Video · 2026-05-27 · 55m · 24 moments

The $1 Trillion Firm That Refuses The Private Equity Label | a16z

✦ AI generated

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Mechanism

Financial services firms die from one of two causes: a 'heart attack,' which is funding risk from lending long and borrowing short, or 'cancer,' the slow accumulation of bad assets — and Apollo's culture is built to never allow either.

Rowan explains that the two causes of death for financial firms are funding risk ('heart attack') and slowly accumulating bad assets ('cancer'), a lesson from Drexel's 1990 collapse that shaped Apollo's culture.

transcript

Marc Rowan: Financial services firms die from one of two causes. Heart attacks or cancer. Heart attack is funding risk. If you lend long and borrow short, you have funding risk. We saw this in Bear Sterns. We saw this in Lehman Brothers. We've seen this again and again. I will tell you that formative lesson. We will never see that at Apollo.

Mechanism

Financial services firms fail from one of two causes: a 'heart attack' from funding-risk mismatches (borrowing short to lend long) or a slow 'cancer' from accumulating bad assets over time, and Apollo was built to structurally avoid both after watching Drexel collapse overnight.

Rowan explains that firms like Drexel, Bear Stearns, and Lehman collapsed from funding risk (borrowing short, lending long), and Apollo was founded to structurally avoid that 'heart attack' risk as well as the 'cancer' of bad-asset accumulation.

transcript

Marc Rowan: Financial services firms die from one of two causes. Heart attacks or cancer. Heart attack is funding risk. If you lend long and borrow short, you have funding risk. We saw this in Bear Sterns. We saw this in Lehman Brothers. And then the cancer risk of course is the addition of bad assets over a long period of time which again we as a principal mentality firm do not allow to happen.

provides context · 1

Mechanism

Financial services firms fail from one of two causes: a 'heart attack,' which is funding risk from lending long and borrowing short, or 'cancer,' which is the slow accumulation of bad assets over time.

Marc Rowan explains the formative lesson from Drexel's 1990 collapse: firms die from funding-risk 'heart attacks' or asset-quality 'cancer,' and Apollo's culture is built to avoid both.

transcript

Marc Rowan: Financial services firms die from one of two causes. Heart attacks or cancer. Heart attack is funding risk. If you lend long and borrow short, you have funding risk. We saw this in Bear Sterns. We saw this in Lehman Brothers. And then the cancer risk of course is the addition of bad assets over a long period of time.

Anecdote

Financial services firms only ever die from two causes: funding risk (a heart attack, from borrowing short to lend long) or the slow accumulation of bad assets (cancer) — and Apollo was built to never have the funding-risk problem.

Drawing on watching Drexel collapse overnight in 1990, Rowan explains his mental model of why financial firms die and says Apollo's culture was built to eliminate funding risk.

transcript

Anecdote

Apollo was founded in 1990 out of the ashes of Drexel's collapse, starting with $800 million from the French government bank Credit Lyonnais and growing to manage $6 billion of the bank's money by the end of that first year.

Rowan recounts Apollo's origin story: unemployed after Drexel's demise, a cold call from Credit Lyonnais led to an $800 million mandate that ballooned to $6 billion within a year.

transcript

Marc Rowan: A few months later, we left with $800 million of the government of France's money through the Credit Lyonnais Bank with a group of people who had never invested money before from an institution that was not an investor. And by the end of the year, we had $6 billion of the bank's money.

Anecdote

Apollo was founded in 1990 out of the wreckage of Drexel with $800 million from the French government's Credit Lyonnais bank, and grew that to $6 billion under management by the end of the same year.

Rowan recounts Apollo's 1990 origin story: a cold call from Credit Lyonnais during a global financial crisis led to an $800M mandate that grew to $6B by year end.

transcript

Marc Rowan: A few months later, we left with $800 million of the government of France's money through the Credit Lea Bank with a group of people who had never invested money for before from an institution that was not an investor. And by the end of the year, we had $6 billion of the bank's money.

Data

Apollo is not primarily a private equity firm — 80% of its trillion-dollar-plus AUM is credit (mostly investment grade), with only a small fraction in traditional private-equity fund structures.

Rowan pushes back on the common characterization of Apollo as a PE shop, noting that the firm's over $1 trillion in AUM is 80% credit (mostly investment grade) and only a slice of the remainder is traditional PE.

transcript

Marc Rowan: if you look at the assets under management, 80% of the assets under management are credit and the vast majority of that is investment grade. And the other 200 billion or 20% of it, half of it is what we call hybrid equity, partner-like equity, and half of it is traditional private equity in a fund structure. It's a totally different makeup of a business than people expect when they say, well, Apollo is a private equity firm.

Data◆

Apollo is widely but wrongly seen as a private equity firm — in reality 80% of its trillion-dollar-plus AUM is credit, mostly investment grade, with traditional private equity making up only a small slice.

