From Traditional PE to an $800 Billion All-Industry Chain Asset Management Giant - The Rise of Apollo

Recently, John Zito, the Deputy Chief Investment Officer of Private Credit at Apollo Global Management, was interviewed in-depth by Tony Pasquariello, the Head of Hedge Fund Client Business at Goldman Sachs' Global Banking and Markets division and the host of the renowned financial interview program "Goldman Sachs Exchanges." In this interview, John Zito shared Apollo's deep insights and specific practices in innovating and transforming the asset management field.

During the interview, Zito elaborated on how Apollo has fundamentally transformed the traditional asset management model by integrating its insurance and retirement services company, Athene, becoming a true principal investor and achieving unprecedented alignment with client interests.

Zito also delved into the challenges and opportunities brought about by changes in the macroeconomic environment, emphasizing how Apollo adjusts its strategy, optimizes asset allocation, and funds structure in a high-interest-rate environment.

Here are the key points from the discussion:

By merging with the retirement services company Athene, Apollo has disrupted the traditional asset management model. We are not just third-party asset managers; we are principal investors; we are one of the largest investors in our own products.

Apollo is building an asset management company that is more like a merchant, emphasizing principal investors rather than agents. I believe this model will ultimately prevail.

Investors are facing a generational-level transformation in capital expenditure, such as infrastructure and defense spending in Europe, and there is a significant global increase in demand for computing power. The question is how to finance these expenditures? Should it rely on traditional methods—bonds, stock markets? Or should it use more suitable, long-term capital to support?

Apollo first evaluates the company and then assesses which solution is best suited for it. We have a complete set of capital pools, with annualized returns ranging from 5% to 20%, which could be mergers and acquisitions or investment-grade bonds.

The core logic of the Athene model is: initiate high spread assets, maintain the same credit rating, and finance with ultra-long-term liabilities. No one is really treating this as a growth-oriented business.

From the financial crisis to 2022, the general trading logic for fund managers has been: interest rates are zero or negative, avoid fixed income, avoid credit, focus on equity, infrastructure, real estate, using the cheapest financing leverage to invest in high-return areas. No one would want to build a credit business that relies on spreads because it simply doesn't make money.

If you can prove that you have outsize returns, then you can charge fees. For example, some multi-manager strategies charge very high fees, but they also achieve high net returns over the long term

But if the products start to become "commoditized," such as investment-grade liquid credit products, the fees will naturally decline significantly.

Ultimately, the pricing of this product will depend on the interest rate environment. When interest rates are zero, clients expect the fees to be zero as well; when interest rates rise, returns increase, and the fees as a percentage naturally decrease, making them more acceptable.

Compared to traditional financing channels, many transactions at Apollo can be handled "off-balance sheet" — this means they do not count towards the company's current total debt, which is a significant advantage for them.

Secondly, Apollo can offer longer terms and more flexible structures, such as coupon designs or providing a few years of grace period (Ramp Period) at the beginning of a project. What Apollo truly does is fundamentally solve problems together with issuers, providing customization.

Currently, the vast majority of product designs are based on the premise of zero interest rates. It is not yet fully determined how much of the investment returns over the past fifteen years came from ultra-low interest rate subsidies and how much came from actual operational efficiency. This question will gradually emerge in the coming years — because we will start to realize and exit these assets.

The following is the full conversation:

John Zito

John, I’m really glad to chat with you about this.

Host

Me too. I’m particularly looking forward to this because I don’t often study your type of investment style — credit investing.

John Zito

Apollo is becoming one of the most important emerging financial institutions globally. I think many people do not understand how it operates. This is a very cool and rare opportunity to spend a few hours delving into it. I believe this will be helpful for everyone.

To get started better, I’d like you to first talk about the current landscape of the capital markets as you see it.

In the past, the global capital markets were dominated by a single path led by the United States, but now it is changing. This change will not happen quickly, but it is profound. I believe you are in a unique position, not just through Apollo, but also through your overall observation of the global capital markets. I hope you can share what you think is most important, like giving a "State of the Union" address.

