In the alternatives market, Apollo Global Management has manufactured new credit assets as a destination for inflows. The firm manages $373 billion of capital where the mandate is to earn a yield and has built a stable of origination platforms to feed it. Apollo’s CEO, Marc Rowan, recognizes the problem:
“The ability to scale AUM and keep that promise of excess return involves growing the front-end asset origination as fast as you grow the back-end AUM growth. You get out of balance there, either your business is not performing optimally, you have got no capacity or you're taking in too much money, and ultimately, you're going to commoditize return. And while that will be good for a very short period of time, that is ultimately not a good thing for your business.”
Since Loeb’s dog whistle last sounded, many firms have restructured. Publicly traded private equity firms like Apollo are a lot more diversified than they once were and have many more places to allocate capital. But as market conditions shift, firms’ ability to manage the two sides of their business will come under increased pressure. It’s not just investors who are having a tough time navigating markets; investment-management firms are, too.
Marc Rubinstein is a former hedge fund manager. He is author of the weekly finance newsletter Net Interest.