WEBVTT - Apollo Global Management President Jim Zelter Talks Retail

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<v Speaker 1>I have to say the biggest pathbroke because we've seen

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<v Speaker 1>over the past few weeks, didn't come from the world

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<v Speaker 1>attack at all. They came from the world of retail.

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<v Speaker 1>I keep going back to that meeting several mondays ago

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<v Speaker 1>in Washington, d c. Between the biggest retail is in

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<v Speaker 1>this country and the President of the United States, which

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<v Speaker 1>many people believe led to the truth we saw over

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<v Speaker 1>the weekend.

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<v Speaker 2>And the threat of empty shelves heading into the back

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<v Speaker 2>to the school season. And we just heard from Gene

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<v Speaker 2>Soroca that still is a question mark is companies try

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<v Speaker 2>to figure out the new landscape that they're trying to order.

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<v Speaker 2>In the fact that Walmart's CFO is saying that price

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<v Speaker 2>hikes from tariffs may start this month, This coming out

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<v Speaker 2>in news reports right now gives you a sense of

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<v Speaker 2>the pressures that are going to be building at a

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<v Speaker 2>time or even though tariff rates have come down from

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<v Speaker 2>some of the worst case scenarios, they still are materially

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<v Speaker 2>higher than where they were at the start.

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<v Speaker 3>Of the year.

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<v Speaker 1>That's a warning from Walmart this morning. Here's a view

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<v Speaker 1>on Wall Street. Jim Zeltzer, the president of Apollo Global Management,

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<v Speaker 1>weighing in on the administration's trade regime. The last time

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<v Speaker 1>he joined us, saying this globalization is not going to

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<v Speaker 1>be like we have seen it in the past. It

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<v Speaker 1>is a new global world order and places safe for them.

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<v Speaker 1>Next thirty minutes, Jim's ounce joins us this morning, Jim.

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<v Speaker 3>Good morning, Good morning.

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<v Speaker 1>It's a phrase you used last time around that's stuck

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<v Speaker 1>with both of us. We've been repeating it over the

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<v Speaker 1>last several weeks. Macro paralysis. Can you adjust that term?

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<v Speaker 3>Now?

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<v Speaker 1>What phrase would you use to describe this moment?

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<v Speaker 4>First of all, it was good to be here. I

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<v Speaker 4>think I would frame it right now, is a macro

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<v Speaker 4>political pivot the administration clearly, I agree. I think that

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<v Speaker 4>Monday meeting with the retail executives was a I don't

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<v Speaker 4>want to call it watershed, but it was a critical

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<v Speaker 4>moment for the administration to hear about the challenges on

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<v Speaker 4>the ground of their plan. And the administration certainly is

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<v Speaker 4>not admitted they made a mistake, but they've clearly pivoted.

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<v Speaker 4>And that's not a surprise. And it's not a surprise

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<v Speaker 4>that they're out going around the globe right now trying

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<v Speaker 4>to and successfully inking a lot of deals. A lot

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<v Speaker 4>of MOUs that are non binding, but certainly it's great

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<v Speaker 4>headlines and it's hundreds of billion, if not trillions. But

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<v Speaker 4>so that's where I think, and I think the big

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<v Speaker 4>question now is I'll pull back in the COVID library.

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<v Speaker 3>There's a big gap.

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<v Speaker 4>Between confidence sentiment and the results and confidence and sentiment

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<v Speaker 4>is still pretty negative or concerned, but the results have

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<v Speaker 4>been pretty strong, and so there's a very if you

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<v Speaker 4>think about you know, we're all, you know, history of

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<v Speaker 4>the past, and we see signs of what we've seen

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<v Speaker 4>in the past, and pattern recognition if you will, and

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<v Speaker 4>you know, if you input all the things that you

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<v Speaker 4>see right now, you would have been saying recession went

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<v Speaker 4>from thirty percent to seventy eighty percent. Now it's probably

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<v Speaker 4>below fifty percent.

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<v Speaker 3>But the three.

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<v Speaker 4>Questions are does the consumer do corporates and countries are

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<v Speaker 4>they going to be on the V shape recovery, the

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<v Speaker 4>U shape recovery or the L shape recovery.

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<v Speaker 3>Our view at A.

