Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We begin this now we're stock centering lower as investors
Speaker 2: wear slew of new risks, So Poloit Global Management President
Speaker 2: Jim seunt right in the following twenty six US outlook
Speaker 2: is consistent with a snakflation re environment, and we expect
Speaker 2: interest rates to be higher for longer.
Speaker 1: Jim joins us now for more. Jim, Good morning, he
Speaker 1: Come morning, John.
Speaker 3: How are you happy? I?
Speaker 1: Well, it's good to see you.
Speaker 2: I want to pick up on this headline from our
Speaker 2: friends over at the Ft in the last month, Apollo's
Speaker 2: cutting risk and stop piling cash.
Speaker 1: Is that true? What are you guys up to?
Speaker 3: Well?
Speaker 4: I would say that we've always been known as a
Speaker 4: discipline investor. We talk about purchase price matters, we talk
Speaker 4: about alignment with our investors, and I think that what
Speaker 4: that statement is is really about the gauntlet for approving investments.
Speaker 4: That Apollo has gotten higher and higher over the last
Speaker 4: year or so as we see an environment that down
Speaker 4: the fairway. I'll use a golf analogy. Down the fairway.
Speaker 4: You've got a lot of great things going on. You
Speaker 4: knows of capex cycle, good economic growth, consumer and solid
Speaker 4: shape you know, a variety of great attributes that being
Speaker 4: said the rough where there's lots of challenges between geopolitics,
Speaker 4: between the concern about inflation, between the concern about the
Speaker 4: return of.
Speaker 3: Invested capital and AI.
Speaker 4: There's a variety of left hail items that have certainly
Speaker 4: grown in stature. You know, as I listened to some
Speaker 4: of the macro commentary here, I think there's a great
Speaker 4: deal of humility about the macro view of how the predictions.
Speaker 4: As I meant, I've said here many times. We sat
Speaker 4: here after SVB, we all thought massive capitals slowed down
Speaker 4: and spending and credit crisis, the US economy really was
Speaker 4: massively resilient. You guys talked earlier about what's going on
Speaker 4: with the deficit. I think it's a little bit it's
Speaker 4: the economy stupid, the US economy. People just don't want
Speaker 4: to shorten the great momentum of what's going on. And
Speaker 4: we have an ADMINITISEDT it's very politically savvy about populist topics.
Speaker 3: He's been very responsive.
Speaker 4: But again I this back to us, back to the
Speaker 4: question you had, we're putting money to work.
Speaker 3: This week was a busy week.
Speaker 4: We announced six billion of deals of transactions all great companies.
Speaker 4: Again we're leaning into larger companies that are part of
Speaker 4: the global industrial renaissance. One with bet brad Jacobs, a
Speaker 4: forty thirty five year winner in the building product space.
Speaker 4: The second one with Russell Investments really simplifying their capital structure.
Speaker 4: And then the last transaction was very interesting. Actually it
Speaker 4: was for valor Xai. It was really a sale lease
Speaker 4: back on a massive amount five billion of Nvidia chips.
Speaker 4: So all three really interesting transactions, but really well structured
Speaker 4: downside risk and I think that's our view right now.
Speaker 4: We want to be investing capital, but you've got to
Speaker 4: acknowledge you can wake up on a Saturday morning and
Speaker 4: see us with activities around the globe that really answer
Speaker 4: is the tail risk of geopolitics.
Speaker 3: You can get a.
Speaker 4: Stroke of the pen announcement yesterday with regard to housing,
Speaker 4: and so I think you have to be very very
Speaker 4: careful about how you invest long term at scale.
Speaker 2: To extend the analogy, though to your point, the fairway
Speaker 2: is getting narrower, the rough is getting deeper.
Speaker 1: In the last few years.
Speaker 2: It has not been that way allocates risk and you'll perform,
Speaker 2: you'll do well world.
Speaker 1: There's like a tougher environment.
