William Cohan - How Apollo has Rewired Wall Street

Wow. Didn't think we were going to get to Love Story.

Of course I watched it. I hate-watched it.

Because I thought the portrayal, obviously it was fictionalized for whatever reasons, and I just thought the portrayals of the people that I knew personally were pathetic. Of JFK Jr., obviously I knew him and knew him well and had written a book about him, and my other friends from Andover. And I just thought, while the actor resembled John, I think that was a tall order to get any actor to look like John. He was so handsome. But this guy, I guess, came close as you could. But the portrayal of his personality was ridiculous. In Love Story, John was a milquetoast, always absorbing what others were doing, and especially his wife. And he just wasn't that at all. He wasn't a milquetoast at all. He had a unique and strong personality, but not offensive in any way. He just would do his things and really wouldn't take from anybody, but he would do it in a nice way. So the portrait of him taking from people, I thought, or just being mamby-pamby with people, was ridiculous. And then the whole entire portrayal of Michael Berman, who I know well, it was just beyond stereotypical, borderline offensive and ridiculous as well. And those are just two of the characters who I knew. But who cares what I thought or what they were really? It's Hollywood, right? He's just trying to get people to watch. And I suspect he did a good job of that.

It certainly did. It's obviously the only high school in America with two presidents who were alumni. By the time we got there, it felt, whoa, a lot is expected of you given this opportunity. A lot is expected of you. Is that too much of a burden? I really think John would have been president of the United States. I do. I think he had everything that was needed for that. And I think he could have run against Trump in 2016, and I think if he had been the Democratic nominee he would have won. So instead of Trump, I think we would have had two terms of John Kennedy Jr. But I think what Andover really does well, and so I don't know whether, in answer to your question, whether it prepares leaders anymore. I look at recent classes, I don't really see that per se. I'm sure there's some. But I do think it really prepares its graduates to make their way in the world and be able to get along and relate to other people who are powerful and important. I always found that, even as an Andover graduate at 17, I could always relate to adults, either in positions of power or not, because I was always surrounded by adults that were not my parents and I had to learn how to deal with them. You have to learn how to negotiate with them, to chat with them, to impress them, to be diplomatic around them. And I think that is an incredibly valuable skill as you go out into the world, especially if you were me and you had a 20-year stint on Wall Street and investment banking where you're constantly walking the tightrope between your colleagues and the partners and being diplomatic with your clients and appealing to them and giving them the answers that they need and want. So I think Andover prepares you well, and I think it also prepares you well for my second career as a writer, where I write a lot about rich and powerful people and want them to share with me their stories. I know obviously the relationship is inherently unequal, that they are much more rich and powerful than I am, but I refuse to be intimidated or cowed, and I'm going to ask the tough questions and I'm going to get to the bottom of things, and if they're upset by what they read in the end, so be it. They can write their own book.

The offices. First of all, you're struck by the offices because at that time they were in One Rockefeller Center, and they were the same offices that Lazard had taken over from General Dynamics or some company that was in those offices in the '60s and '70s and then went bankrupt and had to jettison those offices. And Lazard just took them over the way they were and didn't do any upgrades to them. And by the time I got there, whether it was 20 or 30 years later, the carpet was stained, the quarters smelled of cigar smoke, the plants were dying in the corner, there was gray, ugly linoleum. And so you're thinking, wow, this is Lazard Freres, this powerful Wall Street investment bank, and here I am walking around these ratty offices. And you know what, of course, you come to realize is that this was one of Andre's dicta, which was that he wanted the offices to be ratty so that the clients didn't think they were overpaying Lazard for their advice. And so they were getting fabulously wealthy because the EBITDA margins at Lazard were 85%. And then you go to their apartments on Fifth Avenue or Park Avenue or their homes in Greenwich or on the Hamptons, and they were just unbelievably extravagant. So I just found that to be highly amusing. And then there was just this sense that we were special, really special. And at that time, it was the time of Felix Rohatyn and Michel David-Weill and other banking partners who just were incredibly skilled and effective at their jobs. And then the other thing about it is that the firm was totally topsy-turvy in that there were 75 partners and then only 75 associates. So that's completely wrong. You're supposed to have fewer partners, 20 partners, and then 100 associates so they could leverage. But instead you just got crushed because there were the same number of partners as associates. So you were always being overworked and stressed out. But then on the other hand, you just felt, oh my god, I'm working on all these incredible deals that are being written about in the Wall Street Journal and the Financial Times every day. And then it was so quirky. There was this kitchen where they made the best French food in New York, and then they would bring it on trays to the partners for lunch every day. So you'd be sitting there having a meeting with the partner in his office, and on the phone would be the client or whatever, and then they'd bring in this tray of food just for the partner, and you'd sit there watching the partner eat and/or smoke their cigars. Look, I had been a journalist. I didn't know what Wall Street was. But then I went and got my MBA and then got caught up in it, and the only place I wanted to work was Lazard because I'm a Francophile, and I just thought this is such an interesting, quirky place. And I had read the book by Carrie Reich about Andre, and I thought, I don't really want to work on Wall Street, but I want to work at this place because it was so quirky and interesting and mysterious. And then somehow I got there, which I take as one of my great accomplishments in life, that somehow I got hired there with no investment banking aptitude or skill or proclivity at all.