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<v Speaker 4>Paula is right now that the consumer is still pretty strong,

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<v Speaker 4>a bit of a V shape recovery. Corporate's a bit

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<v Speaker 4>of a U shape recovery because a lot of CAPEX

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<v Speaker 4>and I've been traveling around quite a bit, and I

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<v Speaker 4>think the global response is a bit more like the

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<v Speaker 4>l and what you pointed out earlier, what Amory did

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<v Speaker 4>with Tim Cook. I am not surprised. None of us

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<v Speaker 4>should be surprised that this administration is going to put

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<v Speaker 4>their arm around all these tech titans and other leaders

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<v Speaker 4>and saying come to America.

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<v Speaker 3>China was not the plan.

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<v Speaker 4>We didn't love the idea of going India, come back

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<v Speaker 4>to the US. This is going to be a theme

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<v Speaker 4>that they're going to keep hitting hitting.

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<v Speaker 2>Is there enough of a framework that you're gleaning from

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<v Speaker 2>this administration that's solid to bring deal making back. We've

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<v Speaker 2>seen on the margins some deals being made, some IPOs,

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<v Speaker 2>there are just a few. Is this the beginning?

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<v Speaker 4>Well, I think let's separate the headlines from activity. It's

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<v Speaker 4>been an incredibly active time for folks that have involved

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<v Speaker 4>in the markets. You know, we at Apollo, we opened

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<v Speaker 4>up the IPO market. We brought out Aspen, one of

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<v Speaker 4>our reinsurers for an IPO. We did a multi billion

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<v Speaker 4>dollar deal for a lot of America igt every We

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<v Speaker 4>announced a big merger between New Home and a Land

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<v Speaker 4>and Sea.

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<v Speaker 3>So there's been a lot.

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<v Speaker 4>Of transactions since April second. I know the headlines may

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<v Speaker 4>show contrary, but there's been a tremendous amount of financing

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<v Speaker 4>and I think it shows the depth and breadth of

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<v Speaker 4>the markets right now because of private capital in the

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<v Speaker 4>equity and the credit world.

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<v Speaker 3>So this idea that.

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<v Speaker 4>The markets shut down, that's actually what happened two decades ago.

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<v Speaker 4>Two decades ago, the high yield market would go into

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<v Speaker 4>periods six, eight, ten weeks where there would be no

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<v Speaker 4>issuance based on the flows from retail the old AMG number.

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<v Speaker 4>So this economy, this capital markets is very robust, obviously

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<v Speaker 4>of a lot of volatility. One of the benchmarks in

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<v Speaker 4>our market would be HyG, the high Yield Index. The

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<v Speaker 4>listed HyG ETF that went from basically seventy nine to

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<v Speaker 4>eighty down to seventy three, seventy four back to seventy

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<v Speaker 4>nine is in a round trip. But there's been a

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<v Speaker 4>tremendous amount of activity underneath the headlines.

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<v Speaker 2>How much do you think this is because people see

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<v Speaker 2>the environment as being brighter than some may worry, And

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<v Speaker 2>how much do you see this as just simply pent

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<v Speaker 2>up demand that's been backed up for a long time.

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<v Speaker 2>There is this sort of cyclical move toward industrialization, and

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<v Speaker 2>you have that kind of fundraising that is kind of

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<v Speaker 2>independent of any economic cycle.

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<v Speaker 4>I think the bigger long term trends of massive, massive

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<v Speaker 4>cappex the year or two of cappex.

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<v Speaker 3>Global industrial renaissance.

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<v Speaker 4>The demographics every asset class is higher today as we

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<v Speaker 4>sit here this morning than it was on Liberation Day,

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<v Speaker 4>except for treasuries, which have ten years basically thirty basis

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<v Speaker 4>points higher and the thirty year about forty basis points higher,

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<v Speaker 4>about five, fifteen and six percent, respectively. That's telling you

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<v Speaker 4>that folks think that the economic backdrop is not going

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<v Speaker 4>to be a recession. It's going to be slow to

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<v Speaker 4>moderate growth. And that's what you're seeing right now in

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<v Speaker 4>the market. So that's what we're seeing from our companies.