John Zito

First, thank you for the compliment. I remember early in my career when loans were not considered tradable assets at all; everyone thought it was crazy to trade loans. Back then, they were all on bank balance sheets. But today, you see new issuances of C.L.O (Collateralized Loan Obligations) reaching up to $500 billion annually.

My first job was on a trading desk right after college, and the person sitting next to me was creating a $5 million credit hedge fund

At that time, I knew nothing about bonds, so I self-studied every day on my commute back to Greenwich, for example, what bid yield is and how to calculate bond yields. I attended Amherst College, which is not a finance-focused school but emphasizes liberal arts education and thinking outside the box. Therefore, everything relied on on-the-job learning.

Eventually, I became the second employee of that fund. Between 2002 and 2003, we successfully raised $1.4 billion. The founder was Jim Casper, who had previously been responsible for high-yield debt business at Morgan Stanley and J. Whitney for a long time. At that time, a scale of $1.4 billion was enormous in the credit market.

We were involved in the alternative asset market, entering the realm of institutional products. Everything was very novel, including the design of the CDS (Credit Default Swap) market and index products, and this was only 22 or 23 years ago.

Apollo's Scale, Model, and Innovative Concepts

John Zito

Today, we are an asset management company managing nearly $800 billion in assets, with the vast majority allocated to the credit market, growing by about $150 billion each year.

The amount we commit to annuities each week ranges from $1 to $2 billion. Last year, we created approximately $260 billion in investment-grade and private assets. This scale does sound a bit crazy, and I think it's hard to believe, but it has completely reshaped the way capital markets operate.

What we are trying to build now can be described as unprecedented. We have a very large traditional asset management department—where you give us your money, we do our best to invest it, and then charge a management fee, but this money is not ours; it’s just the clients' money. Three years ago, we rethought the future asset management model and believed we should reach an unprecedented depth of alignment with our clients.

So, we merged with our insurance and retirement services company, Athene. Through this merger, we gained nearly half of the assets on our own balance sheet—today, about over $300 billion. We invest this money every day, with 95% in investment-grade and 5% in alternative assets.

For example, we might issue an annuity promising to pay a 4%-5% return while we invest the funds in assets yielding 6.5% annually. We guarantee your income while retaining control over the balance sheet.

This completely overturns the traditional asset management model. We are not just third-party asset managers; we are principal investors. This model creates an unprecedented alignment of interests. Regardless of how the market views the performance of our investments, they will know that we are on the same side as our clients

We have actually taken on a significant portion of the first loss risk through Athene. We are one of the largest investors in our own products.

This brings about a huge technical shift: We are building an asset management company that is more merchant-like, emphasizing principal-oriented investors rather than agents. I believe this model will ultimately prevail.

Of course, there are those who question this model. But this is one of the core bets we are making.

The second thing is— We are facing a generational-level transformation in capital expenditures, such as infrastructure and defense investments in Europe, which have been underfunded for a long time and now must be addressed; there is also a significant increase in global demand for compute power, which is almost undisputed.

The question is: How should these expenditures be financed? Should we rely on traditional methods—bonds, stock markets? Or should we use more matching, long-term capital to support them?

The beauty of annuities is that they are long-term liabilities, and pensions are too—typically with terms of ten, twenty, or even fifty years. This naturally aligns with the timelines of infrastructure projects.

Therefore, we are shifting from relying on banks, short-term, traditional bonds or bank loans, to more matching-term retirement insurance capital. This is the trend that is happening in reality.

Look at the deals we have done for Intel and Imbev; they are all significant transformations. No one thought Apollo would dominate such large projects, but we are at the center of this epochal change in capital structure.

The relationships between investors and asset managers, banks and asset managers, S&P 500 companies and alternative investors are also being reshaped. We were previously seen as a private equity firm, but now we resemble a safe and sound private credit provider more.

This journey is very interesting.

The Role of the U.S. in Global Capital Markets

Host

I want to return to the topic of Athene and delve into the story behind it. But before that, I want to ask you how you view the role of the U.S. in global capital markets? This is a change you have witnessed throughout your career. Now we see more division—whether in capital markets, geopolitics, or other major structural issues...

