Why Private Assets Are Essential: Masters in Business with Stephanie Drescher

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0:40on the edge of what we think we know. Wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, radio, news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio. This week on the podcast, I have an extra special guest. Stephanie Drescher is Chief Client and Product Development Officer at private investment giant Apollo. She's been there for over 20 years. She spent a decade before that doing alternatives at JP Morgan. What a fascinating person. Apollo runs$840 billion in client assets. And she has really not overseen the wealth division, but also worked on a variety of geographies, new products.

1:36She's on everybody's best of list. She's been on the Barron's women in finance list since inception every year. I thought this conversation was fascinating. If you're remotely interested in private equity, private debt, private credit, private infrastructure, you'll find this conversation absolutely fascinating. With no further ado, Apollo's Stephanie Drescher. Stephanie Drescher, welcome to Bloomberg. Thank you, Barry. Happy to be here. Happy to have you. So we're going to get into Apollo and your investment philosophy in a bit. But before we do, I just have to start with your background. Bachelor's in Barnard at Columbia, MBA from Columbia Business School.

2:19What was the original career plan? I did always have finance in my sights. So undergrad, it was econ and psych. I joke that I use the psych in my day-to-day field way more than the econ these days. But there was always a draw towards doing something in the financial kind of arena, interest in markets and the like. So very early internships led me down that path. And I read somewhere in your background that you were particularly inspired to go into finance by your grandmother. Tell us about that. That is true. So my father's mother lived with us for a time. And believe it or not, she was born in the very, very late 1800s.

3:11And while her brother went on to become a doctor, she capped out at an eighth grade education. And so the power of education was always a core value and a focus of hers and my family. And she used to read the Wall Street Journal cover to cover every day, super smart, loved tracking stocks. And so we started to track stocks together. How old were you at this time? I don't know, maybe 12. Okay. And in a very high-tech way, we would put it up on the refrigerator. and kind of see the changes and the holdings that she had in her portfolio and sometimes overlapped with that of my parents. So that was the early start.

3:58So you get an MBA from Columbia. J.P. Morgan was the first job right out of school? It was, although there was a mentor right prior to the J.P. Morgan opportunity that, believe it or not, I started babysitting for this family. and I didn't know what the mother did day to day until after a period of time of babysitting, she looked at me and she said, I think your babysitting days are over. And I said, I don't know what you're talking about. And she said, I run a women-led healthcare consulting firm. Would you like an internship? And I practically fell off my chair and I said, I would love an internship.

4:43How old are you at this time? Like 16? It was like late. high school, maybe early college, early, early. And it was the most amazing kind of opportunity that someone could give me, right? Just seeing a professional organization do its thing and all the analysis and client relationship management that went into that. So while I decided that healthcare wasn't my thing and consulting wasn't my thing, it was very an easy bridge to J.P. Morgan and the finance field. So when you started JP Morgan, what was the role? How did you, what areas were you toiling in? So I started with a rotational opportunity, which was terrific.

5:27I had everything from fixed income research to private banking in Geneva. Did you go to Switzerland? I did, yeah, for about six months. I realized that I needed to buy all of my groceries during the day because it was closed by the time I got out of work. And then I like to travel on weekends. So importantly, though, and seriously, it was a terrific time in my life to be more aware of time zones and cultural nuances and really see kind of a client perspective outside of New York and the U.S. It's a big world. Totally. Yet it also can feel so small once you start to travel and live elsewhere. So that was a terrific opportunity.

6:12And then ultimately, out of that rotational program, ended up in alternatives within the private bank. And then we were off to the races. So alternatives way back then. But before you leave Switzerland, I recall a vacation not too long ago to Lake Geneva. And we were in this hotel that used to be a castle. And you think you have some understanding of the Gilded Age and old money. And then you see, no, no, we mean 500 years. money. It's just such a different eye-opening, so different than here. Yeah, really, really amazing. So you're in the alts group at J.P. Morgan. You stay at J.P. Morgan for a decade.

6:56Tell us a little bit about the work you did there. So it was very early days of speaking to families around the world, the ultra high net worth clients of J.P. Morgan, about the role of alternatives in their portfolio. And I remember distinctly speaking about the core and satellite within alternatives now, kind of private markets as our nomenclature. But it gave me such a great perspective in terms of the educational kind of foundation that we needed to set first with those clients. And I see it now continuing to play out. But my time at J.P. Morgan, and it was a very fast 10 years and an amazing kind of training ground was kind of an assessment of all the different private market strategies from private equity to hedge funds to credit.

