“Given the amount of deb issuance by the US government, there’s almost no choice but to keep interest rates very low for a very low time.”
Josh Harris is co-founder of Apollo Global Management, one of the world’s largest alternative investment firms. Harris is also principal owner and managing partner of the NHL’s New Jersey Devils and NBA’s Philadelphia 76ers, and also general partner in Crystal Palace of the English Premier League.
Harris learned early on his career, during the 1990 financial crisis, how to identify opportunities in moments where others panic. Some of those first examples involved buying big companies with bad balance sheets, deleveraging and ultimately saving the business all while generating great returns. Harris evaluates the current pandemic, its economic fallout and the civil unrest borne out of persistent systemic racism. “We've got a lot of income inequality, and obviously we have systemic racism in the country, and people are getting tired of it. The murder of George Floyd has created a lot of division amongst people. I think all of those things make it a really difficult time period.”
As a sports owner, Harris feels a strong sense of duty to leverage his teams’ influence in the community as a force for good. This is paired with the efforts of his own philanthropic organizations.
LISTEN AND SUBSCRIBE
SPEAKER
Josh Harris
Co-Founder
Apollo Global Management
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello everyone. And welcome back to SALT Talks. My name is John Darsie. I'm the Managing Director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and geo-politics.
John Darsie: (00:19)
What we've been trying to do with these SALT Talks, is provide our audience a window into the minds of subject matter experts who are amongst the world's leading investors, creators, and thinkers. We're trying to replicate that experience that we provide at our in-person SALT Conferences, which unfortunately we were not able to do this year as a result of the pandemic.
John Darsie: (00:37)
But we're really excited today to welcome Josh Harris to SALT Talks. Josh is the Co-founder of Apollo Global Management. One of the world's largest alternative investment firms. He's also the Founder and Managing General Partner of Harris Blitzer Sports and Entertainment, an investment company that's focused on sports, entertainment and media. Within the vast HBSE portfolio, Josh is the Managing Partner of the Philadelphia 76ers in the NBA, and of the New Jersey Devils in the NHL, as well as the General Partner of Chrystal Palace Football Club in the English Premiere League.
John Darsie: (01:09)
In addition to all of that, he's a great philanthropist. He serves as the Founder and the Chairman of the Harris Family Charitable Foundation, which strives to improve lives, and strengthen communities, through the transformative power of sport, precision wellness, preventative medicine and leadership development. Josh earned his MBA from Harvard Business School, where he was named a Baker [inaudible 00:01:29] Scholar. And a BS in Economics from the University of Pennsylvania's Wharton School of Business, where he graduated summa cum laude. He and his wife reside in New York City with their five children.
John Darsie: (01:39)
And hosting today's interview, as most of you know, is Anthony Scaramucci, who's the Founder and Managing Partner of SkyBridge Capital, which is a leading global alternative investment firm. And I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (01:51)
I just want to thank everybody for wearing a blue shirt, pursuant to my memo that went out last night. You guys at least paid good attention to all that, so thank you.
Anthony Scaramucci: (02:00)
Josh, I always start these interviews out with a seminal question, because I know you. Many people know you from the media, because of your sports ownership, but not your background, how you got started? Where you grew up? And I love asking that question. So, can you tell us a little bit about that? Take us back to, prior to your arrival in college and business school.
Josh Harris: (02:25)
Great. Thanks Anthony. And it's awesome to be here. Thank you for having me. I grew up in Chevy Chase, Maryland. My dad, my path to finance, Apollo, and sports, was non-traditional. I grew up with my dad, who was an orthodontist. My mom and my dad, my family, had grown up in Philly. My mom was a teacher in Philly, went to Temple University. My dad went to Penn, so I decided to go to Penn. I'd never heard of Wharton when I joined Penn. But ultimately loved economics, and was, and joined the Wharton School after Freshmen year. And then ultimately worked at Drexel Burnham Lambert, where I met Leon Black and Marc Rowan.
Josh Harris: (03:14)
In 1988, I applied to one school, I applied to Harvard Business School. I said if I get in, I'll take a break. And I got in, and then in 1990, during one of the great financial crisis that have come about in my lifetime, and there have been five, Drexel went under. Ad Leon and Mark were starting Apollo, and they called me and said, "Can you join us after you get out of school?" And I did. That was my path.
Josh Harris: (03:48)
I was a high school and college wrestler. I always enjoyed sports, and it's lead me to be involved in sports going forward. That was my path.
Anthony Scaramucci: (04:03)
Talking about the crisis, you and I are, we're getting old, Josh, okay?
Josh Harris: (04:07)
We are.
Anthony Scaramucci: (04:07)
We've had five or six-
Josh Harris: (04:09)
You look good.
Anthony Scaramucci: (04:11)
... different crisis. I'm going to take you back to... Yeah, but that's Botox and hair dye. I can introduce you to my dermatologist if you need help.
Anthony Scaramucci: (04:17)
But, let's go back to 1990. It's February of 1990, this legendary investment bank, the greatest, arguably one of the greatest innovators in the modern capitalist era. The introduction of junk bonds, and all of the re-engineering that took place in corporate America as a result of Michael Milken's brilliant innovation, it's been shut down. And we don't have to go into why it was shut down, but I want to ask you this question.
Anthony Scaramucci: (04:45)
From your point of view, back then, you'd worked there, you went to school, it's now been shut down, and this is really for our younger viewers out there, because what happens to all of us, it's happened to you, it's happened to me. We're planning things, and God or the universe is laughing, and things start to go in a different direction than we expect. And so, tell me what you were thinking at that moment? And tell me some of the decisions you were making, to lead you to where you are today?
Josh Harris: (05:14)
Yes, so as a young man, I was driven to be involved with finance and getting, helping companies grow, and raising capital. Coming out of college, at that point Drexel was doing, I thought that the best and the brightest people were there, and they were doing a lot of attractive deals, so I joined. And then I was, I met great people there, and so in 1990 when the economy collapsed, I saw an opportunity to take what I thought was a... I always thought about my, and I always advise young people to think about their careers as an investment. What's the risk and what's the return?
Josh Harris: (06:03)
I felt that I was with great people who I knew. The way private equity alternatives works is, once you've raised the capital, you're in business. There's enough of fee string there, that you can pay the bills. It's like, I wasn't going to go broke or not be able to, trying to buy a, have an apartment or feed myself. And so I took the risk and joined up.
Josh Harris: (06:33)
Apollo's always been about innovation and agility, and volatile financial markets. And so we were, we innovated. And we, what everyone else had been doing bonds the traditional way, which was making equity investments, and then borrowing from banks. There was no capital available to do that, so we went into the market and we bought debt of very big companies with very bad balance sheets, and we created private equity transactions the opposite way. We deleveraged the companies, but we were able to save many quality businesses, as well as create great investment returns. And so, Apollo was born.
Josh Harris: (07:16)
What drove me was really the ability to be around great people, the ability to learn. And the ability to, I think, to innovate, and be part of what I saw was a new innovation in the financial markets, which was a win-win where we helped our investors, but we also helped the companies.
Anthony Scaramucci: (07:38)
You've seen many crisis, and it's a great story about how you guys thought about things. How do you see this crisis in comparison to some of the others.'90, '98, you got a quote there, 2001, the dot-com bubble. 2008. How do you see this differently, or not differently?
Josh Harris: (08:03)
I started in 1986. I was 21 years old. And I remember 1987, October 1987, being on the floor and just the market dropped 508 points, I'll never forget it. 25% drop. And someone was screaming out every 10 points. And then 1990, obviously where there was a savings and loan crisis. And a massive recession. And then obviously '01. '08, the financial crisis, which was very difficult. And then this crisis. I would say of all the crisis, this is by far the worst.
Josh Harris: (08:33)
Number one, it's a health crisis. People are dying. People have died. Secondly, it's a massive economic crisis. Just to put it in context, the trough unemployment for the country in the financial crisis, which is still over 10%. Obviously, we're down to 11% now, but we hit 15%. And if it hadn't been for massive government action, both from the federal reserve and from the treasury and fiscally, we would've probably hit 20 or 25%. We peaked the climb, peaked the trough to climb the GDP, which is supposed to be down at 6% this year as a country, that well exceeds what we were down in the financial crisis.