John Zito

Yes, this is a big topic. The current focus of public opinion is on "tariffs." But I am not too worried about tariffs; I am more concerned about our near-monopoly position in capital markets.

The U.S. benefits from multiple factors: the largest stock market in the world, the preferred destination for all companies to go public; the best venture capital market; if you are a growth company, you would choose to go to Silicon Valley, to the U.S.

I just met with a startup last week that is in the Pre-Seed round. They said many of their founders are Europeans and very talented. They send out business plans in Europe and might take two weeks to get a term sheet; but if they send it to San Francisco, they can receive five offers the next day

This is the charm of our capital system.

We are highly entrepreneurial and extremely hungry. All of this stems from: hundreds of billions of dollars flowing back to the United States from around the world each year, because this is the best place for capital. Global retirement funds are highly overweight in the U.S.

In strategic asset allocation, almost everyone is overweight in the U.S.

This creates a growth trajectory that is higher than any global company, European or Asian company. Our capital costs are lower, talent is better, the quality of companies going public is higher, and we have a $50 trillion bond market.

This is a supercharged flywheel.

We cannot take all of this for granted. Why is this the case? Because we have the rule of law, doing business is very easy, the rules are clear, talent is concentrated, and everything operates in an orderly manner.

But what worries me is—although there is currently no other market large enough to replace us, Europe is indeed undergoing some changes. For example, there may be modifications to securitization rules. We have a $15 trillion securitization market in the U.S., while Europe only has $500 billion.

The economic scale of the two regions is actually not that different: the U.S. is $30 trillion, and Europe is $24 trillion. There are trillion-dollar opportunities in between—transferring bank assets into private credit, thereby providing growth financing for Germany, France, and other countries in the Eurozone.

Global pools of capital are beginning to seek options outside the U.S., and we must remain sensitive to this.

The high valuations of our stock market largely stem from our fast growth, good companies, and strong talent. U.S. stock valuations are generally 5 to 7 times higher than other markets, equivalent to trillions of dollars in market value dividends. This is crucial for our system, and we must protect it. We have indeed benefited greatly over the past 20 years.

The History of Financial Product Innovation and the Transformation of ETFs

Host

One highlight of the U.S. capital market system is the continuous innovation in financing methods. I would love to hear your thoughts—how do you view the historical milestones of these key innovations over the past fifty years?

John Zito

We can start with junk bonds in the 1980s, but I actually think more from the perspective of the "distribution function," such as the ETF market.

It’s about how people package and consume financial products, the innovation of products, where innovation has occurred, and where it has not.

The ETF market started in 1993 and reached $1 trillion by 2009. Today, the global ETF size has exceeded $10 trillion, covering all industries, various investment channels, tax optimization structures, etc. The delivery mechanism of ETFs has become very advanced.

But if you look at the fixed income market, especially daily liquidity bond products, there has been almost no change in 25 years. This contrast is very striking. For us, this represents a very cool opportunity point

We always joke that the fixed income group is a combination of "brown suits + spam sandwiches," completely unchanged. I even had AI draw a picture of a brown suit and a sandwich made of spam, which has become an internal joke symbol — we must never become like that.

In terms of credit business, when I joined Apollo, it was for its brand. At that time, Apollo was the institution that would jump into the market whenever there was a market mismatch or turmoil. They had the smartest investors, winning with strong underwriting capabilities and work discipline.

For competitive people, this is a dream place. Work hard, and you will usually be on the right side.

I was actually quite nervous at the time, but I really wanted to join.

Later, we did something very unique — we moved many aggressive, extremely smart investors who understood the entire capital structure (from loans, bonds, preferred stocks to equity) from a "high yield, opportunistic" platform to an investment grade strategy.

This is the key to innovation: for example, we designed an $11 billion transaction for Intel, with a term of over 30 years, essentially belonging to an equity capital structure, but we made it look like debt, with better protection mechanisms.

This is not something you can complete by just taking a template from the bank; it is a highly structured, highly customized process that requires deep collaboration with the company to execute.

