'When something bad happens': Apollo lowers risks in anticipation of turbulence

Apollo Global Management is going into "risk reduction mode" by building up cash reserves. Mark Rowan, head of one of the world's most influential investment companies, considers the markets overheated and warns of growing geopolitical and systemic threats.

One of the world's largest alternative asset investment firms, Apollo Global Management, is building up cash reserves, deleveraging and exiting riskier segments of the debt markets in preparation for possible market turbulence. The Financial Times (FT) reports this, citing people who attended a Goldman Sachs conference in mid-December.

According to the FT, Apollo CEO and co-founder Mark Rowan shared the actual plans with investors in private meetings. His comments, the newspaper notes, also echo Rowan's public warnings of overheating in many high-growth segments of the financial markets.

In anticipation of volatility, Apollo has, among other things, increased liquidity levels at its insurance subsidiary Athene, investing tens of billions of dollars in U.S. Treasuries, and reduced leverage packages, which involve using debt to scale up investments. In addition, Athene is roughly halving its investments in structured debt instruments (CLOs) to $20 billion, which the company has previously confirmed publicly.

In addition, Apollo is de-risking sectors vulnerable to the "technological shocks" associated with the development of artificial intelligence, the newspaper notes. Last week, the FT reported that the company is accelerating its portfolio of loans to software companies that Apollo estimates could face difficulties due to the spread of AI.

At the same time, Apollo's competitors note that they have not yet seen a complete withdrawal of the investment company from the market, the FT points out. As an example, they point to Apollo' s decision to provide debt financing for Paramount's bid to acquire Warner Bros. Discovery for $108 billion.

Changes in Apollo's strategy have been ongoing for more than a year, the FT notes, emphasizing that investors are closely monitoring them given the scale of the investment firm's influence on the market. In particular, Apollo has been involved in some of the most complex debt deals, including non-standard financing schemes for Intel and Elon Musk's AI company xAI.

Rowan is confident that a defensive strategy will prepare Apollo for a more challenging credit and equity market environment and allow the company to better invest during any turmoil, the FT writes. He said his "number one objective" is to have "as strong a balance sheet as possible" so Apollo can operate efficiently and make money "when something bad happens", sources told the newspaper. "We believe that prices are high, that long-term rates are unlikely to fall sharply and that geopolitical risks have intensified. As a company, we are in risk mitigation mode," Rowan said in private meetings.

Apollo declined to comment on the matter.

At an internal meeting in early December, Apollo's management also emphasized a defensive approach to investing, the FT writes. "There is a feeling that everyone here is waiting for the next collapse or some serious disruption in the markets," one of the investment firm's executives said at the time, according to the publication.

Earlier Rowan also warned of a "risk of contagion" in certain segments of the insurance market where private capital was growing rapidly with minimal regulatory oversight. He spoke of possible bankruptcies of private-equity insurance companies that moved assets to the Cayman Islands, an offshore jurisdiction. "People are moving business offshore, to the Caymans, where there are fewer regulations and capital requirements..... We've already seen three bankruptcies in the Caymans. There will be more. I don't believe the Caymans will remain a viable jurisdiction for the US on a 24-month horizon," Rowan repeated his idea at the Goldman Sachs conference, according to FT sources.

Apollo estimates that for the insurance industry, defaults could take on a chain-like nature as assets moving overseas have been transferred by U.S. insurers, which will eventually be obliged to cover losses because they have no federal protection, the Financial Times points out.

Apollo has ramped up hedging on floating-rate debt instruments this year on the belief that the US Federal Reserve will continue to cut interest rates under pressure from American President Donald Trump. The moves are designed to protect the profits of Athene's insurance unit in the event of a further drop in short-term rates, given that the company has a floating-rate debt portfolio of about $50 billion, the FT points out.

Apollo also runs Apollo Debt Solutions' flagship $23 billion private credit fund with lower leverage than its competitors. Which, according to FT sources familiar with the situation, Apollo executives see as a sign of their conservative approach.

This article was AI-translated and verified by a human editor