Apollo’s Strategic Shift: From Alternative Assets to an ‘Insurable’ Model, According to Lee McCabe

In a recent LinkedIn post, Lee McCabe offers a sharp analysis of Apollo Global Management’s strategic evolution, suggesting the firm has transformed into something akin to an insurance company operating under a private equity guise. McCabe argues that this shift, driven significantly by the integration of Athene, represents a fundamental rebuilding of Apollo’s earnings architecture.

McCabe begins by contrasting Apollo’s historical operational model with its current one, noting the volatility associated with traditional private equity fee structures. He highlights the challenges faced when market liquidity dries up.

“For years, Apollo looked like the classic alts model. Fees grinding along underneath. Carry bouncing around like a drunk analyst after bonus day. Great when markets are open. Less charming when exits freeze and everyone suddenly remembers IRR is not cash.”

Redefining the Earnings Engine

The core of McCabe’s analysis centers on the impact of the Athene merger. He posits that this integration has introduced a new primary revenue stream: spread earnings, derived from insurance liabilities and credit origination. This, McCabe explains, offers a more stable, recurring income compared to the realization-dependent carry model of traditional private equity.

According to McCabe, this represents a move towards what he terms “manufactured carry.”

“Apollo replaced a revenue stream dependent on realizations with one driven by insurance liabilities, credit origination, and balance sheet spread. The clever bit is that it still has the economic punch of carry, but behaves much more like a recurring engine.”

McCabe emphasizes that this is not merely a superficial diversification but a fundamental alteration of how the firm generates profit. He credits Marc Rowan, Apollo’s CEO, not just with expanding the platform but with architecting this new earnings model.

The ‘Insurable’ Advantage

As Lee McCabe points out, the new model is capital-hungry but offers a predictable and scalable engine that converts retirement assets into private credit origination, ultimately generating earnings that the market can underwrite with greater confidence.

Lessons for Private Equity

McCabe suggests that this strategic pivot offers valuable lessons for other private equity firms. He argues that the most successful firms are not merely adding new products but are actively improving the quality and predictability of their earnings.

“The best firms are not just adding products. They are changing the quality of their earnings.”

In McCabe’s view, Apollo’s transformation has made it more “insurable,” a characteristic he suggests may be even more powerful than its previous aggressive stance.

“Apollo did not become less aggressive. It became more insurable. Which, annoyingly, may be even more powerful.”

McCabe concludes by reiterating that the underlying trend, illustrated by charts, shows Apollo finding a way to make what might appear volatile into a recurring revenue stream. He notes that the historical carry figures are directional estimates and the key takeaway is the fundamental shape of the business model.