Probably the arrogance to think that the advice it was giving to clients was totally bespoke and that no one could possibly produce the kind of insights and wisdom that somebody like Felix Rohatyn could provide, when in fact, guess what, there are a lot of smart people out there. And if you also could provide capital and use your balance sheet and insist on it, clients at the end of the day were going to say, huh, Goldman Sachs and J.P. Morgan have smart people too. And oh, by the way, I get all this capital I need to buy this company I want to buy, and Lazard can't do that. Maybe I don't need Lazard anymore. Maybe I can just get what I need from J.P. Morgan Chase and Goldman Sachs. But they kept thinking that they were better than everybody else. And for a while, they were. They really were, when the idea of providing capital to your clients was not really a thing. And the irony, of course, is that Bruce Wasserstein at First Boston made it a thing. And I see you have the book Big Deal. He made it a thing, and then he ends up at Lazard, where Lazard can't provide that thing. But of course, Bruce was clever enough to steal the company from Michel and then take it public and make a fortune for himself. But it's really gone sideways since then. It has been overtaken by Evercore and Blair Effron's firm, Moelis, and others. Look, I think Peter has done a nice job, or the stock really hasn't done much, and he's trying really hard, and I give him credit for that. But I just think that I was fortunate enough to be there at a very unique time in the firm. It was still a private partnership, as we could say. They were giants roaming the earth, and they were at Lazard, and obviously working there changed my life, and not as a banker, of course, but as a writer. And I was glad to see it from the inside, even though I never thought I would ever write a book about it, which obviously came much later. I don't know if they care for me very much after I wrote that book. In fact, I don't think any of the places I wrote a book about care for me very much after the book came out, even though I still have a warm place in my heart for those places.

You never know. I don't think so because I think Apollo has already transformed itself from what I mostly wrote about, and the partnership has already blown up. Leon is now obviously on his own and dealing with his own demons. And Josh Harris has his own firm, and he's moved aggressively into the sports arena. And Mark Rowan, who's emerged as CEO of Apollo, has really transformed Apollo from what it originally was, and as a result has transformed Wall Street, which was a big part of what this book was about. And so the story of transforming Wall Street is a very interesting one, and I can't really see what Mark or any of the other executives at Apollo would be offended by in my telling of it. Leon and I have already grappled with all of the issues, to his credit, frankly, that he was so open with me, or as open as he could be. I think Josh is portrayed as he is, which I think he's aware of, which is a less than flattering portrait, but a typical one of somebody who's a very harsh and driven guy on Wall Street. If you can't live up to his drive, then obviously you're not going to be happy. Sometimes I just totally misjudge the reaction from people. But I think it's an incredible story, and it has never been told, and not even pieces of it. And I think it's going to be a revelation to people on Wall Street and anybody interested in this world, which is a fascinating world. And how we've created a whole class, a big class of people who have so much wealth that they become virtually untouchable. It's hard to hold them to account. Not necessarily that they need to be held to account. They feel very much empowered by their wealth to do all sorts of things that people just trying to climb up on Maslow's needs hierarchy scale don't ever think of doing or attempting to do. Mark Rowan basically kicked out the president of Penn and thought that was cool to do, and was trying to redesign higher education in this country, and would love to be Treasury Secretary. He almost was. I just find it fascinating. I've known Mark for 30 years. On the one hand, as we were talking about, he's a kid from Merrick, Long Island. On the other hand, his wealth and powerful position has given him... I think he's on the Gaza Reconstruction Committee. It's amazing what the wealth and power of these guys has enabled them to do in real life, and without thinking there's anything abnormal about that or unusual.