7:52And the seat was a combination of the buy side, so kind of due diligence on the managers we were going to put on platform and then the sell side in terms of the educational component to the end banker and client. Super fun. Traveled around the world speaking about how alts could factor in to return profiles and diversification, smoother volatility, all at a time when private equity was not on the front page every day. It was very early. Let's contextualize a little bit. This is the mid to late 90s and early 2000s, the stock market was just screaming higher double digits, especially the last four years of the 90s.

8:38What was it like then? How receptive was the audience to you should consider these private markets? How much smaller was the whole space back then? Yeah. It was very early days and a very small fraction. I mean, I remember, you know, if we launched kind of one manager a quarter, it was a big deal. Now I feel like there are probably dozens kind of on the shelf available for clients every day, every quarter. But the transformation was starting to take hold where there were especially the large families recognizing the return potential that a manager in alternatives could provide in their portfolio.

9:32And they didn't want to rely. It was very early, but they saw that they didn't want to rely exclusively on public market exposure. So, you know, when we look at actually the percentages in kind of large family office clients today, it matches or frankly exceeds that of an institution. But it's still they started at the ultra high net worth and so much earlier kind of in back in those days than most in wealth. So I think there were the likes of a J.P. Morgan client base and a select number of other private banks did start early in showcasing these opportunities. And the adoption as I traveled around the world was strong, but it was still kind of storytelling and a lot of niche opportunities where I feel like if we fast forward to today, people recognize that private market solutions can play both the core and satellite in their portfolio as it relates to a complement to the public market exposure.

10:41So you joined Apollo in 2004. I'm kind of curious. A few years earlier, we have the dot-com implosion. A few years later, we have the great financial crisis. I hate when people call these once-a-century events because they seem to happen a lot more frequently than that. But how significant were those giant public events to telling the story of, hey, here's some private market investments that you don't have the same sort of volatility and regular explosions? Yeah, no, you're right. They were such an incredibly important backdrop to why alternatives, why private markets. And in fact, when I was still in my seat at J.P.

11:32Morgan, but Apollo was offering then our private equity flagship Fund 5, the dot-com boom was just at its tail. and was starting to fracture. You saw the signs. And Apollo came onto the platform and was talking a value story. And for the first several weeks, there wasn't as much take up. And then as the market started to change dramatically, there was this wake up call of, whoa, you know what? Let's look at value again. And that kind of was the tail end of the story for that fundraise back around the 2000 period. Fast forward to the great financial crisis. It was such an incredible time at that point, I was already in my Apollo seat, to see the investment committee dynamic.

12:32And, you know, there were moments that thankfully, because we were so steeped on the credit side, in addition to obviously our view of private equity, where we could back up the truck on certain credits with conviction. And I look back now with honestly such pride for the decisions that were made in that period of time and frankly many subsequently during moments of dislocation where they make it look so easy on the investment side. But it actually takes so much work and rigor to be in position to make those big investment calls in those moments in time. But it served us incredibly well and continues to.

13:26Even Liberation Day, right post, when the market started to move materially, there wasn't that much time. Within 48 hours, there was kind of a correction from the volatility that we saw on household issuers and names. But thankfully, based on our scale and knowledge of those capital structures, we were able to put about$25 billion to work in just a few days and were one of the biggest market participants during that moment of dislocation. You know, you mentioned high conviction investments. I recall in the mid to late 2000s, people tossed around the phrase toxic assets. And my attitude was always, there's no such thing as toxic assets.

14:19There are only toxic prices. Everything discounted enough eventually becomes attractive. Look, we are one of our kind of taglines that you'll hear internally and externally is purchase price matters. Yeah, 100 percent. What you pay for something is going to have a giant impact on what the subsequent returns are going to be. Totally. And, you know, that that does it does require discipline, especially when multiples are going to kind of stratospheric levels. But, you know, it has that strategy has borne out in a very kind of productive and successful way for us maintaining that discipline. But as you're saying, like spotting those moments where investments are mispriced or not well understood and being willing to deal with that complexity at the right place at the right price in order to generate the outcome we want.

