related post: [APO] Apollo
Charles Schwab is broker that monetizes like a bank. They invest excess cash from brokerage accounts into government securities and keep the difference between what they earn on those securities and what they pay to clients. This worked out all right for a while: clients could earn a bit more by proactively allocating their cash balances to Treasuries but, eh, why bother with yields so low. But then, with the Fed taking short-term rates from 0% to ~5% in just over a year and non-SIFIs gripped by the fulminant panic unleashed by the sudden demise of Silicon Valley Bank, shuttling cash to government securities seemed not only remunerative but prudent. The beleaguered broker was forced to plug the flight of low cost deposits with high cost borrowings (I’ve written about this here, here, and here).
Similar concerns loomed over Apollo, another bank-looking entity that doesn’t operate as a bank. Like Schwab, Apollo transformed a capital light, fee-driven business into a capital intensive financial. Like Schwab, Apollo gets most of its profits earning a spread between what it realizes on securities and what it pays to clients. But unlike Schwab, Apollo’s annuity business, Athene, is funded by liabilities whose duration matches that of its assets, meaning annuitants can’t just pull their money on a whim to take advantage of higher rates.