Speaker 4: The analogy for golf for those who play a lot
Speaker 4: of golf is worth the US Open. US Open is
Speaker 4: known for tight fairways and really punitive rough and if
Speaker 4: you cape in the fairway, you're going to be a
Speaker 4: great victor and you're going to have great success. I
Speaker 4: think there's going to be as last year will remind
Speaker 4: us you can have some bumps in the road during
Speaker 4: the course of the year. That definitely changed the trajectory
Speaker 4: on liquidity, on momentum, on risk appetite. But I think
Speaker 4: the long term trend is quite positive. But I do
Speaker 4: think you have to be very measured about how you
Speaker 4: execute your business model.
Speaker 5: So if that's the US Cup, do you go to
Speaker 5: the Rider Cup? No, I mean the idea, do you
Speaker 5: stand your I google that. Evidently I bombed on it.
Speaker 5: I think curious if you go overseas, you know, because
Speaker 5: to differs fy away from the United States.
Speaker 4: Well, we've been we've been I would say two account
Speaker 4: that we've been very vocal and I've been vocaling this
Speaker 4: on this program about Europe. You know, we we when
Speaker 4: you look at the needs of governments around the globe,
Speaker 4: especially in Europe, in Germany, in particular, and some more
Speaker 4: so in the UK. The governments does demand for capital
Speaker 4: far aways their ability to participate, and so we want
Speaker 4: to be part of that renaissance and that part of
Speaker 4: the globe in places like Japan and Australia, we want
Speaker 4: to be part of the retirement solutions and some of
Speaker 4: the global industrial renaissance with a changing banking system. You know,
Speaker 4: we're not a broadly speaking, a developing an emerging markets investor.
Speaker 4: So while we have a view on what's going on
Speaker 4: in Latin America today, that's an negligible part of our capital.
Speaker 3: That's just not what we do. We're really a G
Speaker 3: seven and larger economy investor.
Speaker 5: So you were talking about how you're getting more conservative.
Speaker 5: Corporations and governments are attacking the market at a record pace.
Speaker 5: So far this year, about two hundred and sixty billion
Speaker 5: dollars of bond issuance from governments and corporations around the
Speaker 5: world have been issued, the fastest pace ever. Is this
Speaker 5: because there is a lot of optimism out there or
Speaker 5: is this because they see a small window that could
Speaker 5: close and they want to get in.
Speaker 4: I don't think it's a small wh When you look
Speaker 4: at the numbers that have been put out by the
Speaker 4: large financial institutions, the big banks about net issuance in
Speaker 4: the IG market, it's north of like it's anywhere from
Speaker 4: eight hundred billion to a trillion two net issuance, which
Speaker 4: is one of the largest numbers in the last ten
Speaker 4: to fifteen years. Same can be said in the high
Speaker 4: yield and the leverage loan market, the net issuance is
Speaker 4: going to be quite high. So with real rates and
Speaker 4: real yields fairly high in a historic basis, with a
Speaker 4: variety of pensioners and investors around the globe looking for
Speaker 4: long duration yield, it's a pretty powerful mix of supply
Speaker 4: and demand in terms of taking that overhang, if you will.
Speaker 4: I think one of the big questions is does the
Speaker 4: equity new issue IPO calendar actually come to fruition. And
Speaker 4: the second thing that people aren't talking about is where
Speaker 4: oil is right now. It's very deflationary. If it were
Speaker 4: to stay at these levels or even go lower again,
Speaker 4: we're talking about all the things that can go wrong.
Speaker 4: I'm a credit guy, you know, bonds don't go to
Speaker 4: two hundred, they go to zero. I'm cautious by definition,
Speaker 4: but you know, in oil at these levels on WTI
Speaker 4: at fifty six fifty seven, that's very deflationary and very
Speaker 4: positive for economic growth. So you know, again, I think
Speaker 4: that there's a variety of balancing acts here going on.