15:16Really, really interesting. Coming up, we continue our conversation with Stephanie Drescher, Apollo's chief client and product development officer, discussing her career at Apollo. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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17:08I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Stephanie Drescher. She's Apollo's chief client and product development officer. Apollo runs about$840 billion in client assets. So I love this title, but I got to think people are wondering, what's a day in the life of Apollo's chief client and product development officer like? It sounds like that's a really wide bit of land. It's a fun job. So I've been at Apollo now 21 years. And when I first started, I built out the institutional side of the business globally. So sovereign wealth funds, think the DB public pension plans.

17:59And that was very much our core client base with an episodic offering through a private bank or a wire from time to time. As that market evolved and matured into a very robust global business, it was clear to Mark Rowan, now CEO and I, that at some point complementing that institutional business with a wealth strategy was in our future. We wanted to make sure, though, that we chose the right moment to really lean in to wealth because it does take a massive commitment and I'm sure we'll talk more about it. So in my role, I am fortunate enough to build out our business as it relates to our client set of offerings, our product development, as well as our partnerships with our distributors, with our investors.

19:03and just making sure that as we continue to innovate, we meet our clients where they are and often kind of co-author the types of offerings that are most meaningful to them. So in any given day, I get to think about our set of products and what we're innovating. I get to speak with our clients and partners, existing and prospects. I manage a large group of people and our talent, and I lean in with a very keen focus on culture, which means a lot to me. So that's really interesting. How would you describe Apollo's culture, and what do you do to help shape that? So, look, since the day I joined, there have been certain common themes to our culture, which I think have always kind of propelled us forward as a firm.

20:00Now public, but very much feels like a partnership. And the first one is making sure that we continue to innovate, to feel very entrepreneurial, and to empower our people to kind of find those opportunities. And pursue them in an appropriate way. We manage the firm as a meritocracy. So we want to give people responsibility and let them kind of really kind of have the greatest impact that they can for their own professional careers as well as for the firm. And we want to have a winning high performance culture. Meaning, even with all the success that we've had, we want to maintain that, propel it forward, and continue that high level of performance.

20:50And importantly, we do it together. So it's not about any one person. I often say to my team, it's we, not me. And that's really powerful. So when we bring everything that Apollo has to offer, we call it kind of the one Apollo, to any client situation or any goal, we can use that power of the firm to be successful and to allow us all to win. Really, really interesting. You know, so the biggest complaint I heard from various corporate executives during the pandemic was how do we maintain the corporate culture? We've spent so much time and energy trying to build over the years. Suddenly, everybody's at home on a Zoom call in their pajamas.

21:36How do you maintain corporate culture like that? It is it's so important, frankly, whether we're all in the office to maintain that culture or certainly the challenges during during the pandemic. making sure certainly during that during kind of that COVID period of creating forums even if it was remote to maintain the connectivity was was really important to have different I remember many different kind of lunchtime meetings that we would have on zoom or Our family community group would have different webinars where it was the employee as parent and then their children, frankly, were involved as well.

22:24So I think it's kind of fostering that sense of community, even if it is, in fact, remote. And then thankfully once in office, I know as I was passing through the sixth floor here at Bloomberg, I saw the very deliberate kind of floor plan that you have and food and beverage kind of accessible to employees. Everybody has to go through six. It causes all these random meetings that you have. Oh, I haven't seen you in a long time. How's everything going? Because everybody shows up for coffee or treats. Totally. And we have the same. So ours is on the eighth floor, but we call it the casual collision.

23:04And that's really important to our culture to kind of show up certainly as soon as we could do so from a practical perspective and allow for that collaboration. It's super important for people to share and get to the best answer possible together. So I want to talk about the Wealth Channel, but before I get there, I have to ask about something that Apollo does that not every large private markets firm does. You have talked about realigning the interest of the firm with clients, making sure that you're on the same side of trades. And towards that end, Apollo is a regular co-investor along with clients in certain projects.

23:50Tell us about that. Yeah. So from a kind of balance sheet perspective, we are often one of, if not the largest, investors side by side with our third party clients and the investments and strategies that we manage. So through our retirement services business, Athene, as well as our third party business, we invest side by side. And so the decisions we make on behalf of the balance sheet are aligned with the outcomes of the strategies in which we invest their party capital. So we often say, well, we can't guarantee the outcome. We guarantee a shared outcome. And that means a lot to us in terms of our commitment and focus, but also to our clients because they know how important it is to us in multiple ways.