Josh Harris: (09:25)
I see this crisis somewhere between, when you look at it in context, I see this crisis somewhere between the financial crisis which was the worst previous thing that I had been involved with, and the great depression. Closer to the financial crisis. And so, when I try to put that in context more, it took about three years for the economy to get from, to recover from, to 2007 levels from where it dropped. And in the great depression it took the economy about seven years.
Josh Harris: (09:54)
I do believe that we're in a little bit of a longer economic negative climate, relative to 2019, than maybe the market would be predicting. Or others would be predicting. For example, the market thinks that earnings in 2021 will be above 2019. And I think everything that I see coming out of our portfolio, and the companies that we're involved with, and just the consumers that have been affected, and the businesses that have been affected, I don't really see that aggressive position that the market's stating. So I think that's a risk.
Josh Harris: (10:32)
To sort of answer your question directly, I think this is the worst one I've seen. And we also have like a social crisis. We've got a lot of income inequality, and obviously we have systemic racism in the country, and people are getting tired of it. The murder of George Floyd has created a lot of division amongst people. I think all of those things make it a really difficult time period.
Anthony Scaramucci: (10:57)
Let me address that with you. We'll talk about the racial thing in a second, because I'm interested in your opinion. I just want to go back to the comments you're making about the stock market. Let's say earnings are not better, the 2021 earnings are not better than 2019. Do you think the market will still be supported by liquidity, Josh? Or do you think that there's a threat that the market could roll? Because there just seems to be this massive amount of federal reserve liquidity, re-flating things, if you will, what's your thought on that? And I'm curious about your instincts there.
Josh Harris: (11:32)
Yeah. No. If you think about what the Fed has done so far, their [inaudible 00:11:37] has got about three trillion dollars, a little more than that, and during the entire 10 years around the financial crisis, that's about what the Fed balance sheet has grown, what it grew. They have another three trillion plus, they can spend. And when you aggregate all the global monetary authorities out there, they're buying more securities than every other private, and any other company, every agency is issuing. And so the markets today are being driven by technical factors. It's the old adage, don't fight the Fed.
Josh Harris: (12:14)
It's created a situation where technicals are ahead of fundamentals, and to explain a little bit more, for the benefit of giving your money to 10 years for the US treasury, you get to earn about 70 bips. But negative inflation, that's about negative one percent. The earnings yield on stocks, is about six or seven percent. There's an 800 base point spread between treasuries and stocks. And so what people do, is they move into stocks. Like all the government buying, and the low rates. Even though I think that our earnings are going to miss, and even though I think there are a lot of risks out there, whether it be the US election, whether it be US, China relations, whether it be earnings as I talked about, I still think that you may very well [inaudible 00:13:10]. If the Fed continues to be willing, and the other monetary authorities, continue to be willing to buy everything that is being issued and more, you may have this effect of the stock market remaining higher than it should be fundamentally.
Josh Harris: (13:27)
I think given the amount of debt issuance by the US government, there's almost no choice but to continue to keep rates very low, for a very long time. You're going to have these battles between technicals and fundamentals. I've even mentioned the fact that in 48 states, we now have rising cases again. And what is that going to do to consumer confidence? I do think that relative to the markets, the markets might ignore fundamentals for a while, as this massive technical push comes in.
Anthony Scaramucci: (14:01)
Right. I want to shift over to the racial issue for a second. You mentioned that there's systemic racism in our country, some people call is institutional racism. I firmly believe that there is, and I'm a data person. I'm assuming you're a data dependent person. I can prove it to people through data. And it's just an opinion question, why do you think people have a hard time saying that? You believe that, I believe that. But yet, you could ask a politician, and depending on what side of the isle they're on, they may say that it doesn't exist. But yet you can see it blatantly. What do you think about that?
Josh Harris: (14:38)
Look, it's everything from, there's systemic racism in this country. We have a great country, I love our country, but this is a dark part of our history, and we need to talk about it. We need to come to grips with it. And I happen to be involved with sports. 75% of NBA athletes are black. And I've been awake, or woken by some of their stories, and how they're afraid in many cases in their communities, even being famous athletes. And it's everything from educational opportunities, to employment opportunities, to training, to where people start in terms of economy capability.
Josh Harris: (15:30)
I don't know why people don't speak out about it. I think it's something that we need to speak out about, that we need to not only listen to people, we need to hear what they're saying, and actually try to redress it. I just feel like, as a business leader, and as a leader of sports teams, where sports is, you're a fiduciary for a city. It's time to not only speak out, but also to do stuff. To do real things, whether it be how you spend your money, what candidates you support, how you promote people? This is going to take an aggressive, we're going to have to all be very aggressive about using this moment where stuff has come to light, to change things.
Josh Harris: (16:17)
But as far as why people don't speak out about it, I don't know.
Anthony Scaramucci: (16:21)
Right. But I think it's interesting, and I just want to restate this for everybody listening. We've got a lot of viewers. You're working in sports, and so your angle and your appreciation, I think this is true for everybody, we're products of our environment. We grow up a certain way, we live a certain way. When we're exposed to different thing, then it would make sense that our opinions would change. Mine have changed over the years, as I'm sure yours has as well. I appreciate you saying those things.
Anthony Scaramucci: (16:47)
I want to ask you about the migration into sports. Your personal life story where, take us back, because I think it's an interesting thing. You're going to buy this Philadelphia 76ers. You grew up in Chevy Chase, Maryland. For many of us, that's sort of a boyhood dream. Take us through the iteration process of what you guys were thinking about, and how you took that leap.
Josh Harris: (17:13)
Yeah, first of all, all four of my... We came over, the Harrises as it were, came over to the country in the 1900s through [inaudible 00:17:21]. And all four of my great grandparents ended up in Philly somehow. My grandfather was a US postal worker in Philly. My mom was a teacher, and went to Temple. Dad went to Penn. They moved down and I grew up in Chevy Chase, but I went back to Penn. And in 1982, that was the era of Dr. J, and Moses Malone, and Maurice Cheeks, and Andrew Toney. And I was there for the-
Anthony Scaramucci: (17:47)
You guys broke my heart, because Dr. J was playing for the Nets at Nassau Coliseum in Long Island. You guys broke my-
Josh Harris: (17:54)
Right, the ABA. And I watched, I was there for the ticker tape parade and the last time the Sixers won the NBA Finals in 1982, 1983. And I experienced Philly sports. And Philly cares about sports. The fans are passionate. [inaudible 00:18:11], but I loved every minute of it. I was lucky enough to have success at Apollo, and I had heard that perhaps Comcast, who owned the Sixers at that time, might be willing to part with the Sixers. And I called them, and the next thing you know, I was able to, with a group of partners, acquire the club, the Sixers. And that was my entrance into sports, and I loved every minute of it. Like what you learn about sports [inaudible 00:18:46]. In 2013, I acquired the New Jersey Devils. And then in 2015, with a group, part of the same group of partners, and then Crystal Palace, we own with another group of partners in London.
Josh Harris: (19:01)
In terms of sports, what you realize is that no one, people care about, you're a fiduciary for a city. People care about the team. No one cares about Lyondell Chemical, which was a fantastic deal for Apollo, and no one cares about 50 billion dollar market equity company, but one cares about the price of polypropylene. But everyone cares about the Sixers starting line-up on any given day. And so you're a fiduciary, you bring communities together. There's a lot of media attention on it. And so, you have the ability when you're on sports teams, to really engage with the community, and to change a community, to help communities.
