00:00This deal from Keurig, Dr. Pepper, they first announced that they were going to do this back in August,
00:04but it was only yesterday that we learned of yours and KKR's involvement.
00:08What was the genesis of this deal?
00:11Yeah, well, look, the transaction itself, I think, has been well articulated.
00:16It makes a lot of sense bringing these companies together.
00:20Our involvement really stemmed from, you know, the need for the company to find creative ways to bring its leverage down.
00:26And we came up with some, you know, with the company, some very creative and thoughtful ways to make investments in the business,
00:37but also do it in creative ways that really only private capital can solve.
00:44I wonder about secondaries.
00:46It was initially, you know, when we started talking about it in financial media, we were skeptical.
00:53But now we've seen huge fundraisers and secondaries investors clearly want to access.
00:58Was that a big part of this funding, this financing as well?
01:01No, not really.
01:03This really comes from a lot of our balance sheet capital, a lot of our hybrid capital,
01:09that just is looking for interesting ways to make investments, but, you know, in a safer, more downside protected way.
01:17It was indigestion in this industry, and as we heard from David Solomon, and clearly just alone in the action Apollo is doing,
01:23things have picked up.
01:24I remember in the summer of 2024, you stood up on a stage in Berlin and told everybody,
01:30I'm here to tell you that not everything is going to be right, at least until the pig made its way through the Python.
01:35I think that is one of, like, the best statements about the industry that's ever been made.
01:39Where are we now?
01:40Has the pig made its way through the Python?
01:42Well, thank you for that.
01:43It's nice to be right once in a while.
01:45No, I'd say the pig is sort of somewhere, like, passing through the small intestine or something like that.
01:52No, the reality is, as we said back then, that the low-rate environment for a decade allowed the private equity industry
02:03to, you know, acquire some really good companies, but at pretty full prices.
02:09And when you saw a fundamental rate environment change, all of a sudden those good companies are still good companies,
02:18but they were purchased at prices that don't make sense anymore.
02:20And so it was just going to take a while for companies to grow into those valuations longer than I think was underwritten.
02:28And that's exactly what's happening.
02:30And so, you know, we do believe, you know, the thing I said at the time also was that we're going to be in a higher-for-longer rate environment.
02:39I think there was a lot of optimism that rates would come down pretty quickly.
02:42You know, rates are starting to soften, but still we believe, you know, the rate environment is going to stay higher for longer.
02:52And that's going to then, you know, keep the prevailing valuation environment, you know, intact.
02:59And so, yeah, I think you're going to watch, you know, private equity sponsors sell assets, but at a slower pace for the next few years.
03:07Also, how great is it that a New York-based television anchor quotes you from Super Return in Berlin?
03:14We're international.
03:15We're deep in it.
03:16There you go.
03:17That's the point I want to make.
03:19You've reopened Windows, right?
03:21Aspen Insurance, Automatica, and you're seeing exits here.
03:26Are exits back?
03:28You know, is that going to lead to better fundraising for 2026?
03:32Well, look, here's where I'd be remiss if I didn't, you know, put a shout-in for Apollo.
03:36I mean, part of the reason we've been able to be, you know, exiting a number of our companies is because, you know, I joke, we never got the memo that the interest rate cycle was going to last a decade.
03:47And so we stayed true to that more value-oriented investing environment.
03:52And that allowed us to buy companies at, you know, lower prices, good companies, so that when we are starting to exit now, we're not dependent on those expected high valuations.
04:05We can get out at reasonable valuations and still make the investments good.
04:10When folks say that it's a tough exit environment, it's not that it's a tough exit environment.
04:15It's a tough exit environment at prices they would be happy with that justify their purchase prices.
04:20So if you've paid reasonable prices for assets, you absolutely can get out now.
04:25Well, there was that frenzy against, again, what you're referring to in 2021 and 2022 where people paid a lot.
04:30If you look at the volumes, they're starting to rival that, the third quarter especially.
04:34And I guess a lot of that has to do with a big LBO in the way of EA.
04:37But are we at risk of making that mistake again with all of a sudden this over-enthusiasm and people coming back to market and happily snapping up some of these deals, especially the tech-oriented ones?