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<v Speaker 4>We're seeing a lot of concern, a lot of handeringing

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<v Speaker 4>about big strategic M and A transactions. I don't think

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<v Speaker 4>you're going to see a massive equity calendar except for

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<v Speaker 4>a few large deals here and there. But the reality

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<v Speaker 4>is companies need to operate, finance, and grow, and they're

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<v Speaker 4>positioning themselves for an environment that the administration's putting forth.

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<v Speaker 1>This is what companies need let's spend some time talking

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<v Speaker 1>about what investors need. Never mind the rebound. What did

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<v Speaker 1>you learn from the drawdown public versus private?

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<v Speaker 4>Well, what you saw is that I come up here

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<v Speaker 4>a lot and talk about market structure, and what you're

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<v Speaker 4>finding right now is that longer dated capital is us

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<v Speaker 4>and many of our peers have long dated insurance assets.

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<v Speaker 4>Those were the folks that were the most active during

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<v Speaker 4>the marketplace, and they were a bit of the buffer

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<v Speaker 4>if you would. You know, we put about twenty seven

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<v Speaker 4>billion to work in the IG market from April second

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<v Speaker 4>to last week. That's on a growth basis about net

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<v Speaker 4>about seventeen eighteen billion. I think in the past that

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<v Speaker 4>participant was not in the market as much, and the

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<v Speaker 4>buffer from the Wall Street bank trading desk taking that balance.

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<v Speaker 4>I think that we collectively as an industry helped out

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<v Speaker 4>so that you didn't see as much polatiley. There's a

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<v Speaker 4>lot of there's a lot of cash on the sidelines.

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<v Speaker 4>There's a tremendous amount and again as you see what's

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<v Speaker 4>going on right now around the globe with you know,

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<v Speaker 4>the pension assets, DC assets, other assets, really trying to

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<v Speaker 4>get long duration, long duration assets against their liabilities. It's

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<v Speaker 4>really really critical. I mean, the one big overhang it's

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<v Speaker 4>still in the market is what's going on the treasury market.

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<v Speaker 4>You know, certainly if you pivot right now to what's

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<v Speaker 4>going on with the budget issues in DC, it doesn't

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<v Speaker 4>look like they have a clear path to a deal

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<v Speaker 4>that would be really de leveraging to the US over time.

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<v Speaker 4>Now Bessen is saying a lot of great things, but

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<v Speaker 4>treasury rates are higher, and you know, as we've as

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<v Speaker 4>we've been saying, the one real leftail risk for this

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<v Speaker 4>administration is the Liz Trust moment. Is that still out there.

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<v Speaker 4>It's not a zero, it's not a big number, but

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<v Speaker 4>it's a left tail risk for this administration.

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<v Speaker 1>Can we ask you what you think that looks like?

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<v Speaker 1>What does a List trust moment look like? In the

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<v Speaker 1>treasury market?

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<v Speaker 4>You know, it's the deepest, most liquid, broadest market in

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<v Speaker 4>the world's and I don't really participate day to day,

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<v Speaker 4>so I'm not it really is.

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<v Speaker 3>It's a confidence.

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<v Speaker 4>Issue, and it's when that stream of confidence goes from

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<v Speaker 4>not being substantial to being a little bit more material.

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<v Speaker 4>And I don't know what that number is, but certainly

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<v Speaker 4>it's got to be in the back of the head

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<v Speaker 4>of the administration, and again the prior administration did not

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<v Speaker 4>really extend duration in their liability. So there's I think,

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<v Speaker 4>I don't know if it's seven or nine trillion of

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<v Speaker 4>refinancing over the next twenty four months. It's a big number.

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<v Speaker 4>But these rates are real. Rates are real in terms

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<v Speaker 4>of where they are right now, So you are finding

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<v Speaker 4>buyers of that paper, but it is a challenge.

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<v Speaker 2>In the backdrop, there is this belief that private credit

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<v Speaker 2>markets offer this ballast, the sort of haven from some

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<v Speaker 2>of the volatility that we're seeing in public markets and

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<v Speaker 2>in particular from the treasury market. At the same time,

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<v Speaker 2>how can you say that private debt in particular is

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<v Speaker 2>really immune to the fluctuations and the sucking sound of

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<v Speaker 2>capital into the treasury market given all of that issuings.