Josh Harris: (19:43)
And Philly and Newark, and South London, are all tough places. They need help. And so, that's one thing that I've really both enjoyed, but also had to learn about the scrutiny that occurs. But I've enjoyed doing that. And I've also enjoyed, a lot of us have been high school and college athletes, but being around the best players in the world at what they do, is an incredible high for me. I like to, and what I've learned about these gentlemen, generally they have been men, is that they're incredible individuals as well as being great athletes. It's been inspirational for me to watch. Joel Embiid, and Ben Simmons and Tobias Harris all like engage, P. K. Subban, all engage in helping these communities during COVID. Or in the case of the George Floyd murder, speak out against racism. And what you realize is that, these are some of the most powerful people in the world, because not only do they have money, but they've got massive social media platforms. And they have the ability to influence people, and they really stepped up as individuals and inspired me.
Josh Harris: (21:04)
And then lastly, we want to win championships. Like this is, the city's like, you've got to win. And there's pressure on you. That's been a journey. There's 30 other teams, or depending on your sport, 20 other teams in the Premier League. 31 other teams and like everyone's smart, and everyone's well financed. We're on a mission to win for the cities. And the city really cares whether you win or lose. If you win, the city's happy the next day. And if you lose, they're not. And for me, that's an avenue to compete at a very high level, and be part of something that's bigger than myself. That's all there is [inaudible 00:21:49].
Josh Harris: (21:49)
The other good news is that, what's happening in sports is that, content is globalizing. People now, more people in some cases, watch the Sixers in China, than do in Philly. And so, there's a massive tailwind behind sports content that is also helping economically. If you do all the right things, it can also be a good investment.
Anthony Scaramucci: (22:22)
Let me segue a second, because we're in the pandemic. It's had an impact on sports, and in some cases it's impaired some franchises, has impaired some leagues, frankly. And you're a kind of [inaudible 00:22:36] investor. What is the future of these sports... Are you bullish on them? Do you think this is a sea change moment for them? Or what's your opinion going forward, over the next three to five year as we look past the crisis?
Josh Harris: (22:52)
Sure. My opinion is, and what I've noticed is that there's a part of my life that's missing, not having-
Anthony Scaramucci: (23:00)
For me too.
Josh Harris: (23:00)
... basketball, and by not having hockey, and not having baseball, and not having football. And I think that people miss sports. I think that if anything, either absence is making the heart grow fonder, and I think that long run, the value and the inspiration of these clubs, that are the best in the world at what they do, and playing in the best leagues, I think that's going to come back. I think short run, it's really tough. The arenas are not open. There's no revenues, it's not, no one is crying for any sports owners, but it's a tough period of time when you've got to get through it.
Josh Harris: (23:47)
For the long run, I'm very bullish on the major sports, but they're all different. But I'm very bullish on people's desire to watch these sports and be a part of it.
Anthony Scaramucci: (24:00)
Well, I've got to tell you though, we love you, Josh. But we also love the Milwaukee Bucks. And why do we love the Milwaukee Bucks? Because our good friend Marc from Avenue Capital, is the owner of the Milwaukee Bucks. We're rooting for your two teams to be in the championship, and then I'll flip a coin. It's sort of the reverse of the Yankees and the Phillies in 2009 being in the world series. As a Net fan, I was ready to jump off the Brooklyn Bridge. You can't root for either for those two teams as a Nets fan.
Anthony Scaramucci: (24:32)
But, I hope you get there you've got a phenomenal success story in sports. And I love the way you're managing these teams, and so we're really wishing you a great success in what you're doing.
Josh Harris: (24:45)
Thank you.
Anthony Scaramucci: (24:46)
I want to switch to a question about your philanthropy, and then I'm going to turn it over to John Darsie who has questions from our audience, questions that have percolated in, since we said that we were going to do this with you.
Anthony Scaramucci: (24:59)
You are an amazingly charitable person. And mazel tov. God bless you for being that way. I just want you to tell us a little bit about the programs you look to give money to. Why you look to give those programs money? And what's your thought process in terms of improving society through that charitable giving?
Josh Harris: (25:21)
Yeah. I think first of all, all of us that have been privileged to be successful, have not only opportunity, but the obligation to give back. And to try to make the world a better place. It's my privilege to be able to do it. I really enjoy doing it. And I would say that for me, and for my family, we've started with sports, because we felt that it's like every other thing. You start off by saying, okay where do you move the needle the most?
Josh Harris: (25:53)
Sports has an incredible power to lift communities, and engage communities, particularly for kids. We're amongst the largest investor slash donors in after school sports programs that have been cut by high schools and middle schools all over the country. And it's everything from the After-School All-Stars, to Police Athletic League, to [inaudible 00:26:19], to many, many platforms.
Josh Harris: (26:22)
We're helping over 14,000 kids in the Philly area. Between 50 and a 100,000 kids nationwide to be part of sports programs. Once they come in, you feed them the lettuce. You make them study, you keep them safe. You try to create a situation where they have the tools, they're better equipped to move forward through life. Whether it be getting better grades, or doing their homework. And you emphasize, part of that if you want to play in the Sixers Youth League, you've got to also study and get good grades, and eat well, and teach them about that. That's kind of one major part of our philanthropy.
Josh Harris: (27:16)
I think secondly, is wellness and health, and getting people to, inspiring people to eat better, and to avoid kind of doing things. To exercise, to not smoke, to not take drugs, to not drink, to like try to inspire them to take care of themselves individually, and stay away from as much as possible from the hospital system. We've developed programs at Mount Sinai, and all over, in other areas, and all over the country to engage with people on this level.
Josh Harris: (28:01)
And then more recently, during COVID, we just kind of went, it's all about helping the communities of Camden, Newark, Philly and New York, the communities where we have real leverage to, everything from the hospital systems there, to maths, to laptops. We bought 10,000 laptops and gave them to kids in Philly so they can go to school on it. I have five kids, I feel like I was running a school here, and I couldn't imagine doing it without laptops. And then we heard that kids in Philly needed laptops. And then we bought hundreds of thousands of meals, and just made sure that people were healthy in Newark, in Camden, in Philly. And so, all of that is stuff that we've been working on.
Anthony Scaramucci: (29:00)
Awesome. And I love the mindset application about what you're doing. I'm going to turn it over to John. He's got a plethora of questions for you.
Anthony Scaramucci: (29:08)
And by the way, you're winning the Room Rater right now. I've got this weird wallpaper behind me. I have no idea what it is. Darcy's in sort of like a wasp closet, with all kinds of stuff there. You've actually got pictures of the kids, and the Bloomberg terminal for you. You won the SALT Talks-
Josh Harris: (29:26)
I didn't even know that I was in this contest.
Anthony Scaramucci: (29:26)
I just want to make sure you know, I am the judge, there's only one judge, and it's me. You have won the SALT Talk as a result of the Room Rater.
Anthony Scaramucci: (29:36)
But go ahead, Darcy.
Josh Harris: (29:38)
Darcy, that's a good start.
John Darsie: (29:40)
All right. We've got several questions from our audience leading into the talk. And I'll go into a couple of them, before we wrap up.
John Darsie: (29:47)
Are there any specific deals that you worked on, either at Apollo or prior to Apollo, that you're particularly fond of? And that demonstrate the way you think about things from and investment perspective?
Josh Harris: (29:58)
Yeah. The one I would talk about, would be Lyondell Chemical. Obviously it was one of, it's the most profitable deal ever for Apollo, and one of the most profitable in private equity history. But, what was really good about it, was that it was a fantastic, it was a massive chemical company, that had too much leverage going into the financial crisis. And it was in danger of, it had close to 50,000 employees, and it was in danger of really just going away and liquidating, because it was over-levered.
Josh Harris: (30:31)
We were able to go in during the financial crisis, and buy the debt. And our first buy was at 80, and our last, our trough buy was at 15 cents, to tell you. And at that point chemical companies were doing very poorly. They were losing money. And we had developed an industry group in chemicals, where we had owned a lot of companies, and we really believed we were watching the turn in the economy, and really believed that supply chain, we didn't believe that the demand that we were seeing was sustainable, based on consumer spending.