Speaker 4: But you know, to John's first question, I would say
Speaker 4: that we think that there's a variety of issues that
Speaker 4: one needs a deal with, But at the same time,
Speaker 4: you want to be putting money to work in large scale. Now,
Speaker 4: if you look at the traditional high yield market, the
Speaker 4: triple CLBO buyout, that activity is just not happening in
Speaker 4: scale anymore. It's being funded in private credit, which I'm
Speaker 4: sure we'll talk about because of our big white paper
Speaker 4: in December. But at the end of the day, it's
Speaker 4: really about credit and the ability for this IPO calendar
Speaker 4: to comefort to fruition.
Speaker 1: On some of this gym.
Speaker 2: Because I can tell you sort of openly and honestly
Speaker 2: what I've struggled with. I don't know what to look
Speaker 2: at anymore. Payrolls has been a bit of a head fake.
Speaker 2: In the last twelve months, we've seen a real deceleration
Speaker 2: in payrolls growth, but it's not been relevant to the
Speaker 2: performance of risk ansets more broadly, something that even the
Speaker 2: team have talked about for a number of years now.
Speaker 2: When we saw interest rates go to four pushing five percent,
Speaker 2: Lisa and I were talking about this for the best
Speaker 2: part of twelve months. How on earth is this economy
Speaker 2: going to deal with four to five percent interest rates?
Speaker 2: And we dealt with that just about Okay, what should
Speaker 2: we be focused?
Speaker 4: I think, I think to answer that question, it's really
Speaker 4: we talk about the changing backdrop of market structure. The
Speaker 4: reality is in the US today, it's been an extended
Speaker 4: credit cycle. It's harder to have a real economic recession
Speaker 4: because of the diversity of funding across the board. We
Speaker 4: have the healthiest banks in the globe. We have a
Speaker 4: securitization market that's alive and well in record size of issuance,
Speaker 4: that disperses a lot of risk around the economy in
Speaker 4: terms of balance sheets. You have a consumer in pretty
Speaker 4: good shape. You have a housing market where forty percent
Speaker 4: of folks don't have a mortgage. I'm not saying we're
Speaker 4: not going to have an economic cycle. We will have
Speaker 4: an economic cycle. We will have a credit cycle. But
Speaker 4: if the post SVB environment is any lesson to us
Speaker 4: all because of the advances and the evolution of the
Speaker 4: US economy since the GFC. It's a lot harder to
Speaker 4: push over this machine than it had been in the past.
Speaker 4: The transmission mechanism of the FED that used to be
Speaker 4: instantaneous is not what it used to be. We saw
Speaker 4: it in the last two years with housing in the
Speaker 4: US because of the thirty year mortgage concept, or the
Speaker 4: lack of a mortgage versus countries like the UK, where
Speaker 4: most folks are on a five or seven year floating
Speaker 4: rate mortgage that has an immediate impact on the breaks
Speaker 4: of the consumer and the economy.
Speaker 3: Not the case in the US.
Speaker 4: So the strength, the breadth of market structure, how companies finance,
Speaker 4: the role of banking, the ability for FED, the FED
Speaker 4: to actually have that transmission mechanism of raising race and
Speaker 4: slung the economy down.
Speaker 3: It's not what it used to be. It's not your
Speaker 3: father's economy.
Speaker 1: Jim, You're going to stick with us. So here's the license.
Speaker 2: This morning, President's Trump taking a swife a big business,
Speaker 2: announcing his plan to ban wall straight from by single
Speaker 2: family homes. The White House looking to address housing affordability
Speaker 2: ahead of the midterms. Blimberg Jonathan Samurray joins US Now
Speaker 2: for more, Jonathan, the president's own words, I will announce
Speaker 2: some of the most aggressive housing reform plans in American history.
Speaker 6: What can we expect, Well, we saw this announced for
Speaker 6: you yesterday that he's looking to ban big institutional investors
Speaker 6: from buying new homes, the ideas to try to drive
Speaker 6: the price down. There. The big challenge there is will
Speaker 6: that stand up legally? Will he need approval from Congress?
