Rowan explains Athene cannot buy fixed income in public markets because there is no excess return, only beta.
“Athene as a retirement services company wants 95% fixed income and 5% alternatives. But that 95% fixed income they can't buy in the market because the market is now completely beta.”
Rowan says LDI crisis revealed public securities are only liquid in rising markets, not falling ones.
“LDI was nothing more than a misplaced expectation on the part of UK institutions that public securities were liquid. They found out they're only liquid on the way up.”
Rowan reframes public versus private markets as fundamentally about liquidity rather than risk.
“We now know public can be risky as well. We now have found out that private can be both safe and risky. What we're talking about is differing degrees of liquidity.”
“Twenty years ago, there was alpha left in publicly traded fixed income markets. Firms like ours offered you a high yield bond account, a levered loan account.”
“2022 was a good opportunity for us to realize that public can be both safe and risky, and private can be both safe and risky. The only difference is a degree of liquidity.”
Rowan says 100% of S&P returns this year came from 10 stocks at 50 PE, constituting 35% of the index.
“A 100% of our returns this year are from 10 stocks which constitute 35% of the S and P that traded an average PE of 50.”
Rowan states active management has failed to beat indexes 85% of the time over twenty years and will get harder.
“If you look at the active management, active management has failed to beat the index 85% of the time for twenty years.”
Rowan says 100% of returns this year came from 10 stocks at 50 PE, which few would actively buy.
“A 100% of our returns this year are from 10 stocks which constitute 35% of the S and P that traded an average PE of 50.”
Rowan states public companies halved to 4,000 while 80% of large companies are now private.
“We now have 4,000 public companies. People think most of the action is in public markets. 80% of companies over 100,000,000 of revenue and 80% of employment is in private companies.”
Rowan notes active equity managers failed to beat the market 93% of the time over twenty years.
“Here are people who have spent their whole lives becoming good investors, and they as an industry have failed to beat the market 93% of the time for twenty years.”
Rowan states it takes five days to sell an investment grade corporate bond, contradicting assumptions about public market liquidity.
“One of the most interesting things that changed there is no liquidity in public fixed income. The stats I've seen it takes five days to sell an investment grade corporate bond.”
Rowan challenges the perception that public markets are safe and private markets risky.
“We have a perception that what's public is safe and what's private is risky. But what if we're wrong?”
Rowan argues equity prices are not low, with average PE in mid-twenties versus historical 16.
“I do not believe prices are low. They are lower, but we're still talking about an average PE as a reference in the mid twenties versus 16 over time.”
Rowan challenges the perception that public markets are safe and private markets are risky.
“We have a perception that what's public is safe and what's private is risky. But what if we're wrong? What if public is safe and risky and private is safe and risky?”
Rowan notes major tech companies like SpaceX and OpenAI remain private without concern from investors.
“We think nothing about private companies in growth and technology just staying private longer, and these are massive companies.”
Rowan argues ten companies now represent nearly 50% of S&P 500, all concentrated on one trend.
“Have 10 companies today who account for nearly 50% of the S and P 500, and those 10 companies are all levered to one trend.”
Rowan notes major innovation companies like SpaceX, OpenAI, and Stripe all remain private despite US capital market strength.
“But I'll go through the companies who are creating massive change. SpaceX, Anthropic, OpenAI, Stripe, Cursor, Cognition, Andoril. What do all of them have in common?”