Josh Harris: (31:08)
And so we were taking the other side of people who are panicking, and were selling [inaudible 00:31:13] price. And then, so we acquired about 30% of the debt, and then we ultimately navigated a very complicated international bankruptcy with many, many countries, and many, many enemies. And we were able to restructure the company very quickly. And then deleverage the structure, take about $25 billion dollars debt down to less than $8 billion of debt. And then the company reemerged as.. And then also the management team in the middle of all this, kind of decided they didn't want to do this anymore, and we had to recruit a whole management team.
Josh Harris: (31:56)
The company which had done, went from four billion [inaudible 00:31:59] to negative one billion [inaudible 00:32:02], merged and kind of ultimately was doing five or six billion, by the time that we decided that it was time for us to sell out. And it's become this enormously successful corporate company, that today is really thriving and prospering. It's an example of where we used our creativity and our skill sets to really help a great international, but American company, survive a very difficult time period. And we were still able to make, create an attractive risk return opportunity for our investors. And investors obviously are the pension systems. They're teachers, they're firefighters, they're policemen. They're public employers all over the country, and all over the world. That would be the deal that I would talk about.
John Darsie: (32:49)
Great. It doesn't exactly fit some of the negative stereotypes that you see out there about the private equity industry. And how it doesn't add value.
Josh Harris: (32:58)
There are a lot of those. And there are eight million, I try to educate people, that right now there are eight million US workers that work for private equity companies. There are 25 million workers that supply, or are customers in private equity companies. Private equity is the US. There's 35,000 private companies. There's only 4,400 public companies. Private companies, I run a public company, Apollo is a public company. We've got to worry about quarterly earnings. And sometimes you can't always invest for the long-term and do the right things. And so, we need to do a better job.
Josh Harris: (33:37)
And obviously it's a very populous environment. And we're an easy target, and we need to do a better job of telling all the great things that we do. And this is definitely one of those stories.
John Darsie: (33:49)
All right. Well, that's part of why we do these SALT Talks. So, thanks for joining us and helping to dispel some of that nonsense.
Josh Harris: (33:54)
Thank you.
John Darsie: (33:56)
As you look out the landscape right now, Anthony touched on earlier, how you're a very contrarian opportunistic type of investor. As you look out over the private market landscape, we'll focus on private companies, as you mainly do, what are the sectors that you see the most short-term impairment, but the most long-term secular bullish opportunities? Where are you really licking your chops right now, as you look across private markets?
Josh Harris: (34:21)
Yeah, I think private markets are, the Fed action has compressed, or I'd going to compress interest rates going forward, but steadily as you move further outside the public markets, you're going to see better risk return opportunities, and that's what our cloud performance is built to do. And I would say that, the impacted sectors that we're seeing an opportunity in, are generally going to be sectors that have been hardest hit by COVID.
Josh Harris: (34:49)
In many cases, these are like travel related sectors, they're hotels, I think they're real estate, certain types of real estate. I'd say certainly venues and arenas, and entertainment based companies. And so the truth of the matter is, in the early part of the crisis, we were able to invest in these companies. And this is private equity, I'll take a walk through. We're mostly now, we're 400 billion of AUM pro forma for a deal that we just did, called Jackson. Of that, we're about 80 plus percent credit. Lending to companies and great American businesses, and we're only less than 20% what I would call opportunistic private equity, but that's still what we're known for.
Josh Harris: (35:46)
So in the opportunistic sectors, it's going to be those sectors that have been really hard hit, and where the evaluations reflect, to a large extent, some of the concern. That would be, and in private equity they were mostly buying debt. We're just starting to look at deals now. In mezzanine, which is taking a walk towards some of the safer stuff, so the middle part of the capital structure, we continue to do very large investments, many of them which are public. Everything from Expedia, to Cimpress, to Albertsons. Many, many deals where companies are looking for a little bit of capital, either to grow or get over the hump, in a short-term capital crunch situation, because their revenues have been impacted, but they long run, see a lot of value.
Josh Harris: (36:38)
And so, in all these investments, we're able to make investments that build in our view of the world, which is, it's going to be a three or five year timeframe, before they return back to where they were in '19. It gives us, you're really making a bet on terminal value. You have a lot of room, and you're really able to bid in quite a bit of losses in the short run, but you're looking at long run asset value creation.
Josh Harris: (37:06)
In the rest of our portfolio, a lot of what the Fed has done, has been AAA, or government securities, they have bought some high yield. But these are the big liquidity. And these are the big liquid issuances. Much of the small business lending, or other programs that they're trying to do, they're not reaching many of the structured credit vehicles that we, or the middle market businesses, that we actually invest in.
Josh Harris: (37:38)
In the middle market, you can continue to get very attractive returns, lending to businesses that have 20, 25, 50 million of [inaudible 00:37:49]. The bank market, notwithstanding the Fed action, is still pretty shut down. The high yield market is up. It's the only thing with a CUSIP. Anything that's publicly traded is open, but the bank markets are generally pretty closed right now. And so are the structured credit market. That impacts everything from real estate financing, to restaurants. To people, like aircraft leasing has been very impacted. We have [inaudible 00:38:17] our sale-and-leaseback around malls, and hotels. All of those structures, are away from the Fed money, and we're just providing liquidity to everyone from restaurants, to small businesses to hotel owners, allowing them to weather the crisis and getting paid probably arbitrages of one to 400 base points, depending on where they are in the credit stack.
John Darsie: (38:45)
Last question before we let you go. You've helped build Apollo into one of the world's largest and best performing investment firms. You mentioned about 400 billion in pro forma assets under management. Looking at both the way you've built Apollo, and the way you're running the sports franchises that you own, and you could talk about it through the lens of sports ownership. With the Philadelphia 67ers, you've taken, not that you're the General Manager, but you guys have taken players like Joel Embiid that you drafted, and developed into one of the best players in the league. You have Ben Simmons, who's a six foot nine player, playing the point guard position, you have Tobias Harris, who's a six foot ten shooting guard.
John Darsie: (39:24)
When you look at building teams, and building organizations, how do you align what you think about business at somewhere like Apollo, when you're looking at investments? And how you look at something like running a sports franchise? And how do you go about building those dynastic franchises the way someone like the New England Patriots, or the San Antonio Spurs have done, over the last 10, 15 years?
Josh Harris: (39:45)
Yeah. I think it starts with people. You've got to have, if you get the best and the brightest people, and you go, and you're able to not only recruit them, but also resource them, and provide them a vision for where you want to go. If you get the best people, and I think this is all just basic fundamentals. Being successful on the court, attracting the right players, you've got to be successful off the court first.
Josh Harris: (40:12)
And then it's about having a unique strategy, or some unique thought as to how you're going to do things little differently, so in case of sports, we're developing a lot of advanced [inaudible 00:40:27]. There are 30 smart owners, how do you get an edge? How do you select those players? How do you recruit those players? In basketball, it's about making sure they want to play with you, because ultimately they have a lot of choices. But then beyond that, having the right sport science, the right programs for them, to keep them healthy, to extend their careers. Analytics, so that you can select them. Everyone wants these players.
Josh Harris: (40:58)
It's no different at Apollo. We had a unique, it's about innovating. It's about innovating, it's about having the right people. And then it's about having a culture where they stay, and they've decided to work with you.
John Darsie: (41:12)
Well, that's all we have for you today. Josh, thanks again so much for joining us in the middle of the summer. Anthony, I don't know if you have any final words?
Anthony Scaramucci: (41:20)
I have one final request for Josh, and I'm sure he'll appreciate this. If anything should happen to you in the sports world, could you give me a call please? I want to be one of the first people-
Josh Harris: (41:31)
You've got it, man. You've got it.
Anthony Scaramucci: (41:32)
All right. I need [crosstalk 00:41:34] from you.
Josh Harris: (41:34)
I hear you have a lot of thoughts on this.
Anthony Scaramucci: (41:37)
All right. Well, we wish you the best, man. God bless. It's great to have you on SALT. And hopefully, Josh, we can get you to one of our live events as soon as we can get out of the COVID-19 situation.