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<v Speaker 4>Well, I'd say two things, and this is a longer

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<v Speaker 4>conversation that I do want to get into. The real

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<v Speaker 4>rates are higher, and if you can in private credit,

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<v Speaker 4>private credit, you know, high single digits, low double digits

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<v Speaker 4>on a compounding basis, it's a tremendous asset class over

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<v Speaker 4>a decade or two. I really want to spend some

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<v Speaker 4>time with you both this morning talking about these comments

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<v Speaker 4>about private credit being a bubble, you know, that's just

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<v Speaker 4>a mistake in comment and when you really break it down,

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<v Speaker 4>as I said before, private credit in the traditional manner,

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<v Speaker 4>the narrow manner is the higher market, the leverage loan market,

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<v Speaker 4>and now the emerging direct lending market. When people talk

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<v Speaker 4>about a credit bubble, it's just not the case. What

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<v Speaker 4>they are talking about is there could be a credit cycle.

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<v Speaker 3>That's normal. We haven't had one in a long time.

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<v Speaker 4>But that credit cycle will impact debt and leverage balance sheets,

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<v Speaker 4>high yield leverage loans, and direct lending. It'll also affect

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<v Speaker 4>private equity. It'll affect equity multiples. But it's not a

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<v Speaker 4>bubble per se. It's a good old recession and a

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<v Speaker 4>credit cycle. We're going to have one of those. It

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<v Speaker 4>may be pushed out again a year or two, but

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<v Speaker 4>let's not go out there. I think folks that are

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<v Speaker 4>not in private credit or private capital say, oh, it's

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<v Speaker 4>a bubble because they're not involved. But the reality is

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<v Speaker 4>there's lots of opportunities. There's a massive amount of opportunities.

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<v Speaker 4>We were very active last month. Boeming decided to spin

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<v Speaker 4>off its aircraft one of its businesses. We worked in

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<v Speaker 4>conjunction with City on it multi billion dollar deal, a

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<v Speaker 4>tremendous asset heated auction. There's opportunities for real companies, but

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<v Speaker 4>there will be a credit cycle still.

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<v Speaker 1>With a Jim's outse of Apollo Global Management, Jim, we

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<v Speaker 1>talked about the prospect of a credit cycle. How can

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<v Speaker 1>we have a credit cycle when we're running deficits this

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<v Speaker 1>ladge in Washington.

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<v Speaker 4>Well, I mean, as I said before, we've been waiting

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<v Speaker 4>for those who have been professionals in this sector for

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<v Speaker 4>decades would have expected a few things right now, and

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<v Speaker 4>I've talked about pattern recognition. I was here several years

0:11:16.360 --> 0:11:19.560
<v Speaker 4>ago talking about the rate hike and how that would

0:11:19.600 --> 0:11:22.520
<v Speaker 4>create a tighter a period of tighter financial conditions, and

0:11:22.640 --> 0:11:24.960
<v Speaker 4>many of us that were expecting as serious credits cycle,

0:11:25.240 --> 0:11:28.200
<v Speaker 4>you know, predicted something that didn't occur because of the

0:11:28.280 --> 0:11:32.080
<v Speaker 4>macro backdrop. You know certainly right now is we have

0:11:32.160 --> 0:11:35.640
<v Speaker 4>a higher rate environment, which means a bit of economic

0:11:35.720 --> 0:11:36.200
<v Speaker 4>strength in.

0:11:36.200 --> 0:11:37.199
<v Speaker 3>The overall economy.

0:11:37.679 --> 0:11:42.080
<v Speaker 4>There always are a number of companies that just have

0:11:42.200 --> 0:11:43.800
<v Speaker 4>too much leverage and are not going to grow out

0:11:43.800 --> 0:11:45.679
<v Speaker 4>of their balance sheets, and you're going to see that.

0:11:45.800 --> 0:11:48.200
<v Speaker 4>Last year, the last couple of years, you had actually

0:11:48.240 --> 0:11:51.600
<v Speaker 4>fairly high numbers of restructurings and non investment great credit.

