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Apollo Global is building up cash, cutting leverage and selling out of riskier corners of debt markets as top executives gird the firm for what they expect to be market turbulence.
The $908bn-in-assets company’s chief executive, Marc Rowan, believes the defensive posture will prepare Apollo for more challenging credit and equity markets and put it in a better position to invest heavily during any turmoil.
Rowan privately told investors this month that his “number one job” was to “have the best balance sheet possible”, to position Apollo to perform well and make money “when something bad happens”.
Rowan’s comments came in private meetings at a Goldman Sachs conference, according to people who attended, and echo his public statements warning of excesses in many fast-growing corners of financial markets.
“We believe that prices are high, that rates — long rates — are not likely to plummet, and that we have enhanced geopolitical risk,” Rowan told investors on the company’s earnings call in November.
“As a firm, we are in risk reduction mode. We preach risk reduction. Our balance sheet is in risk reduction mode.”
At an internal town hall earlier this month, Apollo’s leadership emphasised the defensive posture. “I get the feeling everyone here is on the edge for a next blow-up or something in markets,” said an executive who attended.
Apollo declined to comment.
To prepare for shakier financial markets, Apollo has built liquidity at its insurer Athene with additional purchases of tens of billions of dollars in treasuries and cut bundles of leveraged loans, Rowan told the investors in the private meetings. Athene is in the process of trimming its collateralised loan obligation (CLO) exposure by about half to $20bn, Apollo has said publicly.
Apollo has also been focused on trimming risk in areas vulnerable to looming technological disruption caused by artificial intelligence. The Financial Times reported last week that Apollo has been rapidly reducing its exposure to software loans it believes could face challenges due to AI.
The shift by the New York-based private investment group, which has been in process for more than a year, is being closely watched across the industry given Apollo’s heft in financial markets. It has been involved in some of the most complicated debt transactions, including novel financings for chipmaker Intel and Elon Musk’s artificial intelligence company xAI.
Rowan has also warned of “contagion risk” in some areas of the insurance marketplace where private capital groups have grown quickly with little regulatory oversight.
He has warned of looming bankruptcies among private capital-backed insurers that have moved their assets to the Cayman Islands, an offshore jurisdiction.
“What people are doing is they’re taking business offshore to Cayman, where there are fewer rules and fewer capital requirements . . . We’ve now seen three bankruptcies in Cayman. We will see more. I do not believe that Cayman will be a viable US jurisdiction over 24 months,” he said in public comments at the same Goldman conference.
Apollo believes that defaults could be contagious for the insurance industry given that assets moving offshore have been ceded by US insurers who ultimately would be on the hook to cover losses because they have no federal backstop.
He has also said that returns in many debt markets have fallen to the point of being unattractive.
“CLO spreads have completely and totally compressed,” said Rowan at the Goldman conference, referring to bundles of low-rated loans used to finance private equity takeovers.
The company this year increased its hedges against floating interest rate debt, betting that the US Federal Reserve will continue to lower interest rates under pressure from President Donald Trump. The hedges protect the earnings of Athene should short-term interest rates keep dropping, given the unit holds a $50bn portfolio of floating rate debt. The interest it earns on that debt would otherwise rise and fall in tandem with the Fed’s benchmark rate.
The firm has also been running its flagship $23bn private credit fund — known as Apollo Debt Solutions — with lower leverage than rivals, a point Apollo executives have underscored as a sign of their conservative tilt, according to people briefed on the matter.
The fund reported a net debt-to-equity ratio, a gauge of how much the fund had borrowed to make its investments, of 0.58 in October. That was up marginally from a year prior but down from 0.71 in October 2023 and a ratio just below 1 in October 2022, when it was using almost equal amounts of debt and equity to finance its investing.
Rivals say they have not yet seen Apollo back away from the market, pointing to its decision to provide debt to fund Paramount’s hostile $108bn bid for Warner Bros Discovery.
Additional reporting by Sujeet Indap in New York