04:49You know, we'll see.
04:50I can't really speak to the EA deal.
04:52It's obviously a huge company, a huge price.
04:56But, no, I think there is definitely some enthusiasm building for some of these businesses.
05:06But, of course, you only have to look at the market today to see that there's a lot of momentum, perhaps over-momentum, in certain of the tech-related spaces.
05:16So you are seeing some froth there then?
05:17I would think so.
05:18Yeah, yeah, I would think so.
05:19Although it's still because of the rate environment, you can only go so far in the buyout side of it, but certainly a lot of enthusiasm.
05:27Can I just ask on that?
05:28Because on the tech side, when you've done AI deals, Apollo's been very deliberate in that it's been on the financing side of it, not on the equity side of it.
05:36Right.
05:36Why structure it that way?
05:38You know, I'll go to the old adage of, you know, we'd rather be selling pickaxes to the gold miners than doing the gold mining ourselves.
05:45And, you know, we have enormous pools of capital, including our own balance sheet capital, that is looking for a little bit safer downside protected.
05:54And at some of the valuations we're seeing right now, it's sometimes hard to wrap your head around the equity story, whereas either the financing story or the structured investing into those, you can get a lot more comfortable with the risk-return balance.
06:12It, you know, we are huge believers in the AI story going forward, meaning volumetrically, AI is just seeping into more and more parts of the economy and will continue, you know, for the foreseeable future.
06:27But people confuse the volume story and the value story, right?
06:32Just because volumes going up doesn't mean the profits that we're seeing today in the earliest days of AI, where there's supply shortages, bottlenecks, et cetera, for different components in the value chain.
06:43And that eventually will correct itself.
06:45And we've seen this in the PC revolution, in the Internet revolution, and we know it'll be the case here.
06:51I just don't know if that's one year, three year, five years away.
06:53And so we tend to take a more thoughtful, downside protected approach.
06:57You do have, though, a lot of equity stakes.
07:00And whenever I'm talking to men and women that work in PE at, like, the neighborhood barbecue, I'm always asking about portfolio companies.
07:06Because I think it's a great, you have a fantastic vantage point on the American economy, on the global economy.
07:13How does labor look to you right now?
07:14I mean, are you reducing headcount at a lot of your portfolio companies because you can replace some of what they do with AI?
07:22You know, it's the most important question, you know, out there.
07:27I think you're seeing, like in a lot of parts of the economy, the answer is both, right?
07:33So in some parts of our companies, you know, there's still a labor shortage.
07:38There's still not enough.
07:39We're still not at full employment.
07:41In other areas, certainly the lowest hanging fruits, you're starting to already see those productivity gains happen.
07:51You saw some of the announcements today from some pretty big companies.
07:55I think you're going to be seeing that's going to become much more of the regular type of discussion that you're hearing on quarterly earnings.
08:01Because it's, you know, we're now a couple of years into this AI activity and you're starting to see the fruits of all that investment.
08:10But even that is still early days.
08:12It's really most of the more obvious parts where you're seeing labor reductions.
08:17A lot of AI, certainly within Apollo, a big part of AI is how do we drive productivity?
08:23How do we get more spread out of the credits we're writing?
08:28How do we make better decision making?
08:30How do we make better risk decisions?
08:32And so it's really all of the above.
08:34A lot of these tech companies, though, when you hear deals from them, it's been flagged as some maybe not traditional deals where you're investing in a company, OpenAI is, and it comes back in the form of revenue.
08:46There's been this argument of circularity.
08:48You are a deals guy at heart.
08:50When you look at some of them, does it make sense to you?
08:53Does it concern you?
08:55Look, look, it's not my area especially, so I'm not going to really opine.
08:59But clearly a lot of folks are creating a lot of value on paper, you know, right now and even more than on paper.
09:08At some point, these type of things usually lead to, you know, one set outcomes.
09:14But for the time being, you know, back to what I said, that value versus volume disconnect, there's a lot of money to be made along the way.
09:21But the problem is when it flips over, you're kind of whoever's left sort of holding the bag, you know, rides it back down.
Be the first to comment