And we put the best talent into these projects.

Fully Open Structure Across Capital Structures

Host

You just mentioned "putting the best people in," and I’m very curious — how do you set the responsibilities of these investment teams? What exactly are their directives?

John Zito

Our biggest difference is: most institutions are divided by funds — each fund has its own return target, such as "find a company, preferred stock, or bond that can achieve a 15% return."

But we are not.

We first assess the company, and then evaluate what solution is best for it. We have a whole set of capital pools, with annual returns ranging from 5% to 20%, which could be mergers and acquisitions or investment-grade bonds.

We focus on returns per unit of risk, which is a completely different perspective. We have no walls — meaning our investment personnel are not confined to a specific fund or type of strategy.

For example, we aim to complete $250 billion in bond issuance/financing each year, and we must make issuers want to continue working with us.

We have many repeat issuance clients. Today they might do an investment-grade bond financing, and two years later, they encounter problems and need preferred stock or rescue capital

As long as what we did before was reasonable, the other party is more likely to seek us out in the future. This is often misunderstood by the market.

The traditional model of dividing by fund and product line makes it difficult for teams to communicate with each other.

We are not like that. Internally—between the private equity team and the credit team—we can have conversations with each other.

Host

So you are not the kind of institution that "looks for nails with a hammer."

John Zito

Not at all. We are: sitting down together to see how this company can finance itself most appropriately, suitable for which capital pool.

This has brought about a tremendous change in our business.

Why the Athene Model is Transformative

Host

Let's go back to the Athene model you mentioned earlier. What exactly is it? Why haven't others been able to achieve the same level?

John Zito

We did start relatively early. Initially, Mark brought in Jim Belardi during the financial crisis.

At that time, the spread on investment-grade credit was very wide, and we could finance with very long-term, low-cost liabilities because interest rates had dropped significantly.

The "spread business" in between was very profitable. However, traditional insurance asset management is not good at investing in structured products and usually only stays at the standard bond level.

Our core logic is: initiate high spread assets, maintain the same credit rating, and finance with ultra-long-term liabilities. No one really treats this as a growth business.

Looking at the period from the GFC (Global Financial Crisis) to now, over 50% of the total equity raised in the retirement insurance business has been captured by us. We are one of the biggest beneficiaries because both our asset side and liability side are expanding.

When we realized that this business scale could expand, we faced two tasks: first, we knew that there would be a supply-demand imbalance in asset origination in the future because we had to find assets for ourselves.

So from 2014 to 2022, we spent nearly $10 billion of our own capital to acquire or build our own asset generation capabilities.

How Apollo Builds Its Own Asset Generation Capabilities

John Zito

We invested a lot of capital to build our own asset generation system.

For example, we acquired PK Air—a financial platform for aviation; we established our own non-qualified mortgage platform called NewFi; we bought their structured product platform called Atlas from Credit Suisse; we also built our own warehouse lending system.

We employed 4,000 staff in these businesses, all serving to generate assets for our balance sheet

You may not have heard of these companies called Apollo, but they are all part of the Apollo Capital platform.

These businesses were not originally built for our third-party credit funds. Because these assets are investment-grade, with narrow spreads, no one would build them in a zero-interest-rate era.

From the financial crisis to 2022, the general trading logic for those managing funds was: with interest rates at zero or negative, avoid fixed income, avoid credit, and focus on equity, infrastructure, and real estate, using the cheapest financing leverage to invest in high-return areas.

No one would want to build a credit business that relies on spreads because it simply can't make money.

I often joke that this metaphor is not very elegant, but since interest rates have risen by 500 basis points, I feel like "Lieutenant Dan" from "Forrest Gump," standing on a fishing boat in a storm, shouting "Bring it on"—because our positioning matches perfectly.

Suddenly, the asset generation system we originally built to serve our own balance sheet has produced more than we need. Over the past three years, we have crossed this "Rubicon."

We can now export these assets into third-party products, building innovative fixed-income products that can invest alongside our retirement insurance business.

