Key Takeaways
- • Marc Rowan, Apollo Global Management co-founder and CEO, argues that active equity managers will increasingly own private companies rather than traditional private equity, marking a "sea change" in equities markets driven by declining public company listings (currently ~4,000) and companies like Spotify and OpenAI choosing to remain private.
- • Apollo's hybrid securities strategy—positioned between fixed income and equity with private equity skill sets but without leverage—has generated the strongest risk-adjusted returns over 15 years and delivered only one down quarter in the past 40 quarters, according to Rowan's remarks at the Goldman Sachs Financial Services Conference (December 11, 2024).
- • The institutional investment infrastructure currently lacks a structured home for hybrid opportunities, despite these instruments capturing consistent excess returns in capital-rich markets; Apollo reports securing its first large institutional client specifically to diversify a portfolio with minimal alternatives exposure through hybrid securities.
- • Active management of the future will require private equity operational expertise applied to unleveraged private equity structures, challenging traditional institutional investment frameworks organized around public equities, public debt, and high-cost-of-capital alternatives.
Summary
Marc Rowan delivered a significant thesis on the structural evolution of equity markets at the Goldman Sachs Financial Services Conference in New York on December 11, 2024, arguing that the traditional distinction between private equity and active equity management will blur as public markets continue to contract and private company ownership becomes institutionalized.
Rowan pointed to quantifiable market shifts supporting his thesis: the number of publicly listed companies has declined to approximately 4,000, while an expanding universe of companies—including high-profile names like Spotify and OpenAI—are opting to remain private rather than pursue initial public offerings. This structural trend suggests that future active managers will need to develop capabilities to own and manage equity stakes in private companies directly, departing from the traditional private equity model built on leverage and exit cycles.
The Apollo CEO emphasized a critical market inefficiency: hybrid securities that blend characteristics of fixed income and equity have generated outsized risk-adjusted returns over the past 15 years yet lack institutional frameworks to accommodate them systematically. He characterized these opportunities as occupying a strategic position "between the lowest risk and the best reward" but historically receiving insufficient institutional capital allocation. Apollo's flagship hybrid fund supports this thesis, reporting only one down quarter across the past 40 quarters—a track record suggesting these instruments merit greater portfolio weight.
Rowan's remarks highlight an institutional constraint: investment organizations remain structurally aligned to allocate capital across three discrete buckets—public equities, public debt, and alternatives—without systematic exposure to hybrid structures. The firm has recently onboarded its first large institutional client specifically to address this gap, diversifying a portfolio previously concentrated in traditional asset classes with hybrid securities exposure.
The implication for institutional investors is substantial: active managers pursuing differentiated returns in a contracting public equity universe will require private equity operational expertise—including company evaluation, operational value creation, and governance—applied to unleveraged, hybrid securities structures rather than leveraged acquisition vehicles.
Rowan pointed to quantifiable market shifts supporting his thesis: the number of publicly listed companies has declined to approximately 4,000, while an expanding universe of companies—including high-profile names like Spotify and OpenAI—are opting to remain private rather than pursue initial public offerings. This structural trend suggests that future active managers will need to develop capabilities to own and manage equity stakes in private companies directly, departing from the traditional private equity model built on leverage and exit cycles.
The Apollo CEO emphasized a critical market inefficiency: hybrid securities that blend characteristics of fixed income and equity have generated outsized risk-adjusted returns over the past 15 years yet lack institutional frameworks to accommodate them systematically. He characterized these opportunities as occupying a strategic position "between the lowest risk and the best reward" but historically receiving insufficient institutional capital allocation. Apollo's flagship hybrid fund supports this thesis, reporting only one down quarter across the past 40 quarters—a track record suggesting these instruments merit greater portfolio weight.
Rowan's remarks highlight an institutional constraint: investment organizations remain structurally aligned to allocate capital across three discrete buckets—public equities, public debt, and alternatives—without systematic exposure to hybrid structures. The firm has recently onboarded its first large institutional client specifically to address this gap, diversifying a portfolio previously concentrated in traditional asset classes with hybrid securities exposure.
The implication for institutional investors is substantial: active managers pursuing differentiated returns in a contracting public equity universe will require private equity operational expertise—including company evaluation, operational value creation, and governance—applied to unleveraged, hybrid securities structures rather than leveraged acquisition vehicles.
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