0:11:51.920 --> 0:11:55.080
<v Speaker 4>It just didn't overwhelm the headlines because the overall returns

0:11:55.120 --> 0:11:57.920
<v Speaker 4>and the strength of the equity market. But I do

0:11:58.000 --> 0:12:01.480
<v Speaker 4>think there are you know, I said before, here's there's

0:12:01.520 --> 0:12:03.280
<v Speaker 4>a when you look at back in the last four

0:12:03.360 --> 0:12:08.280
<v Speaker 4>or five years in private credit direct lending, a lot

0:12:08.360 --> 0:12:13.600
<v Speaker 4>of the largest sector of financing was technology and enterprise software.

0:12:14.200 --> 0:12:17.080
<v Speaker 4>And I do think that there's a possibility with what's

0:12:17.120 --> 0:12:20.480
<v Speaker 4>going on with AI that many of these companies could

0:12:20.520 --> 0:12:24.200
<v Speaker 4>really have massive impact on their operating business. The renewal

0:12:24.280 --> 0:12:27.280
<v Speaker 4>rates there are seven or eighty ninety ninety five percent

0:12:27.679 --> 0:12:31.400
<v Speaker 4>could plummet dramatically, and I could see a variety of

0:12:31.520 --> 0:12:35.640
<v Speaker 4>challenges in the enterprise software tech space that have been

0:12:35.679 --> 0:12:39.400
<v Speaker 4>a big, big area of private credit. And I think

0:12:39.440 --> 0:12:41.880
<v Speaker 4>there will be those who are not involved will say, Aha,

0:12:42.360 --> 0:12:44.080
<v Speaker 4>there was a problem, it's a hoax.

0:12:44.600 --> 0:12:45.400
<v Speaker 3>That's not the case.

0:12:45.559 --> 0:12:48.920
<v Speaker 4>It was just bad companies overlevered that didn't grow out

0:12:48.920 --> 0:12:51.120
<v Speaker 4>of their balance sheet, and that happens every day in

0:12:51.120 --> 0:12:54.400
<v Speaker 4>the equity market in other markets. But you know, again,

0:12:54.840 --> 0:12:59.040
<v Speaker 4>as much as we are a player in the insurance

0:12:59.080 --> 0:13:02.000
<v Speaker 4>balance sheets on sale yield. We also do play in

0:13:02.440 --> 0:13:05.840
<v Speaker 4>that risk your end, and I don't see a massive

0:13:05.840 --> 0:13:10.520
<v Speaker 4>credit cycle happening in twenty five. Certainly we've taken care

0:13:10.559 --> 0:13:13.600
<v Speaker 4>of a lot of the refinancing risks. That refinancing cliff

0:13:13.640 --> 0:13:15.760
<v Speaker 4>that was pretty large in twenty six and twenty seven.

0:13:16.080 --> 0:13:18.160
<v Speaker 3>It's been pushed out, but.

0:13:18.240 --> 0:13:21.400
<v Speaker 4>We're not seeing although the risk premiums have raised have

0:13:21.440 --> 0:13:24.760
<v Speaker 4>been raised. And I will tell you there's a very

0:13:24.880 --> 0:13:28.440
<v Speaker 4>large US based retailer based here in New York that

0:13:29.400 --> 0:13:34.080
<v Speaker 4>has undergone a transformational merger. They had a private credit

0:13:34.120 --> 0:13:36.800
<v Speaker 4>solution in front of them, which we were quite involved with.

0:13:37.240 --> 0:13:39.800
<v Speaker 4>They decided to go to the public markets and issue

0:13:39.840 --> 0:13:43.440
<v Speaker 4>a public bond in this safe public markets, and that

0:13:43.520 --> 0:13:47.880
<v Speaker 4>bond today within six months is trading below fifty. So again,

0:13:48.040 --> 0:13:50.880
<v Speaker 4>I think there's a lot of noise about risk and

0:13:50.920 --> 0:13:54.320
<v Speaker 4>reward and various asset classes, but that's our view of

0:13:54.320 --> 0:13:54.960
<v Speaker 4>private credit.

0:13:55.160 --> 0:13:58.800
<v Speaker 2>Just quickly, how much could hire long term US yields

0:13:59.080 --> 0:14:00.839
<v Speaker 2>spur that credit cycle.