Now you see everyone wanting to rush into this business. But it's hard to come in through mergers and acquisitions (M&A) because it's not just about buying assets; it also involves whether you have established a true "origination culture," whether you understand risk, and how to match assets with your liability structure.

This is not something you can achieve by just hiring a few salespeople. It requires long-term collaboration with these origination teams, building trust, and understanding what constitutes good assets and bad assets.

Theoretically, anyone can go to the market and buy a bunch of substandard assets, but that is certainly not a long-term strategy.

We have built this institutionally, and over the past few years, we have hardly relied on M&A.

We are now leading in the asset generation market, spread asset market, and liability writing market.

Overall, we believe this business will perform very well for a long time.

Apollo's Business Structure and Asset Allocation

Host

Can you elaborate on Apollo's overall structure today? For example, how is the $800 billion in assets allocated, and what types of investments and investment tools are used?

John Zito

One thing that might surprise everyone is that about 65% of the assets on our balance sheet are investment-grade.

In our credit business, the overall scale is close to $700 billion, of which slightly more than $300 billion is our own balance sheet, and the rest is from third-party investors investing in our products

Almost all of the portions invested by third-party investors are non-investment grade, high-return credit strategies, such as asset-backed securities and structured credit.

We are expanding our business into the fixed income alternatives space, which means providing investment-grade solutions for third parties. However, we have never actively raised funds in this area.

Our own balance sheet consists of 95% investment-grade and 5% alternative assets, where we earn the spread.

As for our equity business, it mainly focuses on private equity, but also includes secondary markets, climate-related investments, and hybrid strategies.

These segments have performed excellently in the past. Our private equity business has maintained outstanding returns for 35 years, while hybrid strategies encompass everything between credit and private equity—this business is growing rapidly and currently exceeds $80 billion in scale.

Does the asset management fee model need innovation?

Host

Let's talk about fees and the business model of asset management.

You started off well— the traditional model is "I help you manage money, I charge a management fee, and perhaps a certain percentage of performance fees," which is quite simple. But now some strategies charge extremely high fees, especially the "2 and 20" type.

What do you think of this model? It has lasted so long; is it still reasonable for the future? Does it need innovation?

John Zito

I think it depends on the asset category.

If you can prove that you have outsize returns, then you can charge fees. For example, some multi-manager strategies charge indeed very high fees, but they also achieve high net returns over the long term.

As long as you can consistently deliver good results, there is a lot of capital willing to pay for it. Clients are willing to pay because they believe you have differentiated capabilities.

But if the product starts to become commoditized, such as investment-grade liquid credit products, then the fees will naturally decline significantly.

We are currently focused on investment-grade private assets that others cannot access. This is also the purpose of building our platform business: to control the sources of collateral.

If you do not have these asset origination platforms (we have 4,000 people specifically responsible for asset generation), you cannot access these assets. We can combine these assets into something that is not in others' credit portfolios, and that is where the value lies.

Ultimately, the pricing of this product will depend on the interest rate environment. When interest rates are zero, clients expect fees to be zero; as interest rates rise, returns increase, and fees as a percentage naturally decrease, making them more acceptable.

However, in the alternative asset space, you need to demonstrate "artistic value."

If clients do not feel that you can bring unique opportunities, they will not pay you. Clients now generally require co-investment with managers, which is essentially a form of "fee compression."

You must establish a completely new cooperative relationship with clients, which is entirely different from ten years ago. Many institutional clients now have mature teams willing to share risks and conduct joint due diligence with you.

Restructuring of LP/GP Relationships and Trends in Cross-Industry Competition

John Zito

Current cooperation resembles a "partnership" rather than just the traditional relationship between LPs (Limited Partners) and GPs (General Partners).

I always joke that you see in the media that banks are starting to be dissatisfied with alternative asset managers because we are beginning to "steal business" from each other.

But in reality, although we have established our own asset generation systems, we still maintain cooperation with banks in many aspects.

The relationship between LPs and GPs has also undergone a similar evolution. LPs have built their own investment capabilities, so we have to adjust our business accordingly.

The entire chain is transforming, becoming more like a cooperative relationship, with everyone re-examining the boundaries of overlap and synergy (Venn Diagram) to see how to achieve a win-win situation.

