Insight into Marc Rowan’s unusual management tactics at Apollo

• Apollo plans to double its assets under management in five years, even as market conditions change.
• Rowan said the company is testing new tactics to motivate employees to “play to win.”
• Here’s how and why the company switched to frozen yogurt and 4:30 a.m. wake-ups.

At Apollo’s presentation to investors on Tuesday, all eyes were on the company’s ambitious goal of doubling its assets under management and further cementing its place as the world’s largest private lender. (Well, some eyes have been on the company’s use of memes to distance its competitors.)

But in the discussion of incorporation, opening up $401Ks to private investments and hybrid stock replacements were some unusual management tactics that CEO Marc Rowan said the company used to motivate its employees.

“We woke the team up at 4:30 a.m. for meetings to prove to them that we needed to have a wake-up call and do something different,” Rowan said. “We had outside speakers scaring people. We had cautionary tales.”

We, and probably you too, have many questions. How do you wake people up at 4:30 a.m. without encountering a barrage of do-not-disturb messages? What outdoor speakers did Apollo tap into to scare his people? Is Lehman Brothers scary?

We contacted Apollo for further details, but the company declined to comment. While the how is a mystery, Rowan was very clear about the why. Apollo’s co-founder and CEO believes making money won’t be as easy as it used to be.

“We believe assets are becoming scarce, not capital,” Rowan said, citing an environment with more limited investment opportunities. (Business Insider covered this topic in a story explaining why portfolio company executives are private equity’s new rising stars.)

“Change is coming,” Rowan said. “If we believe that we will be successful if we do more of the same, then I think that is a fallacy. We have to adapt and change.”

Free Froyos

Before we delve into Rowan’s take on what Apollo needs to do to adapt to the new climate, we should note that the company is using more than just scaremongering to drive what Rowan called a “play to win” work culture .

On Tuesday, Rowan told investors that the company also put its own spin on the time-honored management tradition of a celebratory pizza party, replacing the pie with frozen yogurt.

“The best decision I have made in the last 12 months was to personally purchase a frozen yogurt machine,” said Rowan. “We open the frozen yogurt machine when we get a team win. It turns out people would rather have frozen yogurt than money.”

Rowan, of course, jokes that people prefer froyo to money (and has said so). Even in the private equity industry, Apollo’s professionals are paid particularly well. The point is that culture at Apollo is very serious business. And Rowan spends half his time managing the company’s 200 executives.

“How we get the organization to play to win, rather than just play not to lose, will likely take up most of our management time,” Rowan said.

New tailwind

Today, Apollo has nearly $700 billion in assets under management, including a massive loan underwriting business. But on Tuesday, Rowan attributed the company’s success since going public in 2008 to being “lucky” and “smart” enough to be in the right place at the right time. This allowed the company to benefit from low post-crisis interest rates and its early investments in life insurance and pensions.

Now that interest rates are high, the tailwind for Apollo and the industry as a whole has disappeared, he said.

Rowan said the key is positioning the company ahead of the right tailwinds, as it did to get where it is today. He identified four favorable market trends.

The first is the need for massive infrastructure investments in renewable energy, utilities and energy in general, as well as data centers. These are long and complicated projects that require creativity, Rowan said.

“These long-term solutions across a wide range of capital costs are not really suitable for bank balance sheets that are funded in the short term,” Rowan said. “They don’t really lend themselves to the standard of the investment grade market. We and institutional investors have the long-term capital required for this.”

The second option is retirement. There’s $12 to $13 trillion in 401ks, but currently that capital is “mostly” invested in the S&P 500, which is largely focused on a few large companies.

“I sometimes jokingly say, ‘We took advantage of America’s entire retreat on Nvidia’s performance,'” Rowan said. “It just doesn’t seem wise.”

Rowan said he believes a change in presidential administration would allow private, illiquid 401k investments.

Rowan also pointed out that individual investors, particularly the more sophisticated “family offices,” would provide the company with tailwind and perhaps some creative new ideas.

Finally, he returned to a favorite theme, a redesign of private and public markets.

“What if it’s risky and private is safe when it’s not public?” Rowan said. “What if private was both safe and risky? And would be safe and risky in public? We don’t believe in Nvidia increasing 20 to 30% in one day.”

Rowan said the company’s ability to use capital dedicated to the “riskier” alternatives space to create investment-grade bonds opens up access to the larger and more conservative fixed income space of institutional investors.

Postulating a “hybrid” future, he also touted the company’s $60 billion to $70 billion hybrid business, where investors will own private equity (think private equity without leverage).

“Active management can actually be both the active management of buying and selling stocks, but active management can also be the active management of companies,” Rowan said.