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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: So, Pollo Global Management just posted third quarter roundings that

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Speaker 2: surpassed Wall Street estimates, as the firm edges closer to

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Speaker 2: reaching one trillion dollars of assets. The Apollo president Jim Seutzer,

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Speaker 2: joined us Now for more. Jim, good morning, Good morning.

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Speaker 3: I was good to be here.

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Speaker 2: Congratulations. We choked when you walked in. What happens when

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Speaker 2: you hit a trillion? Does Mark run around popping champagne?

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Speaker 2: Has this work? Well?

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Speaker 3: Listen, as we said yesterday, we've said before, assets under

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Speaker 3: management are just a great vote of confidence for great

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Speaker 3: performance and if you deliver for investors over time. We

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Speaker 3: find ourselves that the flywheel of our business is really

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Speaker 3: in place. Whether it was capital formation, whether it was origination,

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Speaker 3: we just find that our business model is really hitting

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Speaker 3: the mark right now and accelerating, and we're very happy

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Speaker 3: with the quarter, but feel very good about the trajectory

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Speaker 3: of the business.

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Speaker 2: In runt of us, there's a phrase that you in

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Speaker 2: the tain use, we are what we originate? Can we

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Speaker 2: talk about that a little bit more sure to scale?

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Speaker 2: Can you just flesh that out? How things attract into

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Speaker 2: the moment?

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Speaker 3: Well, they're tracking very well. But I think you know,

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Speaker 3: if you go back to our investor to day six

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Speaker 3: years ago, in a year ago, we really put a

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Speaker 3: pin in the key attribute of success in our business.

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Speaker 3: As we see the financing markets evolve, when we see

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Speaker 3: the evolution of banking system, when they see the evolution

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Speaker 3: of private capital. You know, many in our industry, and

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Speaker 3: we're guilty of it quite a bit. In fact, your

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Speaker 3: first question, we're guilty of it. It's all about AUM.

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Speaker 3: It's not about AUM. It's about your ability to really

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Speaker 3: generate very strong, proprietary, scalable origination across the spectrum, whether

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Speaker 3: it's investment grade, private credit, or private equity transactions and

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Speaker 3: everything in between. And we have taken that to heart.

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Speaker 3: We have invested a tremendous amount of money in terms

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Speaker 3: of our origination platforms. And I think that's what when

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Speaker 3: investors come to us today on the institutional side, when

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Speaker 3: sovereign funds come to us to partner, when insurance companies

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Speaker 3: come to partner, Yes, it's because of our investor returns,

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Speaker 3: but it's because of our origination. And I just think

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Speaker 3: that's the bigger story here. People want to talk about

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Speaker 3: this company, that company first brand's tricolor. You know, it's

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Speaker 3: been sixteen years since the Great GFC. The real story

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Speaker 3: is the evolution of modern finance and the role that

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Speaker 3: we all play. And so I think that's the thread

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Speaker 3: and the theme that investors are really engaging in today. I

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Speaker 3: got back from nine countries in two and a half weeks,

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Speaker 3: which I'm happy to talk about. And the impact around

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Speaker 3: the globe of this model evolving is really the story.

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Speaker 2: We'll spend some time on that. Just for the record,

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Speaker 2: you brought up first Brand and Strike Color before we did.

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Speaker 2: We'll get to that in just a moment too. You

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Speaker 2: want to talk about origination, let's talk about it that

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Speaker 2: you originated. You talked about this a bit yesterday. What

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Speaker 2: was the average rating and are you able to maintain

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Speaker 2: excess spread as you scale up?

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Speaker 3: Yeah. So if you look at our we think about

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Speaker 3: the world investment grade and non investment grade, not private

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Speaker 3: and public. And when you think about the spreads that

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Speaker 3: we garnered in terms of our non in our investment

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Speaker 3: grade business, you know, it's in the mid three hundreds.

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Speaker 3: And we've been able to really create that spread over

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Speaker 3: the last twenty four months with a little degradation of

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Speaker 3: fifteen to twenty basis points a year over year. On

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Speaker 3: the non investment grade side, it's in the mid four hundreds,

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Speaker 3: and again we've been able to generate that spread over

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Speaker 3: the last twenty four months. And again it's not just

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Speaker 3: the direct private lending, but it's all the things you

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Speaker 3: do to a sponsor. So our origination put foot print

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Speaker 3: is about eighty percent investment grade twenty percent non investment grade.

