We've got a lot to talk about and we're going to dive right in. I think it's really a special time to have you here because obviously Apollo has grown and changed over time. I thought for all the advisers here in the audience, let's maybe start with just setting the table with what is Apollo today and how do you think about your business?
So Apollo today is really two businesses. One business, in fact the larger business, is retirement services. So we are the largest provider of retirement income in the US through the brand Athene. It's roughly a $350 billion retirement insurance company. All told with its European partners, it's about 400 billion, by far the largest in the world in doing it. On the other side of the business is the $800 billion private markets asset manager. We manage about 600 billion of private markets credit, 100 billion of private markets equity, and 100 billion of something that's between debt and equity that we call hybrid.
And so we essentially, half the money we manage is our own and half the money we manage is client money. So we are always the largest investor in everything, which of course does not guarantee a good outcome. It just guarantees the same outcome.
Yeah. And so when you think about how you're allocating money and thinking about investing for the future, what are some of the areas that are most important to Apollo from that perspective?
You know, so first I look at our role in the world, what is it that a private markets firm does versus a public markets firm. And so if you start at the top, a public markets traditional asset manager, they get to buy what exists. And a lot of things exist because things have been created for hundreds of years, stocks and bonds. A private markets manager only gets to buy what they create. That's where excess return comes from. And so if you look at the business, if you view your business as we do, which is we're in the business of creating excess return per unit of risk, we focus on markets where we think we can do that in size. So if again the mix of business, we've been in business for 35 years. The equity business, private equity was the first business. It's now a hundred billion dollar business. Five years from now, it will be a hundred billion dollar business. I don't think the business will grow. Not because I don't want it to grow because it's an amazing business, but because that's the size of the market. On the other hand, in the credit business, we're $600 billion today and we'll be twice our size in five years. And in the hybrid business, we'll be the fastest growing business. It'll be three times its size.
You started by comparing yourself a little bit to how public asset managers maybe thought of their business and you know one criticism Morningstar has leveled historically at some public asset managers is that they've grown too big and they lose their edge. And so how do you think about that as you serve more types of investors and take on more assets and the firm gets larger? We were talking about this backstage. How do you keep your edge?
So first I'll start again in the public markets because I think the contrast is there. It's not clear to me that size has been the reason people have lost their edge. I actually think market structure has changed because you know if you look at the stats some 90% of traditional asset managers whether you're debt or equity active managers have failed to beat the index for 20 years. That doesn't sound like these people got stupider because I don't think they have. I think they're plenty smart. It sounds like the structure of our market has changed with everything now being indexed and correlated. It's very hard over a short period of time for traditional asset managers to apply their craft. And so we think of public markets in their entirety as beta. In the private markets, we used to have something which we call an illiquidity premium. You got paid for being illiquid. I'm not sure that really exists either. The way we see the market is you get paid to originate and diligence and structure something and that's how you make money. And so if I go back again in history, the way you made money in private equity is you found the deal no one else was looking at. You originated it and you made money. In the credit business, it's kind of exactly the same thing. You work with the borrower. You provide a solution that they otherwise could not access in the public markets. You get paid for the work you've done. And so I wish we could grow all the businesses we're in and still get excess return. But the pursuit of excess return tells me credit can be grown a lot because at 600 billion we're not relevant. Whereas the 35-year-old private equity business tells me I should run that business for rate of return rather than for growth.
Great. So, I'm going to come back to those points a little bit later on in the conversation. I'd like to maybe take a step out of Apollo now and just talk about the broader state of the economy in the world. If you're an investor today, you're an adviser. I think the primary thing folks are hearing from their clients is how do you think about uncertainty? Is the world really changing? We heard a lot of comments yesterday about whether people are overallocated to equity versus fixed income. What's your view on the sort of state of potential investing returns from public and private markets going forward and how advisers should be thinking about that?