24:49I would imagine if anybody has hesitation on an investment, if you see the private equity firm co-investing along with you, that has to be a big confidence driver. It is. And in certain instances, like when you look across the industry, a commitment from an asset manager might be at the 2.5 percent or 3.5 percent. And it's an outlier if it's a 5 % commitment. But not double digits. Exactly. Where in one strategy of ours, which has a diversified portfolio of private markets, we are two-thirds of that portfolio. So when we say that it's meaningful to our balance sheet, we mean it. How does that work in terms of direct stakes and performance fees?

25:50Like if you're most of the invested assets, that has to have an impact on what the balance sheet looks like. How do you guys align that? So, look, we are performance first at the end of the day. Our relationships and the trust that we build are over time through performance and through service. Yes. I mean, we want to make sure that our partners feel our support in just about every way. So for us, it's never about a particular fee of one type or another. Ultimately, we're not focused on an AUM goal. That is the reward for good performance. And as long as we are making the best investment decisions and showing up, frankly, as a best-in-class partner for our clients, that is what drives our business forward.

26:53So let's talk a little bit about the Wealth Channel, which is where you focus some of your time early in your career at Apollo. Tell us how this has changed over the past 20 years and tell us a little bit about what type of clients show up there. Yeah. So, you know, the the wealth business I saw certainly in my very early days of J.P. Morgan. But then for my first kind of 16 plus years at Apollo, the private bank or or wire was really more the exception than the rule. It was more of an episodic type of relationship. That all completely transformed into a strategic commitment from all of us at Apollo starting about four or five years ago.

27:45So when Mark Rowan took the reins as CEO, all the stars aligned to build a wealth business to complement the institutional. And that decision truly needed to come from the top, CEO on down, because it is strategic. It's not transactional if you're going to do it well. It needs to be a long-term commitment to the channel. And in my view, there are actually only a small number of firms that can really show up and do this well in partnership with all the financial intermediaries involved with wealth. And the reason I say that is when you look at what's required, it's a pretty massive lift. You need to make sure that you build out the right relationships and you need the team globally in place to do that across channels and geographies.

28:46You need to make sure that the product mix is extensive enough so that you're relevant as it pertains to our investment capability. But you want to make sure that you're showing up with the right structures for the right clients. Then there's the educational component. There's the servicing. There's technology. For example, we have spent actually a billion dollars,$1 billion from our balance sheet in wealth tech investments alone to make sure that we're partnering and investing in firms that will help the industry. So I think there are very few that can do that well and truly meet the wealth clients in order to meet their portfolio needs.

29:34So within that channel, family offices, high net wealth, sovereign funds, are you also selling through other intermediaries like brokerage firms or RIAs? Tell us a little bit about that. Yes. So the channels represented in wealth include the private banks and wires as one channel, the independents, which includes RIAs and independent broker dealers. Family office is also kind of under our wealth umbrella. So that's the ultra high net worth space selectively. And then we have geographic focus outside of the U.S., across EMEA and Asia. The rest of North America is covered appropriately out of Canada and LATAM.

30:29So each of those channels are represented. And while each has differences, and we definitely approach them with different resourcing and commitments, the common denominator of all of them is helping the intermediary, the advisor or the banker, or the CIO of the family office, either billed for retirement in the case of their underlying client, or build to a certain level of wealth. And so whether it's a wire like a UBS or a Morgan Stanley and their set of advisors or you name kind of an RIA, we want to show up to that intermediary with offerings that are going to work for their platform and their base and make sure that we can speak to semi-liquid as well as drawdown and really kind of listen closely to what they're looking to provide their clients.

31:38So the challenge we always see on the RAA side is on the privates, it seems everything is sort of a one-off. And whereas on the public side, the custodianship is standardized, the reporting is standardized, all the compliance and due diligence is pretty turnkey. Tell us about, A, the challenges of all the private investments that may not all be identical. And is there a solution out there, a platform in development that might make this more like a turnkey, more public security-like than private? It's a journey, but I think it's already getting better. And I do see a world where it becomes so much easier, more efficient to access.

32:32And so if we look at what we're already seeing, you know, when we think about an interval fund structure, where you can buy many different underlying strategies, it's point and click. Through an advisor, but it's point and click. There isn't kind of the fulsome subscription process that we've seen. There's innovation, which we have worked on in partnership with State Sheet, for example, where there are ETF structures of which private markets are a part. And I think the technology is moving from kind of more of an analog to digital in just kind of the plumbing and the infrastructure that supports the private markets overall ecosystem.