0:14:00.880 --> 0:14:03.280
<v Speaker 5>I won't call it a bubble, because we could talk

0:14:03.280 --> 0:14:05.800
<v Speaker 5>about what a bubble is or what we could see

0:14:05.840 --> 0:14:09.200
<v Speaker 5>with some sort of just negative price action, But do

0:14:09.240 --> 0:14:11.160
<v Speaker 5>you see that as being a catalyst.

0:14:11.640 --> 0:14:16.000
<v Speaker 4>Well, I think that the overall listen were having higher

0:14:16.120 --> 0:14:19.320
<v Speaker 4>real rates are good for long term investors to a

0:14:19.320 --> 0:14:22.720
<v Speaker 4>certain degree. They're good for a certain degree until we

0:14:22.800 --> 0:14:26.400
<v Speaker 4>lose confidence in the actual underlying market. Again, the US

0:14:26.440 --> 0:14:29.600
<v Speaker 4>treasure market deepest, most liquid in the world. Rates of

0:14:29.680 --> 0:14:31.800
<v Speaker 4>four and a half and five percent with real rates

0:14:31.880 --> 0:14:34.320
<v Speaker 4>right now pretty strong on a relative basis over the

0:14:34.400 --> 0:14:37.360
<v Speaker 4>last twenty five years, but I'm not seeing that in

0:14:37.400 --> 0:14:38.520
<v Speaker 4>the current zip code.

0:14:38.720 --> 0:14:40.800
<v Speaker 1>Just to wrap it up, biggest opportunity right now for

0:14:40.840 --> 0:14:42.560
<v Speaker 1>you in the team, what do you think it is?

0:14:43.040 --> 0:14:44.360
<v Speaker 3>Well, I think it's a few places.

0:14:44.600 --> 0:14:48.440
<v Speaker 4>I do think the volatility that has taken most people

0:14:48.480 --> 0:14:51.280
<v Speaker 4>on the sidelines and a bit of a paralysis just

0:14:51.440 --> 0:14:53.920
<v Speaker 4>operating day in and day out on the business that

0:14:53.960 --> 0:14:55.840
<v Speaker 4>we do. Right now, we have eight hundred and fifty

0:14:55.880 --> 0:14:59.360
<v Speaker 4>billion the capital doing a lot of refinancing with PE

0:14:59.400 --> 0:15:02.680
<v Speaker 4>firms as well, two thousand PE situations where they've owned

0:15:02.680 --> 0:15:06.040
<v Speaker 4>companies more than five years. A lot of refinancing there.

0:15:06.560 --> 0:15:09.280
<v Speaker 4>This is the global industrial renaissance is alive and well

0:15:09.320 --> 0:15:12.520
<v Speaker 4>in the US. With the delay in deploying the Chips Act,

0:15:12.560 --> 0:15:15.440
<v Speaker 4>a lot of financing on shore of chip manufacturing and

0:15:15.520 --> 0:15:19.000
<v Speaker 4>other assets. I've been traveling around the globe quite a bit.

0:15:19.800 --> 0:15:24.320
<v Speaker 4>You know, Japan is still quite interesting from a insurance perspective,

0:15:24.400 --> 0:15:27.960
<v Speaker 4>from a global wealth perspective, and a Pe perspective. And

0:15:28.560 --> 0:15:31.280
<v Speaker 4>we cannot forget about Europe. I mean Europe really is

0:15:31.320 --> 0:15:33.960
<v Speaker 4>what's going on there. It's a once in a generation.

0:15:34.480 --> 0:15:37.000
<v Speaker 4>I do believe that there's a variety. When you look

0:15:37.040 --> 0:15:40.080
<v Speaker 4>at a thirty trillion economy in the US twenty four

0:15:40.120 --> 0:15:43.080
<v Speaker 4>trillion in Europe, there's a massive amount of financing to occur.

0:15:43.240 --> 0:15:45.000
<v Speaker 1>You've been traveling too much. It's going to have you back.

0:15:45.080 --> 0:15:45.600
<v Speaker 3>Good to be back.

0:15:45.640 --> 0:15:48.760
<v Speaker 1>Welcome back to New York. Jym's outer of Apollo Global Management, Jim,

0:15:48.800 --> 0:15:49.200
<v Speaker 1>Thank you, sir,