We're excited to bring you a live recording of the Asia Centric podcast we had at the Bloomberg Investment Management Summit last week in front of a live audience.

I hope you enjoyed it.

Good afternoon.

This is a bit of a different setting for us.

Usually we're in a studio with our guests.

Good afternoon, everyone.

Thank you so much for being here, and to our online listeners, thanks for tuning in.

It's good to have you.

I'm kat jemy Trieva and.

I'm John Lee and joining us today, we have Matt Nicolaney, head of the Asia Pacific region for Apollo Global Management.

Now we've got questions from all around the region, so there's a lot to dig in.

Let's just start.

But first of all, Matt, thanks for joining us.

Thanks for having me.

This feels nothing like a podcast.

I'm I'm very happy to be here with the live studio audience.

I brought my yellow pad because I thought they're nobody to be watching now.

Matt, you're very excited about the opportunities in Japan.

You've spoken to Bloomberg News in the past.

You've talked about this seven point five trillion dollars in deposits, then You've also got the government and you know, the central bank looking to stimulate prices.

You've also got this corporate governance reform.

But in your words, why are you so positive on the prospects in Japan.

Good question.

There's a couple of things were positive about.

There's certainly some macro changes that are going to lead to interesting deal activity.

There's a cheaper yen.

There's corporate governance reform that's catalyzing a corporate redo of Japan Inc.

And it couldn't come at a better time.

Given interest rates are up, inflation is up, competition globally is up in a lot of different industrial sectors, so it'll make for some interesting investment opportunities on that front.

Secondly, as the last panel was talking about, trade is being redone everywhere, including in Japan, and there's a lot of outbound investment out of Japan from very good companies in Japan, and I think private capital is going to play a major role in helping to facilitate that cross border flow.

And to your point on deposits, you know, consumers for the last thirty years have really been sitting there with the prices.

I haven't gone anywhere.

Interest rates have been zero.

They haven't needed it to do anything with their money.

Now, all of a sudden, they're facing increasing prices across the board.

They haven't seen that trickle through to their deposit rate.

They haven't really seen that trickle through to the investment product that they're invested in.

And they're now starting to ask, what am I supposed to do?

It can't just keep sitting here in the seven and a half trillion dollars of deposits, and it's been interesting to watch how some of those deposits are starting to move.

Does the election of Senai Takaicha change that at all?

Change your outlook sort of media more long term, because of course there's more of a focus perhaps on fiscal stimulus as opposed to monetary policy.

Some investors see it potentially upending central bank moves and direction.

What do you think?

I don't think change in government within reason is changing the trajectory of what's interesting about Japan.

What's interesting about Japan is corporate governance catalyzing an unlock of really good businesses that have to finance themselves differently, that have to set up their business footprints differently, that have to go pursue growth differently, that's not changing based on who the elected party is.

If you look at the on the consumer trend again, I don't think that you're going to see a change.

You're going to see higher inflation in Japan, and people are getting older and they need something better than deposits and equities.

So these trends that we are excited about, I don't think you're going to change.

That's different from making a commentary on are we excited about Japan from a macro perspective, like would we go by if you could go buy on the stock market Japan GDP, I'm not sure that's what people are excited about.

People are excited about the transaction activity around good companies.

That's going to cause a catalyst for the next five to ten years.

But if you look at the investment, which is actually quite interesting.

You look at the topics, two thirds of the earnings of the topics are outside Japan.

If you look at Japanese companies, two thirds of M and A by Japanese companies are outside Japan.

You look at where the banks are growing outside Japan, insurance companies outside Japan, industrial companies outside Japan.

So there's going to be a lot of interesting to do with Japanese companies.

There's going to be a lot of catalyst driven activity in Japan.

But that doesn't mean that we at Apollo, for instance, make a call on Japan GDP.

Japanese corporate's really changing.

Is management much more, I guess, friendly to shareholders and are they allocating capital in a more efficient manner?

The short answer is yes.

As I've said in the past, I think that this will be two steps forward, one step back, as Japan has welcomed foreign capital to help facilitate this catalyst because foreign equity capital, whether it be in the public markets or it be in the private markets, is going to force management and boards to react to changes in shareholders, changes in shoulder sentiments, and a demand for shareholder return.

And I think Japan has done a pretty good job welcoming and embracing what foreign capital can provide.

Again, there'll be some areas that foreign capital touches that Japan Inc.

Doesn't want them to touch, but buy and large we are seeing that change.

I mean five years ago, it would have been unheard of for US to buy a big business out of Panasonic, that's a critical supplier to Toyota.

I mean, with labor unions all across Japan, we do see the change, we do feel the change.

It is happening.

It will happen faster than a japan timeframe, but it won't happen tomorrow.