Rowan pushes back on the common perception of Apollo as a private equity firm, noting that 80% of its $1 trillion+ AUM is investment-grade credit and traditional PE is a small minority.

transcript

Claim◆

Because 10 stocks now make up nearly half the S&P 500 and a handful of banks and tech firms are coming to dominate fixed income too, true diversification no longer exists in public markets and can only be found in private markets, where the biggest companies like Anthropic, OpenAI, and SpaceX remain inaccessible to most investors.

Rowan argues extreme concentration in public stock and bond markets means real diversification now only exists in private markets, where the largest, fastest-growing companies live.

transcript

Marc Rowan: 10 stocks right now in the US are nearly 50% of the S&P and they're all levered to the same trend... if you're an investor and you're looking for diversification, there's no place to get it other than private markets. Private markets are 80% of the action going on in the world.

Claim◆

Extreme concentration in ten mega-cap stocks (nearly 50% of the S&P) and a similar looming concentration among five banks and five tech companies in fixed income means private markets are now the only real source of diversification for investors.

Rowan argues that with ten stocks nearly half the S&P and fixed-income markets heading toward similar concentration among a handful of banks and tech firms, private markets — where trillion-dollar companies like Anthropic and OpenAI live — are the only place left to diversify.

transcript

Marc Rowan: 10 stocks right now in the US are nearly 50% of the S&P and they're all levered to the same trend. Dominated historically by 10 large banks, it's about to be dominated by five large banks and five large tech companies. As much concentration as exists in the equity market, that's how much concentration is going to exist in the fixed income market. And so if you're an investor and you're looking for diversification, there's no place to get it other than private markets.

rebuts · 1

Claim◆

With roughly 10 stocks making up nearly half the S&P 500 and the fixed income market heading toward similar concentration in a handful of banks and tech companies, private markets are now the only real place investors can get true diversification.

Rowan argues that extreme concentration in public equity and looming concentration in fixed income mean private markets are now the only real source of diversification for investors.

transcript

Marc Rowan: 10 stocks right now in the US are nearly 50% of the S&P and they're all levered to the same trend... So far that's been amazing. But we've levered most of the retirement system of the country to 10 stocks... And so if you're an investor and you're looking for diversification, there's no place to get it other than private markets. Private markets are 80% of the action going on in the world.

provides context · 1rebuts · 2

Claim◆

Public markets have become so concentrated in a handful of megacap tech names that private markets are now the only real source of diversification for investors.

Rowan argues that with ~10 stocks making up nearly half the S&P 500, and fixed income becoming similarly concentrated among a few banks and tech companies, private markets are the only place left to get true diversification.

transcript

Marc Rowan: Dominated historically by 10 large banks, it's about to be dominated by five large banks and five large tech companies. As much concentration as exists in the equity market, that's how much concentration is going to exist in the fixed income market. And so if you're an investor and you're looking for diversification, there's no place to get it other than private markets. Private markets are 80% of the action going on in the world.

Claim◆

Apollo shouldn't be judged by assets under management like a traditional asset manager, because unlike them it can't just deploy any amount of capital into existing public markets — it's constrained by its capacity to originate and create new investments.

Rowan explains that Apollo's real constraint isn't capital but its capacity to originate unique deals, which is why the firm should be judged on origination capability rather than AUM.

transcript

Marc Rowan: If you give a traditional asset manager any amount of money, they will invest it because they have the ability to simply go to the public markets and buy what exists. If you give us any amount of money, we will not invest it. We can only invest as fast as we originate, as fast as we create. And therefore, I believe that we should be judged by our capacity to create interesting investments.

Prediction

Every single job will either be replaced or enhanced by AI, and a future where GDP, profit margins, and wages grow while employment stagnates may be an acceptable outcome.

Rowan states Apollo operates on the assumption that every job will be replaced or enhanced by AI, and muses that an economy where output and wages grow without corresponding employment growth might be fine, depending on demographics and immigration.

transcript

Marc Rowan: We operate under the assumption that every job is going to be replaced or enhanced. Every single job. And I think that's what is going to happen. I mean, a world where GDP grows, where profit margins grow, where wages grow, but where employment does not, maybe is okay. Maybe that's the consequence of having an older workforce or not having as many workers per retiree or not having as much immigration.

rebuts · 1

Prediction

Every single job will either be replaced or enhanced by AI, and it may be an acceptable outcome for GDP, profit margins, and wages to grow even while employment does not.

Rowan states Apollo operates under the working assumption that AI will touch every job, and floats the idea that an economy could grow without corresponding employment growth.

transcript

extends · 4rebuts · 2supports · 2

Prediction◆

AI's disruption of enterprise software means returns on the roughly 30% of the last decade's private equity industry devoted to enterprise software will be disastrous, not because those companies will fail but because they'll be far harder to sell on.

Rowan says a huge share of PE capital went into enterprise software bought at prices that assumed no AI disruption, and now that AI is here, exits will be much harder even though the underlying businesses survive.

transcript

Marc Rowan: 30% of the private equity industry over the past decade has been devoted to enterprise software. I personally expect the returns from private equity in the ground to be disastrous because so much of exposure is to enterprise software and this does not mean that enterprise software companies are going out of business far from it. It means that the prospects of onselling it either to the public markets or to someone else are now simply reduced.

explains mechanism · 1

Prediction◆

AI's disruption of enterprise software means roughly 30% of the past decade's private equity investment — concentrated in enterprise software — will produce disastrous returns, not because those companies are failing but because their exit prices no longer reflect an AI-disrupted future.