Josh Harris: (41:48)
I can't wait. I can't wait, and I like the wall behind you. Don't sell yourself short. I might have to... I think you might have won.
Anthony Scaramucci: (41:54)
I'm trying to figure out if it's an insect or not. It's a rough Room Rater for me, Josh, if I do television. Let's just put it that way. I may have to come over to your house, and use that background.
Josh Harris: (42:05)
All right. You got it. Anytime.
Anthony Scaramucci: (42:06)
All right. Be well, man. Thank you for everything.
Josh Harris: (42:08)
Pleasure. Thank you.John Darsie: (00:07)
Hello everyone. And welcome back to SALT Talks. My name is John Darsie. I'm the Managing Director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and geo-politics.
John Darsie: (00:19)
What we've been trying to do with these SALT Talks, is provide our audience a window into the minds of subject matter experts who are amongst the world's leading investors, creators, and thinkers. We're trying to replicate that experience that we provide at our in-person SALT Conferences, which unfortunately we were not able to do this year as a result of the pandemic.
John Darsie: (00:37)
But we're really excited today to welcome Josh Harris to SALT Talks. Josh is the Co-founder of Apollo Global Management. One of the world's largest alternative investment firms. He's also the Founder and Managing General Partner of Harris Blitzer Sports and Entertainment, an investment company that's focused on sports, entertainment and media. Within the vast HBSE portfolio, Josh is the Managing Partner of the Philadelphia 76ers in the NBA, and of the New Jersey Devils in the NHL, as well as the General Partner of Chrystal Palace Football Club in the English Premiere League.
John Darsie: (01:09)
In addition to all of that, he's a great philanthropist. He serves as the Founder and the Chairman of the Harris Family Charitable Foundation, which strives to improve lives, and strengthen communities, through the transformative power of sport, precision wellness, preventative medicine and leadership development. Josh earned his MBA from Harvard Business School, where he was named a Baker [inaudible 00:01:29] Scholar. And a BS in Economics from the University of Pennsylvania's Wharton School of Business, where he graduated summa cum laude. He and his wife reside in New York City with their five children.
John Darsie: (01:39)
And hosting today's interview, as most of you know, is Anthony Scaramucci, who's the Founder and Managing Partner of SkyBridge Capital, which is a leading global alternative investment firm. And I'll turn it over to Anthony for the interview.
Anthony Scaramucci: (01:51)
I just want to thank everybody for wearing a blue shirt, pursuant to my memo that went out last night. You guys at least paid good attention to all that, so thank you.
Anthony Scaramucci: (02:00)
Josh, I always start these interviews out with a seminal question, because I know you. Many people know you from the media, because of your sports ownership, but not your background, how you got started? Where you grew up? And I love asking that question. So, can you tell us a little bit about that? Take us back to, prior to your arrival in college and business school.
Josh Harris: (02:25)
Great. Thanks Anthony. And it's awesome to be here. Thank you for having me. I grew up in Chevy Chase, Maryland. My dad, my path to finance, Apollo, and sports, was non-traditional. I grew up with my dad, who was an orthodontist. My mom and my dad, my family, had grown up in Philly. My mom was a teacher in Philly, went to Temple University. My dad went to Penn, so I decided to go to Penn. I'd never heard of Wharton when I joined Penn. But ultimately loved economics, and was, and joined the Wharton School after Freshmen year. And then ultimately worked at Drexel Burnham Lambert, where I met Leon Black and Marc Rowan.
Josh Harris: (03:14)
In 1988, I applied to one school, I applied to Harvard Business School. I said if I get in, I'll take a break. And I got in, and then in 1990, during one of the great financial crisis that have come about in my lifetime, and there have been five, Drexel went under. Ad Leon and Mark were starting Apollo, and they called me and said, "Can you join us after you get out of school?" And I did. That was my path.
Josh Harris: (03:48)
I was a high school and college wrestler. I always enjoyed sports, and it's lead me to be involved in sports going forward. That was my path.
Anthony Scaramucci: (04:03)
Talking about the crisis, you and I are, we're getting old, Josh, okay?
Josh Harris: (04:07)
We are.
Anthony Scaramucci: (04:07)
We've had five or six-
Josh Harris: (04:09)
You look good.
Anthony Scaramucci: (04:11)
... different crisis. I'm going to take you back to... Yeah, but that's Botox and hair dye. I can introduce you to my dermatologist if you need help.
Anthony Scaramucci: (04:17)
But, let's go back to 1990. It's February of 1990, this legendary investment bank, the greatest, arguably one of the greatest innovators in the modern capitalist era. The introduction of junk bonds, and all of the re-engineering that took place in corporate America as a result of Michael Milken's brilliant innovation, it's been shut down. And we don't have to go into why it was shut down, but I want to ask you this question.
Anthony Scaramucci: (04:45)
From your point of view, back then, you'd worked there, you went to school, it's now been shut down, and this is really for our younger viewers out there, because what happens to all of us, it's happened to you, it's happened to me. We're planning things, and God or the universe is laughing, and things start to go in a different direction than we expect. And so, tell me what you were thinking at that moment? And tell me some of the decisions you were making, to lead you to where you are today?
Josh Harris: (05:14)
Yes, so as a young man, I was driven to be involved with finance and getting, helping companies grow, and raising capital. Coming out of college, at that point Drexel was doing, I thought that the best and the brightest people were there, and they were doing a lot of attractive deals, so I joined. And then I was, I met great people there, and so in 1990 when the economy collapsed, I saw an opportunity to take what I thought was a... I always thought about my, and I always advise young people to think about their careers as an investment. What's the risk and what's the return?
Josh Harris: (06:03)
I felt that I was with great people who I knew. The way private equity alternatives works is, once you've raised the capital, you're in business. There's enough of fee string there, that you can pay the bills. It's like, I wasn't going to go broke or not be able to, trying to buy a, have an apartment or feed myself. And so I took the risk and joined up.
Josh Harris: (06:33)
Apollo's always been about innovation and agility, and volatile financial markets. And so we were, we innovated. And we, what everyone else had been doing bonds the traditional way, which was making equity investments, and then borrowing from banks. There was no capital available to do that, so we went into the market and we bought debt of very big companies with very bad balance sheets, and we created private equity transactions the opposite way. We deleveraged the companies, but we were able to save many quality businesses, as well as create great investment returns. And so, Apollo was born.
Josh Harris: (07:16)
What drove me was really the ability to be around great people, the ability to learn. And the ability to, I think, to innovate, and be part of what I saw was a new innovation in the financial markets, which was a win-win where we helped our investors, but we also helped the companies.
Anthony Scaramucci: (07:38)
You've seen many crisis, and it's a great story about how you guys thought about things. How do you see this crisis in comparison to some of the others.'90, '98, you got a quote there, 2001, the dot-com bubble. 2008. How do you see this differently, or not differently?
Josh Harris: (08:03)
I started in 1986. I was 21 years old. And I remember 1987, October 1987, being on the floor and just the market dropped 508 points, I'll never forget it. 25% drop. And someone was screaming out every 10 points. And then 1990, obviously where there was a savings and loan crisis. And a massive recession. And then obviously '01. '08, the financial crisis, which was very difficult. And then this crisis. I would say of all the crisis, this is by far the worst.
Josh Harris: (08:33)
Number one, it's a health crisis. People are dying. People have died. Secondly, it's a massive economic crisis. Just to put it in context, the trough unemployment for the country in the financial crisis, which is still over 10%. Obviously, we're down to 11% now, but we hit 15%. And if it hadn't been for massive government action, both from the federal reserve and from the treasury and fiscally, we would've probably hit 20 or 25%. We peaked the climb, peaked the trough to climb the GDP, which is supposed to be down at 6% this year as a country, that well exceeds what we were down in the financial crisis.
Josh Harris: (09:25)
I see this crisis somewhere between, when you look at it in context, I see this crisis somewhere between the financial crisis which was the worst previous thing that I had been involved with, and the great depression. Closer to the financial crisis. And so, when I try to put that in context more, it took about three years for the economy to get from, to recover from, to 2007 levels from where it dropped. And in the great depression it took the economy about seven years.