So really complicated but also really simple. Three questions: are things cheap? I don't think by any measure public markets are cheap. We can debate whether they're as expensive as they used to be but by any historical standard public markets are expensive and that's equity is easy to see but credit spreads for public fixed income are at generational heights. Okay. Second, are interest rates likely to plummet? I don't think so. Everything we're doing is long-term inflationary whether we're tariff, onshoring manufacturing, lack of immigration, government debt, all of it is potentially inflationary, even if in the short term we get lower rates at the short end of the curve. The third, do we have lots of geopolitical uncertainty? Yes. Just wake up every day and something crazy is happening. And so if that's the backdrop, what do you do with your money? Our answer and we have to make this answer every day with our own money is we take risk off. So in fixed income that means moving from bottom of the capital structure credit selection to top of the capital structure and trying to get paid for structure and liquidity or origination. And in equity moving more toward contractual cash flows less on growth. If things change, if the market's wholly repriced we would do something else. And so I don't think we're set up for the same series of strategies that have worked for 40 years working in the future because we've been the beneficiary of massive tailwinds.
Rates have gone from high to low. We've printed a lot of money. We've pulled forward demand and we haven't paid the price for it because we've had globalization. It's not clear to me any of those four things are true anymore. So why would the same investment style work for the next 40 years? And I don't think it's going to.
And what do you think the role here needs to be of the government? Obviously, you've been relatively close, I think, to folks in the administration. And one of the big debates that's kind of blown up here in the last month is the level of debt that the US should kind of be operating with. And it's clear that there's no plan seemingly to bring it down. There's lots of people who have an interest in it, but no one seems to want to act.
There's no, let's agree there is no plan.
So, let's start. You know, again, my two cents. I think the administration is right in everything they're doing. I think they're right on having Europe more for defense. I think they're right on setting US trade policy. They're right in what they're doing vis-a-vis merit. The way they're doing it, eh, not so much. A lot of room for improvement. But the debt problem we're facing is not a debt problem that this administration created. It's not one that the Biden created. This is administration on top of administration on top of administration. The good news, it's a math problem. And the math problem has an answer. And we can actually solve our own problems going forward. All it requires is change. And the change is not that drastic. The change will actually be embraced by many. But it is change. And if people are interested in that, they can look online at the Penn Wharton budget model. There are 16 suggestions which actually create the kind of dynamic that you would, I assume, support of getting toward a balanced budget over a reasonable period of time. The problem we have is a political problem. Unless there is a crisis, the political class is not going to deviate from kicking the can down the road. So until we have a crisis, we're going to do exactly what we're doing. This budget is another deficit buster, just like the one from the Biden administration, just like the one from the Trump administration, just like, just like, just like. So I don't think this administration deserves unique criticism. They're simply following a well-trodden path.
Yeah. So when you think about the fact that it may take a crisis, does that sort of feed into how you think about where Apollo is investing to and how you put clients' money to work?
You know, I look as a good private markets investor, we have a healthy skepticism, a negative view of things. We're very positive people and fun at a party, but we're very negative investors. But I don't think we're going to have, there's nothing that says we're going to have an imminent crisis because you look at the world and the world has three big investment blocks in it. You can invest in China, you can invest in Europe, you can invest here. I would rather be here. We are just the cleanest dirty shirt. Every problem we have is worse in the other two regimes. And so what we're watching take place for the last 15 years, our institutional clients have basically moved all of their excess capital out of Europe and out of Asia and to the US. We were, as I sometimes say, hyper exceptional. 10 stocks became 40% of the S&P. Those 10 stocks were at a 60 PE at one point and one stock, Nvidia, was greater than the market cap of every stock exchange in the world other than Japan. That is hyper exceptional. We are now moving to merely exceptional and so on the margin money will now flow to Europe and to China because the US has made itself on the margin less attractive. That does not mean less attractive than Europe and China.
But potentially lower ongoing returns than maybe what we've experienced previously.
I think we have to expect that.