It’s somewhat amusing; I can’t quite explain why this is happening, but if you go meet with venture capitalists, they all want to get into private equity; if you look for private equity people, they all want to do hybrid strategies; those in hybrid strategies want to do credit; and those in credit are starting to think about investment-grade bonds.

I can’t figure out what everyone actually wants to do.

But this reflects a phenomenon: the market has been rising for a long time. Everyone is starting to want to enter larger asset classes, broader TAM (Total Addressable Market), and reduce the binary outcomes of single strategies.

How Three Types of People View Apollo's Role and Transformation

Host

I’m curious how these three types of people view Apollo now, and how you hope they will view Apollo in five years: issuers, investors (not just retail but also institutions investing through ETFs), and Apollo's shareholders.

Let’s start with issuers.

John Zito

We have indeed made some progress. For example, we once did a deal for Imbev.

At that time, I received ten phone calls, with people saying, “John, this is crazy, it’s COVID now, Apollo can’t possibly do deals with S&P 500 companies.”

Host

What’s going on here? Why did this deal provoke such a strong reaction? What kind of change does it represent compared to history?

John Zito

Investment-grade companies would never have financed through private credit in the past.

**Their financing options were very narrow: go to banks, secure a round of financing, or issue bonds or stocks. The traditional asset allocation is what is known as the "60/40" structure (60% equity / 40% bonds) Private equity has no share at all.
Even now, the 401(k) retirement plans in the United States do not invest in private products (privates), which we can discuss in detail later.
So, we completed a multi-billion dollar investment-grade financing for S&P 500 companies through private credit, a model that the market has never seen before, very innovative.
But now you see, we have already done multiple transactions for BP, Air France, Lenovo, Intel, and others.
Why are these companies willing to seek financing from us?
First, if you have a total debt of $100 billion, then seeking $5 billion financing from Apollo is just a risk diversifier and will not affect your overall rating.
Second, we can provide more flexibility. Our funding sources allow us to offer longer terms, more flexible structures, and can also be tied to assets or structured transactions.
This is different from the traditional market.
Of course, I am not saying that traditional channels will disappear, nor will I say that everything will be privatized. But we are a new option, and this option has "already taken root."

Advantages of Apollo's Private Credit Transactions

Host
Let's take Intel or BP as examples. They have various financing options, but ultimately chose you. What advantages do you think Apollo has compared to traditional financing channels? What variables impressed them the most?
John Zito
Many transactions can be "off-balance sheet" — this means it will not count towards the company's current total debt, which is a significant advantage for them.
Secondly, we can offer longer terms and more flexible structures, such as coupon design or providing a ramp period of several years at the beginning of a project.
What we really do is — fundamentally solve problems with the issuer and provide customization.
We can work with an issuer for six months, nine months, or even a year, just to build the structure that suits them best.
We have a dedicated team that can implement these complex customization tasks, which is something that the traditional syndicated market cannot provide.
Host
So the ideal situation is — five years later, the company issuers all consider Apollo to be a "personalized loan service provider."
John Zito
Yes, I hope so.
We are indeed making continuous progress. The more projects we do for these large, well-known companies, the more people will be willing to come to us and become "repeat issuers."
We have made significant progress in the past five years. But I still go to certain regions and countries, and some people will still say, "Aren't you just doing private equity? Aren't you just doing bankruptcy acquisitions?" ”

This "brand misunderstanding" still exists.

Host

That is indeed a brand management issue.

John Zito

We do have a glorious history, often creating excellent returns in very difficult situations, and we have indeed entered many scenarios that others dare not enter.

Therefore, some people still view us through old impressions, even though our business model is completely different from fifteen years ago.

Expected Returns and Structural Challenges of Future Asset Classes

Host

Can you talk about the expected return situation of various asset classes now?

You just mentioned that zero interest rates have lasted a long time, during which expected returns were almost zero, and no one paid attention to the credit market. Since 2009, the stock market returns have been very strong.

