Apollo's Scott Kleinman On Public-Private Market Convergence

In Brief:

Scott Kleinman, Co-President of Apollo Asset Management, spoke to the Money Maze Podcast about what he calls the "irreversible convergence" of public and private markets. With Apollo managing $750 billion in assets, the 29-year industry veteran argues that traditional investment frameworks are fundamentally breaking down as supposedly liquid public markets lose their actual liquidity while private markets become more accessible to mainstream investors. Kleinman warns that the entire premise of portfolio construction—where public assets were considered safe due to liquidity and private assets risky due to illiquidity—no longer holds true, creating massive opportunities for alternative asset managers while forcing pension funds and individual investors to rethink decades of investment orthodoxy.

Big Picture Drivers:

• Market Structure Breakdown: Banks reduced market-making activities post-2008, creating a 30x reduction in relative debt market liquidity while public debt markets tripled in size

• Passive Concentration: More than 50% of U.S. equity flows are now passive, mechanically driving money into the same stocks without price discovery

• Regulatory Arbitrage: Bank regulations forced lenders out of certain businesses, creating opportunities for private capital to fill the gaps

• Capital Intensity Cycle: Companies face unprecedented spending needs for deglobalization, decarbonization, and remilitarization requiring new funding sources

Key Topics Covered:

• Zero Rate Distortion: How 14 years of declining and zero interest rates masked who was creating real alpha in private equity versus riding leverage

• Liquidity Illusion: The false premise that public markets offer safety through liquidity when volatility spikes affect everyone simultaneously

• Retirement Access: Plans to bring private market investments to 401(k) participants within five years, potentially adding hundreds of basis points to returns

• European Capital Shortage: Massive lending opportunities as European companies lack capital for infrastructure and digitization investments

Key Insights:

• Public Safety Myth: The supposed safety of liquid public markets is largely illusory, as demonstrated by pension funds having to sell AAA-rated securities at 85 cents during the UK gilt crisis when everyone needed liquidity simultaneously.

• Private Equity Reset: The 500 basis point rate increase in 2022 revealed which private equity managers were creating real alpha versus those who were simply benefiting from free money and rising valuations during the zero-rate era.

• Index Concentration Risk: The S&P 500 has effectively become 10 mega-cap stocks that drove 80% of gains while a quarter of the index was actually down, creating unprecedented concentration in the entire U.S. retirement system.

• Retirement Revolution: Individual investors will gain access to private markets through 401(k) plans, allowing them to capture an extra 200 basis points annually that compounds to massive wealth differences over 30-year investment horizons.

• Corporate Capital Crunch: Major companies like Intel now face more capital expenditure requirements over the next five years than their entire market capitalization, forcing them to consider private funding sources for the first time.

• Geographic Opportunity: European companies are "starving for capital" to fund reshoring, digitization, and defense spending, creating significant lending opportunities for U.S. private capital firms with the scale to provide meaningful funding.

Memorable Quotes:

• "We had a 14-year rate declining and then staying at zero environment that brought all sorts of folks out into the woodwork and massively scaled up the size of the industry" - Kleinman, explaining how monetary policy distorted private equity competition

• "The biggest single systemic risk we have right now is the fact that 40% of the S&P is held in 10 stocks" - Kleinman, warning that regulators focus on private credit risks while ignoring public market concentration

• "We don't have an S&P 500 anymore, we have an S&P 10 and an S&P 490" - Kleinman, describing how passive investing has fundamentally changed market structure and eliminated price discovery

• "If you think about those buckets, everything that Apollo sells has only been sold to that 20% bucket—if that other 80% starts opening up, there's huge opportunities" - Kleinman, on the potential market expansion from institutional allocations

• "You can't escape hard work. The real world is an apprenticeship world—put your head down, work hard for a long time, and become a master of your craft" - Kleinman, offering career advice that contrasts with get-rich-quick expectations

The Wrap:

Kleinman's analysis suggests we're witnessing a fundamental restructuring of global capital markets where the traditional boundaries between public and private investing are dissolving. As public markets become dangerously concentrated in a handful of mega-cap stocks while losing practical liquidity, and private markets become more accessible through retirement plans and institutional adoption, investors from pension funds to individual savers must abandon decades of portfolio theory. The convergence represents both opportunity and risk—potentially higher returns for those who adapt, but systemic dangers for a retirement system increasingly dependent on just 10 technology giants.