(Bloomberg) -- Apollo Global Management Inc. Chief Executive Officer Marc Rowan’s potential next act as US Treasury secretary would thrust the firm he co-founded into an entirely new era of leadership. It may also help unlock trillions of dollars for its hottest business line.
In the roughly three years since co-founders Leon Black and Josh Harris left the company, Rowan has helped transform Apollo from a feared distressed-debt investor into a buzzy, money-spinning lending machine that rivals Wall Street’s banks. He also ushered in an era of stability and prosperity after a tumultuous power struggle. During his tenure, assets have soared to $733 billion, and its stock has more than tripled.
“We actually outgrew Apple, we outgrew Microsoft, we outgrew almost every growth company you could think of,” Rowan said of the firm’s trajectory since the financial crisis at an investor day last month.
If selected, Rowan’s exit would trigger a leadership change that would put a non-founder in charge for the first time in its 34-year history. But Rowan would move into a position with the sway to open up private markets to a broader range of investors. That could supercharge growth of both Apollo and the booming $1.6 trillion private credit market, which has attracted investors seeking higher returns but also faced questions over transparency and complexity.
Rowan, who interviewed with President-elect Donald Trump on Wednesday, is one of several candidates auditioning for the role. Others include former Soros Fund Management investor and hedge fund founder Scott Bessent and former Federal Reserve Governor Kevin Warsh, both of whom also met with Trump.
None of the conversations spurred the president-elect to announce a decision by Wednesday night.
Apollo shares fell as much as 4.4% on Wednesday but were roughly flat at 10:55 a.m. in New York on Thursday.
Senator Bill Hagerty, a Tennessee Republican who served as ambassador to Japan during Trump’s first term, spent time in Palm Beach earlier this week and traveled to Texas on Trump’s plane to watch Elon Musk’s SpaceX launch its Starship rocket. Already seen as a dark-horse candidate, Hagerty didn’t inspire Trump to call off his search.
The Trump transition team declined to give a timeline for naming a nominee.
“President-elect Trump is making decisions on who will serve in his second administration,” transition spokeswoman Karoline Leavitt said Thursday. “Those decisions will continue to be announced by him when they are made.”
The Professor
Rowan — a 62-year-old who’s been dubbed The Professor for his didactic approach that contrasts with the typical private equity bravado — has said he views the push of private assets into retirement accounts not just as a business opportunity but a crucial fix to a looming issue for the US.
“We as a society have done a terrible job planning for retirement,” Rowan said at the event last month. He pointed to how 401(k)s are reliant on S&P 500 index funds and particularly the gains from a few tech giants. “I jokingly say sometimes we levered the entire retirement of America to Nvidia’s performance. It just doesn’t seem smart.”
Rowan reshaped the firm with an early bet, founding an insurance company that provides stable capital for Apollo to invest. The move has been copied across the industry in recent years. At the investor day, he presented a slide depicting Apollo as a spaceship that had reached the moon, surrounded by planets representing growth opportunities, including a $45 trillion market of retirement assets.
He also carefully cultivated a select group of leaders who can someday take over. They include Co-Presidents Scott Kleinman and Jim Zelter, the president of Apollo’s Athene insurance arm and a bench of younger managers the company recently elevated. Any transition would be subject to board approval, and it’s not yet clear how soon a leadership transition would occur.
Inside Apollo, as employees waited for word from Florida, they seemed optimistic at the prospect of their CEO being chosen, according to people with knowledge of the matter. Shareholders were less assured, with the stock sliding 3.2% on Wednesday, the most since early September.
Potential CEOs
Rowan took over Apollo in 2021 after a bruising succession battle. Black resigned following scrutiny over payments he made to now-deceased sex offender Jeffrey Epstein, and a spat between Black and Harris over the firm’s leadership spilled into public view.
Apollo, with its roots in Michael Milken’s notorious junk-bond shop Drexel Burnham Lambert, built its name as the scrappiest private equity and distressed-debt investor on Wall Street by buying businesses and loading them up with debt that offered creditors meager protections in the face of default. On the investing side, it offered loans to risky businesses that couldn’t get bank financing, then regularly went head-to-head with other creditors when those companies went bankrupt.
But as rates crept up, those businesses and practices became less lucrative for the vast resources they required. In a bid to embark on an ambitious and much simpler growth plan, Rowan created a life insurance business that has become a cash cow and growth driver. Apollo’s credit business, now its largest at $598 billion, originates the loans for Athene.
The firm septupled its revenue over the past 15 years as low interest rates and banks in retreat after the financial crisis drove more capital its way.
“It’s important to ask the question publicly that we ask the team: Were we lucky or smart?” Rowan said last month. “We were lucky. We were smart only in that we positioned the business in front of incredible tailwinds.”
He made clear the coming period will be different, predicting “the tailwinds that got us here are not here anymore.”
Still, he’s trying to double assets to $1.5 trillion over the next five years. Retail and private wealth clients are expected to drive some of that growth.
Kleinman, who has typically overseen the firm’s private equity businesses, joined Apollo in 1996, six years after it was founded. Zelter leads its credit business. He arrived in 2006 and grew its credit unit, which has accounted for the majority of the firm’s managed assets in recent years.
Zelter is respected as the architect and driver of the firm’s biggest business, while Kleinman has helped fuel the insurance unit’s rapid growth and has the advantage of being younger, according to people close to the firm.
Meanwhile, Deputy Chief Investment Officer John Zito has been touted as heir apparent to the credit business, which houses the insurance and real estate debt business and teams. He was part of a group the firm highlighted among its next generation of leaders, along with co-heads of equity Matt Nord and David Sambur and Athene President Grant Kvalheim. Last year, that foursome received new compensation agreements that granted them the bulk of $557 million of special stock awards aimed at giving leaders more skin in the game.
Private Jet
If Rowan joins the Treasury, he’ll face another arduous task: untangling himself from the investing behemoth.
He has invested more than $100 million in the firm’s funds and products in the past four years, while an entity he controls bought about $10 million of loans the firm syndicated last year. He typically receives eight-figure annual payments from being part of a group of firm partners that get a cut of Apollo’s tax savings related to a taxable share exchange a few years ago.
Rowan is the fourth-largest Apollo shareholder, with a stake of about 6% that’s worth almost $6 billion, according to public filings. That excludes his stakes in Apollo’s funds. If he serves as Treasury secretary, he would likely have to divest his equity stake in the company.
Much like Apollo’s fundraising efforts in recent years, its shares have been on a tear, soaring to an all-time high this month after the firm posted strong third-quarter results. The record volumes of loans it originated this year, as well as an increase in wealthy clients, helped push its market value to $92 billion.
Joining the government can offer a big tax advantage to Wall Street bosses who have built up significant stakes in their firms.
To avoid potential conflicts of interest, US laws let incoming officials sell their stock in former employers and defer tax payments, as long as they move the proceeds into plain-vanilla investments such as government securities or certain mutual funds. That can be valuable, letting appointees diversify a heavily concentrated portfolio and continue growing it before cutting off a piece for the Internal Revenue Service.
Apollo, meanwhile, would need to find a new method of transportation: The firm pays an hourly rate to use Rowan’s private jet.
--With assistance from Peter Eichenbaum and Erin Fuchs.
(Updates with additional context throughout starting in sixth paragraph)
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