We now have a group of investors who have been working for over a decade and have never experienced a significant drawdown, and they are very confident in the performance of the S&P 500.

What is your view on the return prospects of the entire market environment currently? How do you think about this for the next 10 or 20 years?

John Zito

We have actually built an alternative investment universe based on the "zero interest rate era." The vast majority of product designs are predicated on zero interest rates.

It is still not fully determined how much of the investment returns during those fifteen years came from ultra-low interest rate subsidies and how much came from true operational efficiency.

This question will gradually emerge in the coming years—because we will start to realize and exit these assets.

Returning to the logic at that time: if you could finance at nearly 0% interest and buy an asset that provides a 5%-6% return, that was a great deal.

Host

Sounds great.

John Zito

But today is different. If your financing cost is 6%-7% and the asset only provides a 5%-6% return, then the returns become very tight.

I believe the market is more difficult now, the risks are clearly higher, and the risk structure is different. These types of assets should be paired with Investment Grade Long Duration products, rather than leveraged.

Because leverage is too expensive now. In certain periods in the future, leverage may be cheap, but at this stage, it is not cost-effective.

The problem is—we have raised a lot of funds in the past under a "zero interest logic," and these alternative products promised returns of over 15%, regardless of the market environment.

That sounds very difficult.

Private equity assets overall do indeed perform strongly, with average net returns in private equity consistently above 13%. The secondary market is rapidly developing, and the entry channels for investors are increasing.

I believe private equity assets are still a very good allocation area

The Liquidity, Volatility, and Structural Changes of Future Private Equity Assets

John Zito

From a more macro perspective, our core assumption is that the liquidity of all assets will increase.

This will raise two questions: How will this affect expected returns? How will it affect the volatility of returns and risk perception?

Host

Please elaborate, as this is indeed a core issue at present. A lot of capital is flowing into private credit and private equity, which have extremely low liquidity. The exit mechanism (off-ramp) and liquidity issues are becoming increasingly critical. What are your thoughts?

John Zito

This goes back to the issue of "market structure."

In the past, the private market was mainly controlled by 20-30 large institutions, including endowments, pensions, sovereign funds, etc. They defined the participation rules of the private market, covering asset classes such as private equity, infrastructure, real estate, and corporate credit.

Now, the wealth management market is rapidly rising.

Currently, about 91% of high-net-worth individual clients have not yet allocated alternative assets. But this number is growing rapidly.

Because today’s companies are increasingly inclined to privatization, with few choosing to go public. If you want to allocate across the entire economy, you must allocate private equity assets.

This also involves the EverGreen product structure—unlike the traditional "Drawdown Fund" model, EverGreen is a continuously open structure, not one that raises funds first and then locks them in.

Of course, its IRR (Internal Rate of Return) may not be as high, but the annual returns will be more stable.

I once gave a cartoon example: Two people meet at a class reunion after 10 years. One says, "I saved $100,000." The other also says, "I saved $100,000; we need to invest well."

Twenty years later, the first person, dressed in a high-end suit, says, "I invested all in private equity, with an annual return of 32%." The second person looks worried and says, "I invested in EverGreen, with only 13% per year. How much do you have now?"

The first person says, "I have $180,000." The second person, shocked, says, "I actually have $330,000... How is that possible?"

In fact, many people still cannot understand this issue today—one person has an annual return of 32%, the other 13%, but why is the one with 13% actually wealthier? This is the power of compounding.

You certainly understand this principle, but as EverGreen products become more widely adopted, we will see returns tend to normalize: stock annual returns will range from high single digits to low double digits, while credit products will generally range from high single digits to mid double digits depending on the interest rate cycle.

In a high-interest-rate environment, the sustainability of returns and the value of income-generating assets will become more significant

The Reform Potential of European Capital Markets

Host

We have talked a lot about the U.S. market, but the European market is also making efforts in structural reform. Do you think Europe will have the opportunity to achieve further development of its capital markets? How do you see their ability to open up the liquidity market for private assets?

John Zito

Europe is indeed a huge opportunity, especially in terms of structural reform.