Rowan says roughly 30% of the last decade's private-equity capital went into enterprise software and he personally expects those returns to be 'disastrous,' not because the companies are failing but because the high prices paid didn't anticipate AI competition, making resale difficult.

transcript

explains mechanism · 1supports · 2

Prediction◆

Because roughly 30% of the private equity industry's deployment over the past decade went into enterprise software, and AI is now undercutting that sector's value and exit prospects, private equity returns from that vintage will be disastrous.

Rowan predicts disastrous private equity returns because a third of the industry's capital over the last decade went into enterprise software now being undercut by AI, inflating purchase prices that assumed a pre-AI future.

transcript

Marc Rowan: 30% of the private equity industry over the past decade has been devoted to enterprise software. I personally expect the returns from private equity in the ground to be disastrous because so much of exposure is to enterprise software. And this does not mean that enterprise software companies are going out of business, far from it. It means that the prospects of onselling it either to the public markets or to someone else are now simply reduced.

Prediction◆

Roughly 30% of the private equity industry's capital over the past decade went into enterprise software, and because those purchase prices assumed a future without AI competition, private equity returns from that vintage will be disastrous even though the underlying software companies themselves won't necessarily fail.

Rowan predicts private equity returns will be 'disastrous' for the roughly 30% of the industry's capital tied up in enterprise software, since those valuations didn't price in AI competition.

transcript

Marc Rowan: 30% of the private equity industry over the past decade has been devoted to enterprise software. I personally expect the returns from private equity in the ground to be disastrous because so much of exposure is to enterprise software... the price they paid reflected a future that did not have AI in it and now there's AI in it.

explains mechanism · 1extends · 1provides context · 1

Prediction

AI-driven change will likely produce an economy where GDP, profit margins, and wages grow but overall employment does not, with a notable shift toward blue-collar ascendancy and white-collar decline that current politics isn't equipped to handle.

Rowan predicts AI will let the economy grow without growing employment, and expects a cycle favoring blue-collar work over white-collar work that will strain politics and blue cities.

transcript

Marc Rowan: I'm actually very bullish on wages. And I think we will see a cycling in employment. What I've said previously is I think we're going to see a little bit of bluecollar ascendancy and white collar decline. And I think that's going to be a difficult spot for politics which has not operated with that notion historically.

extends · 1gives example · 1

Claim

Apollo's culture of doing 'right over easy' includes hiring, admitting, and promoting people based on merit adjusted for distance traveled as individuals overcoming obstacles, rather than group identity or immutable characteristics, which is why Rowan publicly confronted university leadership over antisemitism and preferential speech.

Rowan explains that his public stand against antisemitism at his alma mater and Apollo's rejection of identity-based hiring both stem from a principle of judging individuals on merit plus distance traveled, not group characteristics.

transcript

Marc Rowan: We hire for merit adjusted for distance traveled. And distance traveled is not about your immutable characteristics. It is about you as an individual, not your class, not your group. Show me the kid. Show me the individual who's had to overcome something and still achieved. That's who I want.

Anecdote

A university hosting a one-sided Palestine rights conference, run by a known Hamas sympathizer, while requiring Jewish students to attend during Jewish high holidays, was not free speech but favored speech — and that unfairness justified applying donor pressure.

Rowan recounts why he went public against his alma mater's handling of a Palestine rights conference, framing it as favored speech rather than free speech, which led him and other donors to withhold funding until leadership resigned.

transcript

Marc Rowan: What we were watching was not free speech. We were watching favorite speech, preferred speech. And in the initial foray with the university that I had ahead of their Palestine Rights Conference, I wrote to the president of the university and I said, I'm a free speech absolutist. I believe this conference should go forward, but the university as a 300-year-old moral institution is funding it, promoting it, requiring students who are Jewish to attend it during Jewish high holidays.

Claim

Apollo hires, promotes, and admits people based on individual merit adjusted for 'distance traveled,' not on immutable group characteristics like race, religion, or sexual orientation, rejecting DEI-style group-based criteria.

Rowan describes Apollo's employment philosophy as 'merit plus distance traveled' — judging individuals on what they've overcome and achieved rather than group identity, explicitly rejecting DEI-style immutable-characteristic criteria.

transcript

Claim

Hiring and admissions should be based on merit adjusted for individual distance traveled — treating people as individuals who overcame obstacles — rather than on group-based immutable characteristics like race or DEI-style classifications.

Rowan describes Apollo's hiring philosophy of 'merit adjusted for distance traveled,' rejecting DEI-style decisions based on immutable group characteristics in favor of evaluating individuals on what they overcame and achieved.

transcript

Marc Rowan: We've stuck with the same formula. We hire for merit adjusted for distance traveled. And distance traveled is not about your immutable characteristics. It is about you as an individual, not your class, not your group. Show me the kid. Show me the individual who's had to overcome something and still achieved.

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