What is Apollo, anyway?

Rob Armstrong (0:09)

Eric and Sujeet, I have a question for you. What's the difference between a bank and an asset manager? Or for that matter, a bank and an insurance company? I know it's a good question, because I got a couple of seconds of silence there.

Sujeet Indap (0:25)

Okay, so we can jump in?

Rob Armstrong (0:28)

We're going, man.

Sujeet Indap (0:29)

So, the first, hi, it's Sujeet. The way to think about that question is to define what is a bank.

And as a bank, we think of a place where customers make deposits and put in cash, and importantly, they can get that cash whenever they want. And that creates a little bit of instability, right? Because the bank takes deposits and makes loans, which are due in one year or five years or 30 years. But their customers can get their money whenever they want. And that mismatch is the age-old puzzle of classical banking.

Rob Armstrong (1:09)

What about an insurer, Eric?

Eric Platt (1:11)

So an insurer has a very different model, right? While they are taking kind of cash in from policy holders, the claims that they're going to be paying out are for years, right? It could be 10, 20, 30 years for many of these policies. And so in that case, they actually have a very stable base of capital to use from. But traditionally an insurer, right, isn't in the actual asset management business. They've been writing these policies and they've been often outsourcing the investment acumen to asset managers.

Rob Armstrong (1:42)

It's an important question, and not just for philosophical reasons, because the big asset manager slash insurance companies, most notably Apollo, may be becoming more like banks all the time. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from the glorious Unhedged World Headquarters in New York City, and I am joined by Sujeet Indap, who is, remind me of your title?

Sujeet Indap (2:17)

Wall Street Editor.

Rob Armstrong (2:18)

Wall Street Editor, doesn't that sound powerful at the Financial Times? And down the phone from his apartment in the bucolic Upper West Side, Eric Platt, who is our, is it Deals Editor?

Eric Platt (2:31)

Senior Corporate Finance Correspondent.

Rob Armstrong (2:33)

Senior Corporate Finance Correspondent. These are the guys who make it happen at the FT. Welcome, guys.

Eric Platt (2:40)

Thanks for having us.

Rob Armstrong (2:41)

So you wrote an article today about how Apollo, one of the biggest private asset managers in the world, is going into an area of lending it hasn't been before, meaning lending to the very biggest US companies. Why are they doing this, and why weren't they doing it before?

Sujeet Indap (3:03)

Apollo, most listeners will probably know better as a private equity firm, doing leverage buyouts. But say over the last 15 years, its business has shifted pretty remarkably, where it has both become an important life insurer, and specifically a provider of annuities. Annuities aren't classic life insurance, it's just for regulatory reasons.

Rob Armstrong (3:26)

It's a retirement product.

Sujeet Indap (3:26)

Yeah, it's a retirement product.

Rob Armstrong (3:27)

You give me a pile of money, I give you a certain income stream for the rest of your life.

Sujeet Indap (3:32)

That's right. First by accident, and then by purpose, they are a massive annuities seller through a business called Athene. As that business grew, they realized they could, on the other side of the balance sheet, become a much different kind of insurance or annuities investor. That business historically had been in dull investment-grade bonds, and so in response to these trends, it became just a much more exotic, but what it thinks is a safe lender. That business, as we mentioned in our article now, has migrated to now being able to finance the biggest companies in the world.

Rob Armstrong (4:16)

Again, just to make it crystal clear for our listeners, you run an annuities business.

That means these nice retirees give you their savings. You take the savings and you invest it somewhere, so you have enough return to pay for their retirement in little bits and to make yourself some money, your spread. Right? Am I getting the picture basically correct?

Eric Platt (4:41)

That's exactly right.

Rob Armstrong (4:42)

Why would a big American company, I don't know, an Intel, I guess, was one of the examples that you used in your article. Why would they come to an Apollo rather than just going to the good old American bond market and just issue bonds like big companies can and do at quite reasonable rates?

Eric Platt (5:04)