Should You Have Private Assets in Your 401(k)?

Apollo's Business and Market View

• 💡 Apollo Global Management operates two main businesses: retirement services (Athene, $350B+) and an $800 billion private markets asset manager (credit, equity, hybrid).
• 🎯 The firm's role is to create excess return per unit of risk, focusing on markets where this can be achieved at scale.
• 📈 While private equity is a stable $100 billion business, private credit is projected to double to $1.2 trillion in five years, and hybrid will triple.

Public vs. Private Market Dynamics

• 🔑 Public market asset managers primarily buy existing assets, whereas private market managers create what they buy, which is the source of their excess returns.
• 📊 The market structure has changed, with 90% of traditional active managers failing to beat the index for 20 years, indicating public markets are largely "beta."
• ⚠️ The traditional illiquidity premium in private markets is less relevant; compensation now comes from origination, diligence, and structuring.

Investment Outlook and US Debt

• 🧠 Current market conditions show public markets are expensive, interest rates are unlikely to plummet due to inflationary pressures, and geopolitical uncertainty is high.
• 🌱 Investors should consider taking risk off, moving to top-of-capital-structure credit and contractual cash flows in equity, as past strategies may not work.
• 🏛️ The US government debt problem is a political issue, not an economic one, requiring a crisis to prompt necessary changes.

Expanding Role of Private Markets

• 🚀 The market opportunity for private capital has doubled or tripled by including individuals, retirement services, and insurance companies.
• ✅ Private markets are increasingly seen as a way to achieve 1.5% annual excess return, potentially leading to 50-100% better retirement outcomes for individuals.
• 💡 There's an expectation that private markets will be accessible in 401k systems in the future, expanding access beyond institutional investors.

Addressing Liquidity and Access

• 🧩 Skepticism about private market inflows often stems from a misunderstanding; private markets are primarily credit-oriented and investment grade, offering returns for liquidity risk.
• ⏳ For investors with a 30-day to 30-year horizon, bearing liquidity risk (e.g., semi-liquid funds with 30-day access) can be compensated with excess returns.
• 🤝 Convergence is happening, with traditional asset managers integrating private assets into products like ETFs and open-ended mutual funds to offer broader access.

Future of Market Structure

• 📈 The State Street ETF partnership aims to blend public and private investment-grade assets, leveraging the private market premium for outperformance.
• 🛠️ Market making is crucial for liquidity in these new products, with firms like Goldman Sachs and JP Morgan entering the space as it develops.
• 🔮 The future will see more market making in fixed income, blurring the lines between public and private liquidity, and a continuous evolution of investment products.