So let's shift gears a little bit. I think if I think about the firm you run and who you serve, if we go back a decade ago, for example, financial advisers were maybe not core to how you thought about your future. But today, you started by talking about the fact that your focus on retirement income, for example, and many here in the audience work with individuals who they primarily are trying to serve through that lens. And so how do you think about Apollo's future and why do financial advisers and kind of what's happening in the wealth retail space become important to you relative to where you used to be?
So I'd say it's two-sided. I think we private markets not just Apollo are important to them and vice versa. So our whole industry of private capital, we basically built the industry out of the smallest investment bucket called alternatives from our institutional clients and now that business the potential market opportunity has doubled because this thing called individuals has now come along. Oh maybe it's tripled because now we have retirement services insurance companies who are also focused on this. Maybe we yet have another market because institutions have figured out that private does not mean risky and public does not mean safe. So maybe private has a role in their fixed income and their equity bucket, not just in their alternative bucket. Now we have a fifth market where traditional asset managers led by BlackRock and others are looking at the failure of active management and are thinking that perhaps the new form of active management is the addition of private to public rather than the buying and selling of stocks and bonds. And I think we're going to get a sixth market which is 401k. I would expect at some point in this administration's history or future to be able to sell private markets into the 401k system. At the end of the day, all of these markets are looking for one thing, return. If we do not meet our promise of excess return per unit of risk, private markets will not prevail. And if we do, private markets will prevail. And the math is compelling. And this is the math when I go speak to regulators that I bring forward. A point and a half a year of excess return by allocating to private is 50 to 100% better outcome at retirement. It's not five or 10 percent. And every place in the world this has been done. Australia, Mexico, Israel in defined benefit plans, this has been true. Why do we take the largest pool of savings in the world, individuals and 401k, and consign them to what was 8,000 stocks that is now 4,000 stocks and going down? And the same in the fixed income market. It just doesn't make any sense. And so we're finding the balance in a world for what they know, listed stocks and bonds, to what's available, the rest of the investment universe, that looks slightly different than stocks and bonds. And so our job is to come up first to build a firm not based on size but to build a firm on originating good risk. Coming back to the first thing I said, we can only grow as fast as we can find good things to originate. So our firm is led by origination. The second is we want to diversify from just the institutional base and there's no better service than to serve the people who need retirement income the most who are individuals.
So some of the skeptics who I've talked to would say though that this is happening largely because inflows have dried up in some quarters from traditional channels. And so that's sort of what's driving a desire to kind of get into this channel. How do you sort of meet that skepticism and also just the reality that the product is not just quite yet easy to use, right? Advisers are worried about the complexity, for example.
So I'd say this, which is I think it shows a lack of understanding of what the market is. And this goes back in history. Private 35 years ago, 40 years ago was three products. Private equity, venture capital, and hedge funds. All three of which are volatile. All three of which can have a place in a portfolio. But they are complex. The last decade saw excesses in public markets and saw excesses in private markets. There are whole groups of firms in public and private markets who strayed from their discipline and suffered the consequences of doing that. And institutions in the private equity and the venture capital area have cut back on their allocations. That is not where private markets are. Private markets are primarily credit oriented, primarily investment grade and offer excess return per unit of risk. If I look at for instance what we've done over the past year, 4 billion to AT&T, 11 billion to Intel, 6 billion to AbbVie, three billion euros to Air France, three billion to Venovia, and on and on and on. And private markets are now just another tool. A CFO at a large company thinks of bank debt, public debt, and private debt. And we get the call when something is long-dated and complex. As to the question of is it harder to access? It is harder to access. Currently, you access in semi-liquid format. Semi-liquid in the investment grade area means every 30 days. So, is it a hardship for investors to go not daily liquid but every 30 days? If it is, they shouldn't be in illiquid investments. If it's not, they should get paid excess return per unit of risk for the same rating and same risk profile. There's no free lunch in investing. The question I always come back to is what risk do you want to take? You can take credit risk by going down the credit spectrum. You can take duration risk by going long. You can take equity risk or you can take some liquidity risk.