Josh Harris: (09:54)
I do believe that we're in a little bit of a longer economic negative climate, relative to 2019, than maybe the market would be predicting. Or others would be predicting. For example, the market thinks that earnings in 2021 will be above 2019. And I think everything that I see coming out of our portfolio, and the companies that we're involved with, and just the consumers that have been affected, and the businesses that have been affected, I don't really see that aggressive position that the market's stating. So I think that's a risk.
Josh Harris: (10:32)
To sort of answer your question directly, I think this is the worst one I've seen. And we also have like a social crisis. We've got a lot of income inequality, and obviously we have systemic racism in the country, and people are getting tired of it. The murder of George Floyd has created a lot of division amongst people. I think all of those things make it a really difficult time period.
Anthony Scaramucci: (10:57)
Let me address that with you. We'll talk about the racial thing in a second, because I'm interested in your opinion. I just want to go back to the comments you're making about the stock market. Let's say earnings are not better, the 2021 earnings are not better than 2019. Do you think the market will still be supported by liquidity, Josh? Or do you think that there's a threat that the market could roll? Because there just seems to be this massive amount of federal reserve liquidity, re-flating things, if you will, what's your thought on that? And I'm curious about your instincts there.
Josh Harris: (11:32)
Yeah. No. If you think about what the Fed has done so far, their [inaudible 00:11:37] has got about three trillion dollars, a little more than that, and during the entire 10 years around the financial crisis, that's about what the Fed balance sheet has grown, what it grew. They have another three trillion plus, they can spend. And when you aggregate all the global monetary authorities out there, they're buying more securities than every other private, and any other company, every agency is issuing. And so the markets today are being driven by technical factors. It's the old adage, don't fight the Fed.
Josh Harris: (12:14)
It's created a situation where technicals are ahead of fundamentals, and to explain a little bit more, for the benefit of giving your money to 10 years for the US treasury, you get to earn about 70 bips. But negative inflation, that's about negative one percent. The earnings yield on stocks, is about six or seven percent. There's an 800 base point spread between treasuries and stocks. And so what people do, is they move into stocks. Like all the government buying, and the low rates. Even though I think that our earnings are going to miss, and even though I think there are a lot of risks out there, whether it be the US election, whether it be US, China relations, whether it be earnings as I talked about, I still think that you may very well [inaudible 00:13:10]. If the Fed continues to be willing, and the other monetary authorities, continue to be willing to buy everything that is being issued and more, you may have this effect of the stock market remaining higher than it should be fundamentally.
Josh Harris: (13:27)
I think given the amount of debt issuance by the US government, there's almost no choice but to continue to keep rates very low, for a very long time. You're going to have these battles between technicals and fundamentals. I've even mentioned the fact that in 48 states, we now have rising cases again. And what is that going to do to consumer confidence? I do think that relative to the markets, the markets might ignore fundamentals for a while, as this massive technical push comes in.
Anthony Scaramucci: (14:01)
Right. I want to shift over to the racial issue for a second. You mentioned that there's systemic racism in our country, some people call is institutional racism. I firmly believe that there is, and I'm a data person. I'm assuming you're a data dependent person. I can prove it to people through data. And it's just an opinion question, why do you think people have a hard time saying that? You believe that, I believe that. But yet, you could ask a politician, and depending on what side of the isle they're on, they may say that it doesn't exist. But yet you can see it blatantly. What do you think about that?
Josh Harris: (14:38)
Look, it's everything from, there's systemic racism in this country. We have a great country, I love our country, but this is a dark part of our history, and we need to talk about it. We need to come to grips with it. And I happen to be involved with sports. 75% of NBA athletes are black. And I've been awake, or woken by some of their stories, and how they're afraid in many cases in their communities, even being famous athletes. And it's everything from educational opportunities, to employment opportunities, to training, to where people start in terms of economy capability.
Josh Harris: (15:30)
I don't know why people don't speak out about it. I think it's something that we need to speak out about, that we need to not only listen to people, we need to hear what they're saying, and actually try to redress it. I just feel like, as a business leader, and as a leader of sports teams, where sports is, you're a fiduciary for a city. It's time to not only speak out, but also to do stuff. To do real things, whether it be how you spend your money, what candidates you support, how you promote people? This is going to take an aggressive, we're going to have to all be very aggressive about using this moment where stuff has come to light, to change things.
Josh Harris: (16:17)
But as far as why people don't speak out about it, I don't know.
Anthony Scaramucci: (16:21)
Right. But I think it's interesting, and I just want to restate this for everybody listening. We've got a lot of viewers. You're working in sports, and so your angle and your appreciation, I think this is true for everybody, we're products of our environment. We grow up a certain way, we live a certain way. When we're exposed to different thing, then it would make sense that our opinions would change. Mine have changed over the years, as I'm sure yours has as well. I appreciate you saying those things.
Anthony Scaramucci: (16:47)
I want to ask you about the migration into sports. Your personal life story where, take us back, because I think it's an interesting thing. You're going to buy this Philadelphia 76ers. You grew up in Chevy Chase, Maryland. For many of us, that's sort of a boyhood dream. Take us through the iteration process of what you guys were thinking about, and how you took that leap.
Josh Harris: (17:13)
Yeah, first of all, all four of my... We came over, the Harrises as it were, came over to the country in the 1900s through [inaudible 00:17:21]. And all four of my great grandparents ended up in Philly somehow. My grandfather was a US postal worker in Philly. My mom was a teacher, and went to Temple. Dad went to Penn. They moved down and I grew up in Chevy Chase, but I went back to Penn. And in 1982, that was the era of Dr. J, and Moses Malone, and Maurice Cheeks, and Andrew Toney. And I was there for the-
Anthony Scaramucci: (17:47)
You guys broke my heart, because Dr. J was playing for the Nets at Nassau Coliseum in Long Island. You guys broke my-
Josh Harris: (17:54)
Right, the ABA. And I watched, I was there for the ticker tape parade and the last time the Sixers won the NBA Finals in 1982, 1983. And I experienced Philly sports. And Philly cares about sports. The fans are passionate. [inaudible 00:18:11], but I loved every minute of it. I was lucky enough to have success at Apollo, and I had heard that perhaps Comcast, who owned the Sixers at that time, might be willing to part with the Sixers. And I called them, and the next thing you know, I was able to, with a group of partners, acquire the club, the Sixers. And that was my entrance into sports, and I loved every minute of it. Like what you learn about sports [inaudible 00:18:46]. In 2013, I acquired the New Jersey Devils. And then in 2015, with a group, part of the same group of partners, and then Crystal Palace, we own with another group of partners in London.
Josh Harris: (19:01)
In terms of sports, what you realize is that no one, people care about, you're a fiduciary for a city. People care about the team. No one cares about Lyondell Chemical, which was a fantastic deal for Apollo, and no one cares about 50 billion dollar market equity company, but one cares about the price of polypropylene. But everyone cares about the Sixers starting line-up on any given day. And so you're a fiduciary, you bring communities together. There's a lot of media attention on it. And so, you have the ability when you're on sports teams, to really engage with the community, and to change a community, to help communities.
Josh Harris: (19:43)
And Philly and Newark, and South London, are all tough places. They need help. And so, that's one thing that I've really both enjoyed, but also had to learn about the scrutiny that occurs. But I've enjoyed doing that. And I've also enjoyed, a lot of us have been high school and college athletes, but being around the best players in the world at what they do, is an incredible high for me. I like to, and what I've learned about these gentlemen, generally they have been men, is that they're incredible individuals as well as being great athletes. It's been inspirational for me to watch. Joel Embiid, and Ben Simmons and Tobias Harris all like engage, P. K. Subban, all engage in helping these communities during COVID. Or in the case of the George Floyd murder, speak out against racism. And what you realize is that, these are some of the most powerful people in the world, because not only do they have money, but they've got massive social media platforms. And they have the ability to influence people, and they really stepped up as individuals and inspired me.