Speaker 6: And how much housing do they really own? If you
Speaker 6: look at the overall market, it's a relatively small amount
Speaker 6: that's owned by these big institutional investors.
Speaker 2: Jonathan, with the lightest down in Washington, Jonathan, thank you.
Speaker 2: What just around of tell youple Apollo is Jim's now
Speaker 2: to Apollo, not black style, And that's an important distinction.
Speaker 1: Jim, You're not big in this space.
Speaker 3: No, as a matter of course we are.
Speaker 1: What historically has that been the case?
Speaker 4: You know, it's something that was not It was not
Speaker 4: down the center of how we thought about investing our capital.
Speaker 4: As I reminded you all from many times, for us,
Speaker 4: most of our capital, half of our capital, is our
Speaker 4: own balance sheet, and we wanted to focus more of
Speaker 4: our activity on the big choke points of housing. Housing
Speaker 4: is a massive issue. We saw in New York City
Speaker 4: with our election, affordability around the country. There's a lot
Speaker 4: of demographic reasons why, and we've just chosen to be
Speaker 4: much more on the choke points.
Speaker 3: Of the strategic growth.
Speaker 4: How do we actually help create more property for home
Speaker 4: builders and developers, How do we really create the choke
Speaker 4: points of building products and things like that. But we've
Speaker 4: just not pursued this for a variety of strategic activities.
Speaker 4: But I think what's going on right now is the
Speaker 4: President is saying a symbolic north star laying out, but
Speaker 4: they're also going to work on a variety of massive
Speaker 4: strategic initiatives that will allow the social good to be
Speaker 4: dealing with this problem because it's not only in the US,
Speaker 4: but it's in the UK, it's in a variety of
Speaker 4: other countries. We don't have the zoning issues that the
Speaker 4: UK has, but certainly in terms of affordability and starter homes,
Speaker 4: and whether it's initiatives to allow for subsidized mortgages or
Speaker 4: quicker building, of standardization or a relaxation of the zoning rules.
Speaker 4: I mean, these are all activities, but.
Speaker 3: We're not in the core franchise of this so it
Speaker 3: has no impact on our franchise.
Speaker 1: You're not directly exposed. But do you think this idea
Speaker 1: of banning large institutional investors from buying up single family
Speaker 1: homes is the right policy approach?
Speaker 4: You know, we have an administration that's chosen to do
Speaker 4: a variety of things, whether it's taking equity in large
Speaker 4: technological companies. I think there's better ways to actually solve
Speaker 4: these strategic issues. They have identified challenges that are affecting many,
Speaker 4: many Americans in many companies. But at the same time,
Speaker 4: I think there's broader policy strategies that can help out
Speaker 4: to solve those problems. And I would say for us,
Speaker 4: you know, you don't get to the size that we've
Speaker 4: gotten without participating, whether it's retirement, the industrial renaissance, or
Speaker 4: other big initiatives that help society out. So we want
Speaker 4: to be on the strategic helping side rather than the
Speaker 4: debate about policy.
Speaker 5: What is strategic helping? I mean we saw this with
Speaker 5: JP Morgan's recent fund. They're wanted to actually know our fund,
Speaker 5: where are you expanding?
Speaker 4: You know, kudos to JP Morgan and Jamie for doing that.
Speaker 4: It's it's really consistent with you know, pro US policy
Speaker 4: We're in dialogues with them and many many others on
Speaker 4: a variety of funding the choke points in the defense initiatives.
Speaker 4: We're doing a variety of things in the housing in
Speaker 4: terms of land banking for builders and otherwise. All the
Speaker 4: things we've been doing in technology, getting chip building back
Speaker 4: in the US. Those are all the things that we
Speaker 4: think are good for us long term. Whether you're on
Speaker 4: either side of the political party agenda, can.
Speaker 2: You frame capital needs for us in a private space
Speaker 2: at the moment, I'm going to reduce it down to
Speaker 2: one company.
Speaker 3: Yeah.