What about the other side, So we talked about corporates, but what about consumers, Because you know, the seven point four trillion dollars, there's this view that consumers are you know, they're stashing it under their mattress, so they don't want to deploy.

I mean, how do you convince them.

Well, as we were joking beforehand, the easiest way is to double the price of rice.

That they need to do something different.

But that's actually what's happening.

And the whole deposit system of Japan is fascinating because if it is, certainly in a market with too much liquidity in the banking system.

If you look how risk is priced in Japan versus anywhere else in the world on a risk adjusted basis and currency adjusted basis, it's still two under basis points lower than the rest of the world.

So there's too much liquidity in the system.

But that deposit as rates have gone up, the deposit beta on the average consumer deposit has not gone up, and that's why you've seen insurance products go, savings products go up.

You've seen subscriptions to the NISA accounts, which is basically equities go up because there hasn't been a flow through.

But if you look at the other end of the deposit spectrum with corporates, once you had one increase in rates, okay, maybe you don't move your money, two increases in rates, you start to see the move and money to the online banks.

And what the big banks then did is they said, okay, well we'll just go buy the online banks.

But the point being is that these deposits are actually looking for something different.

Today, no other product exists, no good product exists for the consumer.

And the reason why is because as a result of the distribution systems in Japan, you haven't seen the breadth of product that can be made available to consumer.

Because if you're a consumer, the average consumer with deposit account, you either sit like an MUFG, Mazuho or SMBC, and MUFG, as a for instance, wants you to keep your money in cash.

The minute that you start to think about, okay, should I go invest this into some securities, you walk down the street to Nomora.

But no, although they have a breadth of very good products and they do well with their customers, by and large, the average person is not walking in the door for Nomora for a safe product.

They're looking for an investment product that bears some risk.

And so if you're a depositor looking for an alternative, you don't go to Nomora as a first port of call.

Nor is the distribution system set up to distribute safe, low spread product.

You're not going to MUFG or SMB or Mazuho because they'd rather just have you sit in the deposit.

And there's only so much insurance that you want, Like there's only so much money you want to lock up for the next thirty years of that deposit.

You want access to that.

So the proliferation of product, of safe product for retirees that has some level of flexibility, I think you'll see that in massive troves over the next decade.

And Matt, you just mentioned Nomura, but you know, as an American firm, what's the reception like when you meet Japanese management or some of the you know, like some of these Japanese banks.

Look, it's go back to where I started, which is there is an acknowledgment of the role of foreign capital in Japan and the role that it can play.

Point one point two is, as I mentioned, there's a lot of cross border m and a cross border flows.

You look at the recent deals we did with Sony, the recent deals we did with Sumi Tomo, the recent deals we did with SMBC.

These are companies that in Japan we would have never been doing business with ten years ago, but we're doing business with them in a major way outbound from Japan.

Now, we have a growing presence in Japan.

We just hired a head of Japan, will continue to add senior hef to that.

You know, it's a balance between making sure that we have local presence, local touch point, understand how business is done locally, but also making sure that we have the full toolkit that we can bring from you know, across the world to help a company achieve its goal.

And I just wanted to pull back, maybe to the region for the audio only listeners.

There's a couple of screens up here and there's a word bubble, and the question for the word bubble is what will define Asia in the next five years?

And some of the biggest words in that bubble are China, multipolar, and uncertainty.

Now, given the uncertainty and if we're looking at Asia more broadly, you know, where do you see the most opportunity and conversely kind of where are the biggest risks.

I mean the previous panel, we talked about geopolitics, we talked about headwinds, and we interviewed Steve in a previous episode, and we haven't really seen that impacting things yet to a large degree.

So yeah, where do you see those opportunities today?

It's funny.

I came out to Asia four years ago and I came out because I said, there's like just a massive opportunity in Asia across a number of dimensions.

And then I talked to a good friend that I met here who came here ten years ago, said he came out to Asia for because there's a massive opportunity.

It's all on the comb and twenty years ago, massive all in the comm But look, I think that there's a couple of really interesting things that we're at least investing behind.

The first is we talk about this global industrial renaissance and what that is is, you know, every twenty or thirty years you have these big, massive capac cycles, whether it be railroads, telecom, oil and gas, and this next phase will be around redoing infrastructure or building new infrastructure.

It will be energy infrastructure, energy accretion, and anything related to AI.

And then as the last we'll mentioned, you have defense and supply chain, especially in this region, and you're going to see a massive rotation from financial assets to capital or hard assets over the next five to ten years.

And unlike the last CAPEX cycle in THEW and tens, it's going to be mostly investment grade companies that need this capital, not sub investment grade companies.

And it's also going to be longer duration capital that's needed, not short duration capital, which actually is helpful for private capital step in because a rule of thumb, banks like to do short public markets like to do plain vanilla.