Josh Harris: (21:04)
And then lastly, we want to win championships. Like this is, the city's like, you've got to win. And there's pressure on you. That's been a journey. There's 30 other teams, or depending on your sport, 20 other teams in the Premier League. 31 other teams and like everyone's smart, and everyone's well financed. We're on a mission to win for the cities. And the city really cares whether you win or lose. If you win, the city's happy the next day. And if you lose, they're not. And for me, that's an avenue to compete at a very high level, and be part of something that's bigger than myself. That's all there is [inaudible 00:21:49].
Josh Harris: (21:49)
The other good news is that, what's happening in sports is that, content is globalizing. People now, more people in some cases, watch the Sixers in China, than do in Philly. And so, there's a massive tailwind behind sports content that is also helping economically. If you do all the right things, it can also be a good investment.
Anthony Scaramucci: (22:22)
Let me segue a second, because we're in the pandemic. It's had an impact on sports, and in some cases it's impaired some franchises, has impaired some leagues, frankly. And you're a kind of [inaudible 00:22:36] investor. What is the future of these sports... Are you bullish on them? Do you think this is a sea change moment for them? Or what's your opinion going forward, over the next three to five year as we look past the crisis?
Josh Harris: (22:52)
Sure. My opinion is, and what I've noticed is that there's a part of my life that's missing, not having-
Anthony Scaramucci: (23:00)
For me too.
Josh Harris: (23:00)
... basketball, and by not having hockey, and not having baseball, and not having football. And I think that people miss sports. I think that if anything, either absence is making the heart grow fonder, and I think that long run, the value and the inspiration of these clubs, that are the best in the world at what they do, and playing in the best leagues, I think that's going to come back. I think short run, it's really tough. The arenas are not open. There's no revenues, it's not, no one is crying for any sports owners, but it's a tough period of time when you've got to get through it.
Josh Harris: (23:47)
For the long run, I'm very bullish on the major sports, but they're all different. But I'm very bullish on people's desire to watch these sports and be a part of it.
Anthony Scaramucci: (24:00)
Well, I've got to tell you though, we love you, Josh. But we also love the Milwaukee Bucks. And why do we love the Milwaukee Bucks? Because our good friend Marc from Avenue Capital, is the owner of the Milwaukee Bucks. We're rooting for your two teams to be in the championship, and then I'll flip a coin. It's sort of the reverse of the Yankees and the Phillies in 2009 being in the world series. As a Net fan, I was ready to jump off the Brooklyn Bridge. You can't root for either for those two teams as a Nets fan.
Anthony Scaramucci: (24:32)
But, I hope you get there you've got a phenomenal success story in sports. And I love the way you're managing these teams, and so we're really wishing you a great success in what you're doing.
Josh Harris: (24:45)
Thank you.
Anthony Scaramucci: (24:46)
I want to switch to a question about your philanthropy, and then I'm going to turn it over to John Darsie who has questions from our audience, questions that have percolated in, since we said that we were going to do this with you.
Anthony Scaramucci: (24:59)
You are an amazingly charitable person. And mazel tov. God bless you for being that way. I just want you to tell us a little bit about the programs you look to give money to. Why you look to give those programs money? And what's your thought process in terms of improving society through that charitable giving?
Josh Harris: (25:21)
Yeah. I think first of all, all of us that have been privileged to be successful, have not only opportunity, but the obligation to give back. And to try to make the world a better place. It's my privilege to be able to do it. I really enjoy doing it. And I would say that for me, and for my family, we've started with sports, because we felt that it's like every other thing. You start off by saying, okay where do you move the needle the most?
Josh Harris: (25:53)
Sports has an incredible power to lift communities, and engage communities, particularly for kids. We're amongst the largest investor slash donors in after school sports programs that have been cut by high schools and middle schools all over the country. And it's everything from the After-School All-Stars, to Police Athletic League, to [inaudible 00:26:19], to many, many platforms.
Josh Harris: (26:22)
We're helping over 14,000 kids in the Philly area. Between 50 and a 100,000 kids nationwide to be part of sports programs. Once they come in, you feed them the lettuce. You make them study, you keep them safe. You try to create a situation where they have the tools, they're better equipped to move forward through life. Whether it be getting better grades, or doing their homework. And you emphasize, part of that if you want to play in the Sixers Youth League, you've got to also study and get good grades, and eat well, and teach them about that. That's kind of one major part of our philanthropy.
Josh Harris: (27:16)
I think secondly, is wellness and health, and getting people to, inspiring people to eat better, and to avoid kind of doing things. To exercise, to not smoke, to not take drugs, to not drink, to like try to inspire them to take care of themselves individually, and stay away from as much as possible from the hospital system. We've developed programs at Mount Sinai, and all over, in other areas, and all over the country to engage with people on this level.
Josh Harris: (28:01)
And then more recently, during COVID, we just kind of went, it's all about helping the communities of Camden, Newark, Philly and New York, the communities where we have real leverage to, everything from the hospital systems there, to maths, to laptops. We bought 10,000 laptops and gave them to kids in Philly so they can go to school on it. I have five kids, I feel like I was running a school here, and I couldn't imagine doing it without laptops. And then we heard that kids in Philly needed laptops. And then we bought hundreds of thousands of meals, and just made sure that people were healthy in Newark, in Camden, in Philly. And so, all of that is stuff that we've been working on.
Anthony Scaramucci: (29:00)
Awesome. And I love the mindset application about what you're doing. I'm going to turn it over to John. He's got a plethora of questions for you.
Anthony Scaramucci: (29:08)
And by the way, you're winning the Room Rater right now. I've got this weird wallpaper behind me. I have no idea what it is. Darcy's in sort of like a wasp closet, with all kinds of stuff there. You've actually got pictures of the kids, and the Bloomberg terminal for you. You won the SALT Talks-
Josh Harris: (29:26)
I didn't even know that I was in this contest.
Anthony Scaramucci: (29:26)
I just want to make sure you know, I am the judge, there's only one judge, and it's me. You have won the SALT Talk as a result of the Room Rater.
Anthony Scaramucci: (29:36)
But go ahead, Darcy.
Josh Harris: (29:38)
Darcy, that's a good start.
John Darsie: (29:40)
All right. We've got several questions from our audience leading into the talk. And I'll go into a couple of them, before we wrap up.
John Darsie: (29:47)
Are there any specific deals that you worked on, either at Apollo or prior to Apollo, that you're particularly fond of? And that demonstrate the way you think about things from and investment perspective?
Josh Harris: (29:58)
Yeah. The one I would talk about, would be Lyondell Chemical. Obviously it was one of, it's the most profitable deal ever for Apollo, and one of the most profitable in private equity history. But, what was really good about it, was that it was a fantastic, it was a massive chemical company, that had too much leverage going into the financial crisis. And it was in danger of, it had close to 50,000 employees, and it was in danger of really just going away and liquidating, because it was over-levered.
Josh Harris: (30:31)
We were able to go in during the financial crisis, and buy the debt. And our first buy was at 80, and our last, our trough buy was at 15 cents, to tell you. And at that point chemical companies were doing very poorly. They were losing money. And we had developed an industry group in chemicals, where we had owned a lot of companies, and we really believed we were watching the turn in the economy, and really believed that supply chain, we didn't believe that the demand that we were seeing was sustainable, based on consumer spending.
Josh Harris: (31:08)
And so we were taking the other side of people who are panicking, and were selling [inaudible 00:31:13] price. And then, so we acquired about 30% of the debt, and then we ultimately navigated a very complicated international bankruptcy with many, many countries, and many, many enemies. And we were able to restructure the company very quickly. And then deleverage the structure, take about $25 billion dollars debt down to less than $8 billion of debt. And then the company reemerged as.. And then also the management team in the middle of all this, kind of decided they didn't want to do this anymore, and we had to recruit a whole management team.