I love to start at the beginning, Joe. I just love to let them tell their stories from the beginning, how the whole thing developed, all the various steps along the way they want to tell it. If someone were writing a book about me, which of course they would not do, but how would I tell my story? And I just find that, and then if they're amenable, which I've been very fortunate that so many of these people have been amenable and been gracious and open and basically on the record. The only one who really wouldn't spend time with me was Bruce Wasserstein. When I would interview Ken Jacobs, who was then the number two at Lazard and then succeeded Bruce when Bruce died, Bruce would pop up in the middle of the interview. I would be sitting there talking to Ken in his office, an office that I had once been in when I was a banker at Lazard, and Bruce would just pop in and sit there while we were talking to try to hear what Ken was saying and hear what I was asking. So he was crafty that way. And he wrote the book that's behind you. He's written other books. I spoke to all the people who knew and worked with Bruce, but Bruce wouldn't agree to be interviewed, which I find amusing. It's always a bit of a puzzle to see who's going to speak to you, but as I say, most people do.

The toughest one was John Whitehead at Goldman. So when I was writing the book about Goldman, which was of course two-thirds history of Goldman, which I felt really had never really been done fully and properly even though there had been other books about Goldman, and then one-third about essentially the financial crisis and how they made it through. And I was comparing and contrasting that in my mind to how Bear Stearns didn't make it through the financial crisis and why Bear failed but Goldman survived and then thrived. So the first year I was just laying low doing my research. Some people knew I was doing it but not many, doing interviews around the periphery. But you know, I would approach Goldman to see if Hank Paulson and Lloyd would speak to me, bunches of others. And basically they showed me the yellow card for most of that period. And then eventually once they realized that I was actually going to write the book and publish the book and that I hadn't been hit by a bus and I was still alive and any assassination attempts they were making on my life, if they were, had failed, they agreed to have all those guys talk to me. So all that happened and I'd become great friends with Hank and I just interviewed Lloyd for an event at Puck for his new book. So I kept trying to speak to John Whitehead, of course, because at that time John Weinberg had died and John Whitehead was of course the great culture carrier, the bridge between the Goldman post-IPO and the Goldman pre-IPO and the great partnership with Goldman. He was such a great statesman and so distinguished looking and had such a great story to tell. And so anyway, I kept trying and trying and he kept shutting me down. And so then I belong to the University Club in New York as well as the Lotus Club, although I don't go very often, although I keep paying. So I'm their best member ever. And John Paulson was speaking at the University Club. This was after the financial crisis and it had emerged that he had made $20 billion betting against the mortgage market and of course he made a ton of money and so everybody in New York wanted to go hear John Paulson. He was the oracle, had come down and was speaking at the University Club. And not only was the entire upstairs dining room, which is gargantuan, the size of a city block, filled with people, but there was an overflow room that was also filled. By the time I got to the University Club, the big dining hall was all filled up. And I did not want to be in the overflow room. I wanted to see Paulson with my own eyes. And so there was a table right next to where he was speaking at the podium and I noticed there was one seat open at the table. And so I made a beeline for it and I sat down and I looked up and I'm sitting next to John Whitehead and I'm thinking to myself, praise the Lord, this is my opportunity. John Whitehead will not be able to escape me now. So the talk ends and people disperse and I go up to him and I introduce myself and remind him that I was writing this book about Goldman and that I wanted to talk to him and he just looked up at me without batting an eyelash and said, good luck with that, and then he proceeded to walk out of the club. So that was another shutdown, but then, and this is the happy ending, soon thereafter he did reach out to me and he said, okay. So then we had a series of three or four incredible conversations. I just loved that guy, and truly after he passed away, he was a very tough nut to crack, but once he opened up it was fabulous.

In part, yes. Yes, they can still be adversarial, and they weren't only adversarial in the old days. They were opportunistic. They were very clever. And I think that in ways to make money, and I think now they've just figured out a new way to make money. And I think they're all, and there's nothing wrong with this, they're just all about making money and seeing things that other people don't see and taking advantage of them. And Mark had this incredible insight. Mark's one of the smartest people I've ever met on Wall Street. And he's also one of the most articulate. He's got to be one of the best, in a positive way, one of the best salesmen I've ever seen on Wall Street. He had this insight, an insight about the major flaw of banking and the Achilles heel of our financial system, right, which got exposed in raw form in 2008. But it's always been there, which is the conundrum of borrowing short and lending long, and the way that Wall Street bank, a depository institution, is just a totally flawed corporate structure, especially in a fractional banking system, which is what we have, in that the liabilities at a bank are instant liabilities. Somebody goes to an ATM machine, they can get their money immediately, and yet their assets are long-dated. They make loans to GE for 10 years. So their liabilities are short-term, their assets are long-term. If the people who want their money in the bank want it back collectively at a faster rate or more of it than the assets that can come due to fulfill those requests, because of course, as we know, the money that you put into a bank is never at the bank, ever. If it were at the bank, they couldn't make money. So they obviously get your money and they lend it out and they pay you nothing on your money and they lend it out at big spreads, and that's why J.P. Morgan Chase makes 60 billion of net income a year. So that's the fatal flaw of the banking system: borrowing short and lending long. And then we've seen various variations of that over time. The whole GE book is about how GE Capital financed itself by borrowing short and lending long. They were at least borrowing in the commercial paper market, which is 60 to 90 days. So you couldn't get your money out immediately, but they relied on short-term financing and, of course, lending out long. So that's another flaw. We saw that flaw come crashing down. We saw it again with Silicon Valley Bank.