Private capital fills in what's in the gaps.

So that's going to be a major one.

I think the other major positive for this region is really catalyzed by some of the geopolitical trends.

You are going to see more regionalization than you've seen in the past.

Regionalization at least I believe will ultimately center around the big economic polls the US and China, and that will provide a really good basis of trade company growth and trends that will be independent of the West.

They'll be somewhat correlated, but independent, and that will attract capital because in portfolio is one of the biggest things on investors' minds right now is how do you get diversification?

And historically Asia hasn't really offered that diversification because one, you've had globalization, global trends, global capital, and investor behavior buying when things are high and selling when things are low.

So I think that you're going to see over the next five to ten years a massive tailwind for capital formation in Asia, supported by regionalization and the last two things.

Look, I think that how consumers, how savers save out here, whether you're saving for retirement or you're saving for accumulation, is going to benefit from all the global tail winds out here.

But kind of on steroids.

I think you had mentioned that before with Bloomberg News where you said that US tariffs kind of prompted clients to diversify outside the US.

There was that moment you know, sell America or US is no longer safe.

Are you still seeing that kind of push to diversify.

Well, I think what we ended up seeing was sell US dollar sell SELLAR assets, and then like I think a month later in the data it all came back.

But no, it's still top of every investor's mind.

How do I build a diversified portfolio?

Like I understand that I might be, as our CEO says, invested in the cleanest dirty shirt in the US.

And the trends in the US are still very good on a relative basis.

That said, things are pretty volatile and things can change.

And where do I get diversification in scale?

You can get a niche diversification.

Where do I get the diversification in scale?

I think that Asia will prove to be one of those sources of diversifiers over time.

I think privates private assets from non risky all the way to risky will prove to be a diversifier to public markets as well.

I think these are some of the major sources of diversification.

Speaking of your CEO, Yeah, let's do that funny you mentioned that.

Your CEO, mak Roland, he said some you know, interesting statements.

So he said, what if we're fundamentally wrong about investing?

Now?

I think he insinuated that maybe this traditional sixty forty equity bond portfolio is broken now from where we sit today, Look, public markets have been on fire, like the Hangsaying Index is up over thirty five percent, Singapore is up, you know, fifteen percent.

Credit spreads a time.

I don't want to put you on the spot in defending your CEO, but can you please explain oho.

I like to joke that, you know, I've really grown up at Apollo my career, and so I've been tired to be a purchase price matters investor.

But as a result, I've missed the equity run up in a video run up, the bitcoin run up, the gold run up.

And but don't worry, I'm still hanging on strong with my thirteen percent compounded every single year, no volatility.

But in all seriousness, I think it depends on what outcome you're looking to achieve.

And I think what March point is when you used to buy the sixty forty of public stocks public bonds, that was in a market structure that was very different twenty five years ago.

When that rubric was put together, the equity markets represented a broad, diversified mix of earnings from the US or from the world, and you had rates and equities inversely correlating.

The problem is that those markets buy and large became flow markets, really overtaken by passive money.

And so it's not as if you have a bunch of stock analysts doing work on should I buy Nvidia at this price or should I sell it at that price.

You have the market buying the video when infos go up, and the market selling the video when infos go down, or when deleveraging it happens, or leveraging happens, and so you have all these flow driven factors that at this point represent beta.

Because it's just flow, it's not necessarily fundamental investing.

And Mark asked the question has public active investing gone stupider just as a rhetorical question, because obviously it hasn't yet it's underperformed for ten years running because it's really hard to beat the flows trying to be a fundamental investor.

So, from our perspective, where a purchase price matters investor, especially where we're investing, for every dollar we invest, fifty cents of that goes onto our own balance sheet for a twenty year obligation.

We start with the cash flows and so where can you still get a fundamental driven return.

We think it's in the private markets.

The difference between private markets again twenty five years ago and today is that used to be only risky assets, and now given that banks have really pushed a lot of their lending out into the public market or into the investment marketplace in the US, and you see the demand for private capital increasing in Europe as well as in Asia.

You see now safe private, risky private, safe public, risky public.

So I think Mark's point is you will see a different portfolio mix going forward.

Sixty forty won't be good enough anymore.

That's not how you get a diversified, stable portfolio return.

You have to have a mix of public and private, and you will dial up and down the risk based on your risk profile, and dial up and down the liquidity based on your liquid that he needs.

But given the demand for private in the private space, I mean, how frothy is it getting?

You know, are there deals that your competitors are doing that you're just kind of shaking your head at.

Well, So I'd say a few things on that.

You'll feel free to name them.

We're going to list all the competitors and what they're doing.

Look, we've said, as a general statement on the market, valuations are high, like really high.

No matter where you look, valuations are high.

