I'm David Faber, and this is CNBC Leaders with Apollo Global CEO, Mark Rowan. The Federal Reserve just lowered interest rates by 50 basis points. Did the Fed get this right?

Marc Rowan (0:44)

I don't think we're going to know for a long time. My view is what they did is they took out an insurance policy, insurance against things going poorly. But the insurance policy is not without risk.

Certainly, our house view is much more conservative than the market view as to both the level, the number of cuts and the final level of interest rates. But I come at this slightly differently. We've been through an extraordinary period of time. We've been through COVID, been through recovery, we've had unprecedented fiscal stimulus. How do we know that we're calibrated correctly? So every once in a while, I do the look out the window test. We look out the window and we say, what's actually going on? And we ask ourselves questions. Does everyone who wants a job have a job? For the most part, are wages going up? Yes. Are home prices going up? Is the stock market going up? Do companies have liquidity, access to capital, refinancing? Are capital investments being made? The answer to all that is yes. And then you look at what is going on from a fiscal stimulus point of view, which is truly unprecedented. We forget already because so much has happened, but three years ago we decided as a country to invest almost two trillion in infrastructure. Not a single piece of infrastructure is open yet. It's all being built. Two years ago it was the CHIPS Act, 52 billion, to encourage the creation of semiconductor manufacturing plants here. Not a single plant is open. It's all under construction. A year ago, Inflation Reduction Act, somewhere between 1.3 and 2.3 trillion to encourage the manufacturing of renewables. Again, not a single plant is open.

David Faber (2:20)

You talk about an insurance policy. What you've just reeled off does not sound like a person who thinks we should have cut 50 basis points.

Marc Rowan (2:27)

What I think is not that relevant, but if you ask me, do I think we should have cut 50 basis points?

David Faber (2:31)

Well, it's kind of relevant, Marc. I mean, you do run a very large financial services company that has 700 billion dollars in assets.

Marc Rowan (2:37)

We deal with market realities, and the market reality is the Fed was going to cut because they are guided by a set of models and an expectation and a belief that the absolute rate of interest is simply too high. But I think one of the reasons our house view is not as draconian, if that's a way of thinking of it is, as the market view is you look at the other common sense things that are happening in the marketplace, which are very hard to calibrate. So of the list I was doing, US has also been the largest recipient to foreign direct investment three years in a row. Again, most of that is still under construction. And we are ramping defense production.

Every one of the things I just rattled off are stimulative. And we are against a backdrop of almost zero legal immigration. It does not feel to me like we are having a traditional recession, and yet we are using the tools of a traditional recession. We are, we're going to run a $2 trillion deficit this year. So I think we're in uncharted territory. And that's why I say it's an insurance policy.

David Faber (3:42)

Well, what's in an insurance policy against? Because you seem to be indicating in some way, given your view or the House view, that in fact there could be a lot of risk from lowering rates to this extent.

Marc Rowan (3:53)

And I think there can. And that's why I say it's a risky insurance policy. The insurance policy is to get ahead of a potential slowdown based on incoming data. And the risk is that all of this fiscal stimulus, which is very long term, which has not yet come online against the backdrop of noisy data and a noisy model forces the government, the Fed, into a retreat.