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Apollo curbs risk and stores cash to prepare for turbulence

Chief emphasises defensive posture Asset manager points to high prices

ANTOINE GARA AND ERIC PLATT NEW YORK Additional reporting by Sujeet Indap in New York

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Apollo Global is building up cash, cutting leverage and selling out of riskier corners of debt markets as top executives gird the firm for what they expect to be market turbulence.

Chief executive Marc Rowan believes that the defensive posture will prepare Apollo, which manages $908bn in assets, for more challenging credit and equity markets and put it in a better position to invest during any turmoil.

Rowan privately told investors this month that his “number one job” was to “have the best balance sheet possible”, to position Apollo to make money “when something bad happens”.

His comments came in private meetings at a Goldman Sachs conference, according to people who attended, and echo his public statements warning of excesses in many fast-growing corners of financial markets.

“We believe that prices are high, that rates — long rates — are not likely to plummet, and that we have enhanced geopolitical risk,” Rowan told investors on the company’s earnings last month.

“As a firm, we are in risk reduction mode. We preach risk reduction. Our balance sheet is in risk reduction mode.”

At an internal town hall this month, Apollo’s leadership emphasised the defensive posture. “I get the feeling everyone here is on the edge for a next blow-up or something in markets,” said an executive who attended.

Apollo declined to comment. To prepare for shakier financial markets, Apollo has built liquidity at its insurer Athene with purchases of tens of billions of dollars in treasuries and cut bundles of leveraged loans, Rowan told investors in the private meetings. Athene is cutting its collateralised loan obligation (CLO) exposure by about half to $20bn, Apollo has said publicly.

Apollo has also been focused on trimming risk in areas vulnerable to technological disruption from artificial intelligence. The Financial Times reported last week that Apollo has been reducing its exposure to software loans it believes could face challenges owing to AI.

Rowan has also warned of “contagion risk” in some areas of the insurance marketplace where private capital groups have grown quickly with little regulatory oversight. He has also pointed to looming bankruptcies among private capital-backed insurers that have moved their assets to the Cayman Islands, an offshore jurisdiction.

“What people are doing is they’re taking business offshore to Cayman, where there are fewer rules and fewer capital requirements . . . We’ve now seen three bankruptcies in Cayman. We will see more. I do not believe that Cayman will be a viable US jurisdiction over 24 months,” he said in public comments at the same Goldman conference.

Apollo believes that defaults could be contagious for the insurance industry given that assets moving offshore have been ceded by US insurers who ultimately would be on the hook to cover losses because they have no federal backstop.

Rowan has also said that returns in many debt markets have fallen to the point of being unattractive.

“CLO spreads have completely and totally compressed,” said Rowan at the Goldman conference.

Apollo curbs risk and stores cash to pre­pare for tur­bu­lence

Chief emphas­ises defens­ive pos­ture Asset man­ager points to high prices

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