Speaker 2: It feels like a lot of this year is centered
Speaker 2: around open AI, the capital needs and whether they be
Speaker 2: met or not, and that's going to set the tone
Speaker 2: for risk appetite for the year ahead. How small is
Speaker 2: that compared to the bigger pool?
Speaker 4: You know, when you look at the number I used
Speaker 4: earlier was the next five to six years. It's been
Speaker 4: bantered around that the hyper scalers and aggregator are going
Speaker 4: to need five to seven trillion. You know, when you
Speaker 4: think about how that's going to be filled, about a
Speaker 4: third of it will be filled from their free cash flow,
Speaker 4: not open AI, but the other six the high yield market,
Speaker 4: the investment grade market, the structured finance and ABS market.
Speaker 4: They will all fill that when you identify the gaps.
Speaker 4: It's another trillion of the five to seven trillion, about
Speaker 4: a trillion trillion five has not been identified.
Speaker 3: You know that seems like it's a huge number.
Speaker 4: As I was mentioning to you earlier, US economy thirty
Speaker 4: thirty trillion plus economy Global economy almost one hundred and
Speaker 4: twenty five trillion, So it's a big number. It's definitely
Speaker 4: going to strain and have an impact on the ig
Speaker 4: issuance markets where these companies were negligible participants. Now they're
Speaker 4: going to be ten to fifteen percent participants. But I
Speaker 4: think I think that's a when you say to me,
Speaker 4: what are the questions that I would love to know
Speaker 4: for year end twenty six or twenty seven. I love
Speaker 4: to know where oil is, I love to know where
Speaker 4: ten year bonds are, and I'd love to know what
Speaker 4: the return on this capex of broad broad AI data
Speaker 4: centers is. And if you knew those, those would be
Speaker 4: great demarcations of success. But I do think there's a
Speaker 4: big question about the return on invested capital on some
Speaker 4: of these companies.
Speaker 5: There's a bigger question about return on invested capital for
Speaker 5: the biggest in the private debt and private equity space,
Speaker 5: because some of these deals are really large and increasingly
Speaker 5: they are the market, and there have been questions about
Speaker 5: how do you outperform when you are the market? How
Speaker 5: much you seeing actual performance? Actual returns inherently go lower
Speaker 5: as you try to be safer and as you do
Speaker 5: invest in such big size.
Speaker 4: You know, the transaction we did for Bailor and Xai,
Speaker 4: double digit amortizing transaction with the value of the chips
Speaker 4: being zero in five years.
Speaker 3: That's good risk return for us. You know.
Speaker 4: Again, I think that open Ai is a unique company
Speaker 4: visa vis some of the others because of the strong
Speaker 4: cash flow and balance sheet those companies have inherently versus
Speaker 4: the growth initiatives of opening. But you know, certainly it's
Speaker 4: going to be a very large question, and I think
Speaker 4: that around the globe, more and more investors, because of
Speaker 4: the pension challenges, they're looking for a long duration yield
Speaker 4: that's a bit different than we've had historically in the
Speaker 4: last ten or fifteen years. So I think there is
Speaker 4: plenty of demand to be a scale solution provider. I
Speaker 4: think the other big question will be how many of
Speaker 4: these companies actually are able to hit the equity market
Speaker 4: and what will the equity calendar really absorb over the course.
Speaker 3: Of the next year.
Speaker 2: Do you think that's think private story is coming to
Speaker 2: a close. These companies have got to go public, you know.
Speaker 4: I do think that with the VC and private equity overhang,
Speaker 4: and there's a greater demand for liquidity from a variety
Speaker 4: of investors, whether it's endowments or foundations that are knocking.
Speaker 3: At that door.
Speaker 4: So I think there's no doubt there's an ability to
Speaker 4: stay private a lot longer. But depending on your constituents, employees,
Speaker 4: and others who might need liquidity, that a challenge you're
Speaker 4: going to.
Speaker 3: Have to confront.
Speaker 1: Jim, it's going to see you always good to be here.