Josh Harris: (31:56)
The company which had done, went from four billion [inaudible 00:31:59] to negative one billion [inaudible 00:32:02], merged and kind of ultimately was doing five or six billion, by the time that we decided that it was time for us to sell out. And it's become this enormously successful corporate company, that today is really thriving and prospering. It's an example of where we used our creativity and our skill sets to really help a great international, but American company, survive a very difficult time period. And we were still able to make, create an attractive risk return opportunity for our investors. And investors obviously are the pension systems. They're teachers, they're firefighters, they're policemen. They're public employers all over the country, and all over the world. That would be the deal that I would talk about.
John Darsie: (32:49)
Great. It doesn't exactly fit some of the negative stereotypes that you see out there about the private equity industry. And how it doesn't add value.
Josh Harris: (32:58)
There are a lot of those. And there are eight million, I try to educate people, that right now there are eight million US workers that work for private equity companies. There are 25 million workers that supply, or are customers in private equity companies. Private equity is the US. There's 35,000 private companies. There's only 4,400 public companies. Private companies, I run a public company, Apollo is a public company. We've got to worry about quarterly earnings. And sometimes you can't always invest for the long-term and do the right things. And so, we need to do a better job.
Josh Harris: (33:37)
And obviously it's a very populous environment. And we're an easy target, and we need to do a better job of telling all the great things that we do. And this is definitely one of those stories.
John Darsie: (33:49)
All right. Well, that's part of why we do these SALT Talks. So, thanks for joining us and helping to dispel some of that nonsense.
Josh Harris: (33:54)
Thank you.
John Darsie: (33:56)
As you look out the landscape right now, Anthony touched on earlier, how you're a very contrarian opportunistic type of investor. As you look out over the private market landscape, we'll focus on private companies, as you mainly do, what are the sectors that you see the most short-term impairment, but the most long-term secular bullish opportunities? Where are you really licking your chops right now, as you look across private markets?
Josh Harris: (34:21)
Yeah, I think private markets are, the Fed action has compressed, or I'd going to compress interest rates going forward, but steadily as you move further outside the public markets, you're going to see better risk return opportunities, and that's what our cloud performance is built to do. And I would say that, the impacted sectors that we're seeing an opportunity in, are generally going to be sectors that have been hardest hit by COVID.
Josh Harris: (34:49)
In many cases, these are like travel related sectors, they're hotels, I think they're real estate, certain types of real estate. I'd say certainly venues and arenas, and entertainment based companies. And so the truth of the matter is, in the early part of the crisis, we were able to invest in these companies. And this is private equity, I'll take a walk through. We're mostly now, we're 400 billion of AUM pro forma for a deal that we just did, called Jackson. Of that, we're about 80 plus percent credit. Lending to companies and great American businesses, and we're only less than 20% what I would call opportunistic private equity, but that's still what we're known for.
Josh Harris: (35:46)
So in the opportunistic sectors, it's going to be those sectors that have been really hard hit, and where the evaluations reflect, to a large extent, some of the concern. That would be, and in private equity they were mostly buying debt. We're just starting to look at deals now. In mezzanine, which is taking a walk towards some of the safer stuff, so the middle part of the capital structure, we continue to do very large investments, many of them which are public. Everything from Expedia, to Cimpress, to Albertsons. Many, many deals where companies are looking for a little bit of capital, either to grow or get over the hump, in a short-term capital crunch situation, because their revenues have been impacted, but they long run, see a lot of value.
Josh Harris: (36:38)
And so, in all these investments, we're able to make investments that build in our view of the world, which is, it's going to be a three or five year timeframe, before they return back to where they were in '19. It gives us, you're really making a bet on terminal value. You have a lot of room, and you're really able to bid in quite a bit of losses in the short run, but you're looking at long run asset value creation.
Josh Harris: (37:06)
In the rest of our portfolio, a lot of what the Fed has done, has been AAA, or government securities, they have bought some high yield. But these are the big liquidity. And these are the big liquid issuances. Much of the small business lending, or other programs that they're trying to do, they're not reaching many of the structured credit vehicles that we, or the middle market businesses, that we actually invest in.
Josh Harris: (37:38)
In the middle market, you can continue to get very attractive returns, lending to businesses that have 20, 25, 50 million of [inaudible 00:37:49]. The bank market, notwithstanding the Fed action, is still pretty shut down. The high yield market is up. It's the only thing with a CUSIP. Anything that's publicly traded is open, but the bank markets are generally pretty closed right now. And so are the structured credit market. That impacts everything from real estate financing, to restaurants. To people, like aircraft leasing has been very impacted. We have [inaudible 00:38:17] our sale-and-leaseback around malls, and hotels. All of those structures, are away from the Fed money, and we're just providing liquidity to everyone from restaurants, to small businesses to hotel owners, allowing them to weather the crisis and getting paid probably arbitrages of one to 400 base points, depending on where they are in the credit stack.
John Darsie: (38:45)
Last question before we let you go. You've helped build Apollo into one of the world's largest and best performing investment firms. You mentioned about 400 billion in pro forma assets under management. Looking at both the way you've built Apollo, and the way you're running the sports franchises that you own, and you could talk about it through the lens of sports ownership. With the Philadelphia 67ers, you've taken, not that you're the General Manager, but you guys have taken players like Joel Embiid that you drafted, and developed into one of the best players in the league. You have Ben Simmons, who's a six foot nine player, playing the point guard position, you have Tobias Harris, who's a six foot ten shooting guard.
John Darsie: (39:24)
When you look at building teams, and building organizations, how do you align what you think about business at somewhere like Apollo, when you're looking at investments? And how you look at something like running a sports franchise? And how do you go about building those dynastic franchises the way someone like the New England Patriots, or the San Antonio Spurs have done, over the last 10, 15 years?
Josh Harris: (39:45)
Yeah. I think it starts with people. You've got to have, if you get the best and the brightest people, and you go, and you're able to not only recruit them, but also resource them, and provide them a vision for where you want to go. If you get the best people, and I think this is all just basic fundamentals. Being successful on the court, attracting the right players, you've got to be successful off the court first.
Josh Harris: (40:12)
And then it's about having a unique strategy, or some unique thought as to how you're going to do things little differently, so in case of sports, we're developing a lot of advanced [inaudible 00:40:27]. There are 30 smart owners, how do you get an edge? How do you select those players? How do you recruit those players? In basketball, it's about making sure they want to play with you, because ultimately they have a lot of choices. But then beyond that, having the right sport science, the right programs for them, to keep them healthy, to extend their careers. Analytics, so that you can select them. Everyone wants these players.
Josh Harris: (40:58)
It's no different at Apollo. We had a unique, it's about innovating. It's about innovating, it's about having the right people. And then it's about having a culture where they stay, and they've decided to work with you.
John Darsie: (41:12)
Well, that's all we have for you today. Josh, thanks again so much for joining us in the middle of the summer. Anthony, I don't know if you have any final words?
Anthony Scaramucci: (41:20)
I have one final request for Josh, and I'm sure he'll appreciate this. If anything should happen to you in the sports world, could you give me a call please? I want to be one of the first people-
Josh Harris: (41:31)
You've got it, man. You've got it.
Anthony Scaramucci: (41:32)
All right. I need [crosstalk 00:41:34] from you.
Josh Harris: (41:34)
I hear you have a lot of thoughts on this.
Anthony Scaramucci: (41:37)
All right. Well, we wish you the best, man. God bless. It's great to have you on SALT. And hopefully, Josh, we can get you to one of our live events as soon as we can get out of the COVID-19 situation.
Josh Harris: (41:48)
I can't wait. I can't wait, and I like the wall behind you. Don't sell yourself short. I might have to... I think you might have won.
Anthony Scaramucci: (41:54)
I'm trying to figure out if it's an insect or not. It's a rough Room Rater for me, Josh, if I do television. Let's just put it that way. I may have to come over to your house, and use that background.
Josh Harris: (42:05)
All right. You got it. Anytime.
Anthony Scaramucci: (42:06)
All right. Be well, man. Thank you for everything.
Josh Harris: (42:08)
Pleasure. Thank you.