And as a general investment philosophy, we are de risking, not risking up.

There's a time to take risk.

Now doesn't feel like a time to take risk, whether that be an investment grade or that be an equity.

In our risk taking business, we only have to make five good decisions a year, five companies that have some level of complexity around capital structure, business plan, carve out or management changeover or something.

But in terms of is it frothy?

I think one of the questions as we talk about this now too, as we now translate this to you know, credit, it's always a question of alternatives, and so a lot of people will ask the question around private credit.

And the question around private credit is, yes, it is cyclical.

Yes we're at the top of the cycle.

You are still earning the long term average return of equities.

Where would you rather be?

It's a de risking trade to go from equities to private credit.

Then now asking about does it has the industry gotten frothy?

So like let's ask what the industry is supposed to do the industry is supposed to deliver excess return per unit of risk.

Do we think that people are going to be able to consistently deliver that buying from banks, buying from markets, buying from other sponsors.

Probably not.

Probably not.

Our general belief in our platform is that origination, controlling origination is ultimately what leads to excess return over a long period of time, as Marx likes to say, creating that which does not exist.

You know, as an asset manager, you take in money and you invest in something that already exists.

If you are a private or an alts manager and you are effectively taking in money and buying something that somebody else has created, the sustainable alpha has already been armed out.

It's already been taken by the originator.

So our view is that there are a lot of private firms out there that are not focused on origination like they should be.

Our view has been that we need to ramp up our origination because that's the way to continue to deliver our investor's access return.

Matt, I have to get your thoughts on a crazy stat that went viral last week.

Now, there was a Bloomberg round table in London that had a spokesperson from a POLO but also Morgan Stanley and KKR and Atlasa Woods from KKR said that there's nineteen thousand private equity funds in the US versus fourteen thousand McDonald stores.

I don't know why she's comparing McDonald's stores with private equity funds, but without putting words in your mouth, is this industry due for consolidation?

Well, it's interesting.

That's a good stat and I heard it about eighteen months ago.

I oftentimes steal it myself.

You would imagine that there's going to be quite a bit of console and a flushing out of some of these managers, and then you'll probably see it on the equity side, you'll see it in the credit side.

But wherever you have that many firms, like firms are either going to benefit from scale or firms are just going to be masters of their craft.

They're not going to be incentivized by growing their firm.

They're going to be very disciplined in how they manage investors capital.

And that's what you've seen, even in some of the more mature segments of the alts world, is that you've either seen the big get bigger, or you've seen the true artisans, the true crafts just really maintain their discipline with their craft.

So is Apollo going to get involved in that.

On the consolidation side, well, we did recently buy a company called Bridge, which is in the real estate side, but most of our growth has actually been organic.

We've had some really big acquisitions.

We bought Credit Sweez's warehouse business about a two years ago, which was a massive transformation for our asset back franchise.

We bought Bridge, which was a real estate equity platform.

We bought Iridium very recently from my Levit.

So we will complement our capabilities along the way.

But by and large we've got a very strong culture.

Mark has done an amazing job defining what our culture is and rallying around that, and every partner we on board, whether from the outside or acquisition, is a risk to our culture, and so that has to be managed very carefully.

As we say internally, we can only grow as fast as we can onboard people into our culture.

So onboarding a really massive firm into our culture would be a would probably be a high bar, as.

My guess, very diplomatic answer, and we are running down the clock.

But one thing that we were talking about before being on stage is just in terms of risks globally.

I mean, we've talked about how some of the geopolitical risks are, you know, the uncertainty, the bipolar world.

I mean, very broad question, but what are you kind of most concerned about?

What do you think investors should be more concerned about?

And you could even borrow from that word class that we had earlier.

Look, I think there's lots of things to be nervous about from a risk perspective.

That's why we've generally de risked our book from a pure asia lens, what do I see?

I think I mentioned this at one point, but I just have this vision that in the Cold War that there was still like the batphone, that if the world was going to end, you picked up the phone and said, wait, are you sure that you meant that?

And so I want to believe that that exists today as a little bit of a human, a little bit of an optimist.

But I do think that the biggest risk is a breakdown in communication, like the back channel communication, like yes, let's always make sure that we have the baseline of this and everything else we can fight over.

I think that that's probably one of the biggest risks.

I think the other biggest risk is really seeing in terms of band of outcomes, is how Europe comes together.

How does it come together as a fence union, how does it come together as a capital markets union.

It's talked a lot about the need for private capital to reinvigorate the economy and how the countries pulled together to incentivize that private capital.

Could neither be a once in a generation opportunity or you know, they won't get their act together.

But I think that those are some of the things that will cause a wide band of outcomes.

Thanks so much for joining us today.

It was a great conversation.

Thank you very much for having me fun.

Thank you