And so what Mark has really come up with is a whole new way of thinking about banking, which is matching, trying to match the liabilities and the assets in terms of their tenor. His liabilities at Athene and at Apollo are much longer term. You can't go to an ATM machine and get your annuity out of Apollo. Now you're locked up for five years, seven years, ten years. Now you can get out. There are penalties. And if everybody decided they just had to have their money for whatever reason and were willing to pay the penalties, then that would cause a real problem. But I think Mark is betting that won't happen. And of course, that hasn't happened yet. We don't know if it'll happen. He's been the architect of a whole new way of constructing the Wall Street paradigm, and that is revolutionary. And of course, he started it, and Blackstone has followed it, and KKR has followed it, and Brookfield has followed it, and all the other alternative asset managers, by and large, have followed that. And he's created the whole private credit market, which existed in parts but was in the banks, and now it's not at the banks anymore because the Fed won't really allow them to do that kind of thing. And at the end of the day, they're still depository institutions, which means they're still short-term. If Mark has cracked the code, then it's quite possible that the institutions, the financial institutions that we have built our country on for the past 250 years and that have been repeatedly the cause of the financial crisis that we've experienced basically once every 20 years, he may have. This is the big open question, which of course we're all trying to see if it comes true, that I couldn't answer obviously in the book, but have we entered an era where banks and banking won't cause the financial crisis that we're going to inevitably have? Is it going to come from somewhere else? And that would be pretty revolutionary. So we're waiting to see. We don't know the answer. There was a lot of concern over the last nine months in the private credit market, but Mark saying, Mark would, of course, his people and lots of others would say it's overblown, and I tend to agree with him at the moment. Basically, Mark has created a very sophisticated new kind of bank where the liabilities, the duration of the liabilities, pretty much match the duration of the assets. And that's totally new, which is why this book tried to capture the history of Apollo and also what Mark has created here that is revolutionary.

As I said, he's super smart. Again, I don't mean this in a bad way. He's, I don't know what the right metaphor is necessarily. Maybe like a cobra that kind of lays low and then pounces on the prey when he needs to. He's very smart. He's very sophisticated politically in terms of corporate politics. Again, I've known him since the firm was founded 36 years ago and watched him grow and develop. I tried to show him deals that Apollo could do on the private equity side. I've run into him on the street. We've had all sorts of chats. He was obviously very open and honest with me in the writing of this book, mostly. And I think he was absolutely the right man at the right time. I mean, I used to always say about Goldman Sachs that they always got the right leader that they needed at the right time. Not sure how that happened. It's part of the DNA of the firm, but they always got the right leader they needed at the right time. And Apollo has done the same thing. Leon was obviously the founder of the firm, the inspiration of the firm, the genius behind the firm, but Mark was the guy who had the brilliant insight to create Athene and to take it public and merge it again with Apollo and use Athene's capital to build this private credit business. He's really the mad scientist behind all of this. And you got to give Leon credit for, even though he didn't really understand what Mark was up to, knew that Mark had to be the leader of the firm and not Josh, which of course created the blowup at the firm and created all sorts of controversy, which I was fortunate enough to be able to document in the book. Makes for great reading. And so I think Mark is the right guy at the right time. He's created an incredibly strong bench of people who will succeed him at some point, but he's obviously a very youthful 64-year-old or 65-year-old. Some could say he was the most Machiavellian of the bunch by acting like he didn't want the job. And then of course, when Leon insisted, he was more than happy to step up with Josh being the loser and all of that. I think Josh never fully appreciated the antipathy that Leon had for him and that there was no way that Josh was going to be the head of Apollo and that it was only Mark.