Over the past few years, Europe has actually been one of the slowest-growing regions globally, with extremely high debt levels and many structural issues. But I think they have recently realized that relying solely on the banking system can no longer meet the long-term growth needs.

They are also gradually realizing that banks can no longer bear all the loan responsibilities alone. They need the help of capital markets and need to transfer some of the financing responsibilities. This means that the securitization market needs to revive.

The U.S. has a $15 trillion securitization market, while Europe only has $500 billion. You can feel the gap in between.

I think the key driving point is: if Europe can relax regulations and promote the legal participation of private markets in long-term asset financing—such as pension funds and retirement accounts being able to invest in private credit and private equity—then a large amount of capital will flow into infrastructure, green energy, defense, and other areas.

We are in the early stages of this structural reform. But the trend has already formed.

The Secondary Market for Private Assets and Tokenization Experiments

Host

Can the "liquidity" issue of private assets be solved through technology? For example, through tokenization, blockchain, automated settlement, etc., is there hope to make private assets more like ETFs?

John Zito

Technology is indeed part of the solution, but the bigger issue is actually the pricing mechanism and the construction of asset pools.

You can tokenize an asset and put it on the chain, but without a stable valuation mechanism and asset cash flow structure, it will still not be liquid.

We are also experimenting now. We have several platforms exploring the pricing, segmentation, and trading models of private assets, trying to create a trading market with "sustainable pricing" without introducing huge volatility.

The success of ETFs is not due to technology, but because they package assets, clearing, regulation, trading, and liquidity mechanisms into a coordinated system.

We need to replicate a similar structure for private assets, and this is by no means as simple as just moving assets onto the blockchain.

Host

One last question. If you look forward ten years, what do you think the "private asset" products available to ordinary investors will look like? How do you think they will participate in these products? What changes will these products undergo in their role within investment portfolios?

John Zito

I believe these products will become more "understandable," more like traditional assets, and easier to accept

For example, there will be more "semi-liquid" structures that allow you to redeem part of your principal every quarter; there will also be more popular "interest-paying" products, which may even be included in retirement accounts (like tax-advantaged accounts such as 401(k)).

The current issue is: for retail clients to come in, two things must be in place:

Liquidity Bridge

A mechanism must be designed to provide clients with a path to exit when needed, rather than being trapped. This could be achieved through EverGreen + secondary platforms + incentive structures.

Risk Profiling

Products must be designed to match clients' age, income, liquidity needs, and other factors. Not everyone is suitable for a 10-year lock-up period.

I hope that in ten years, we will see a world where private equity assets can be allocated just like stocks and bonds. Risk warnings are transparent, liquidity mechanisms are clear, and product structures are friendly to ordinary investors.

This won't happen overnight, but we are working towards this direction.

Host

I have never heard anyone describe this market like this, nor have I heard anyone explain Apollo's transformation so systematically and profoundly. You just mentioned "we have no walls," but in fact, you have just broken many people's "cognitive walls" about you.

John Zito

(laughs) That's the best outcome.

Host

Before we conclude, I would like to ask you to give some advice to young people who are just entering the financial industry. You have come a long way and witnessed the changes in the capital markets. In this rapidly changing era, what would you say to young people starting their careers?

John Zito

I would say two things.

First, don't always think about the "roadmap." Many young people just entering the industry hope someone will tell them: first go to investment banking for a few years, then switch to private equity, and so on.

I think—this mindset limits your true growth. You should focus on: "In what environment can I learn the fastest and make the most progress?"

Sometimes this means going to a small company, or even a startup; sometimes it might mean joining a very small but highly specialized team. Don't be afraid to take non-mainstream paths.

The second point— you need to have an "ownership mentality."

Regardless of whether you are working for your own company or not, you should think in a way that says, "I am responsible for the results." It's not about "I just do what others tell me to do," but rather "How can I drive the solution to this problem?"

When you start thinking from this perspective—you are no longer just an employee, but a participant, contributor, and even a driver. Your growth will be very fast, and your positioning in others' minds will be completely different

Host

Thank you very much today. It was a great conversation.

John Zito

I enjoyed it very much as well, thank you for the invitation