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Speaker 3: But really it's the change of the model in the

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Speaker 3: last twenty thirty years. As a credit investor or fixed

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Speaker 3: income investor, you were an agent in the market. Whatever

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Speaker 3: the origination machine wanted to deliver you. It was only

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Speaker 3: price that you actually had to negotiate, and so you

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Speaker 3: were an agent. Was really not a lot of the

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Speaker 3: ability to really conduct and have the outcome. In our

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Speaker 3: model where we're the origination principle, where we actually have

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Speaker 3: an m pact, it allows you really to have a

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Speaker 3: much greater degree of control of documentation and return and yield,

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Speaker 3: and that's going to suit us well over time. So

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Speaker 3: it's this principal agent issue, and we find ourselves really

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Speaker 3: in the leading pack of the origination principal model versus

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Speaker 3: the old model of an agent or vendor model.

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Speaker 1: And Jim, what this does is it allows you to

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Speaker 1: look at a lot of documents, It allows you to

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Speaker 1: look at a lot of companies. It allows you to

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Speaker 1: see a broad swath of the economy to understand exactly

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Speaker 1: where the pitfalls may be. Do you find some of

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Speaker 1: these arguments about cockroaches and in growing weakness in the

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Speaker 1: economy credible or are you just not seeing it in

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Speaker 1: what you're viewing even among the things that you're rejecting.

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Speaker 3: You're fifteen sixteen years in a credit cycle right now.

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Speaker 3: In terms of the expansion since the GFC, You're going

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Speaker 3: to find issues and challenges in the last five to

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Speaker 3: seven years. You've had companies like SVB and First Republic Bank,

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Speaker 3: and so yes, these are clearly idiosyncratic. We're seeing a

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Speaker 3: much larger theme of a strong economy towards some talk

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Speaker 3: about yesterday in terms of a K shape economy. We're

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Speaker 3: seeing an administration it's very pro business, antira, not very

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Speaker 3: regulatory friendly, want to push rates lower, and so all

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Speaker 3: of those things where you will see challenges in certain

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Speaker 3: companies late in a cycle. But we are not seeing

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Speaker 3: any kind of credit cycle on the horizon. That's waning

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Speaker 3: anytime soon. We are not seeing it.

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Speaker 1: Are you seeing a scary allocation of resources? And I

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Speaker 1: say this given the fact that it has been very

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Speaker 1: top heavy to AI related endeavors. Deutsche Bank this morning

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Speaker 1: a story in the Financial Times looking for ways to

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Speaker 1: hedge against some of their data center loans because they're

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Speaker 1: worried about the overall concentration the risks that you're seeing overnight.

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Speaker 1: Are you staying away from that?

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Speaker 3: Well? I think what you're talking about is whenever you

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Speaker 3: see a massive impulse infusion of capital into a sector

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Speaker 3: dark fiber E and p shale in the US software

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Speaker 3: enterprises and now AI in the brought ecosystem, you have

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Speaker 3: to think about debt and equity returns on invested capital.

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Speaker 3: And there's been a tremendous rise in valuations on the

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Speaker 3: debt side on the equity side in the last twenty

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Speaker 3: four months, and certainly the assumptions that you're making on

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Speaker 3: the debt side as an investor and a lender to

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Speaker 3: those companies, you're taking more residual risks than you did six, twelve,

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Speaker 3: eighteen months ago. So valuations are high. You have to

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Speaker 3: be a bit more cautious. You want to be a

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Speaker 3: lot more senior. You want to be secured, and so

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Speaker 3: I think there's going to be a dispersion between returns

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Speaker 3: between the investment grade and non investment grade market. But

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Speaker 3: that's just late cycle behavior. And when you look around

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Speaker 3: the globe, as we talked about yesterday, their valuations are high,

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Speaker 3: geopolitical risks are a bit greater, and we don't see

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Speaker 3: rates dramatically lower in the next twenty four months. So

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Speaker 3: that tells us take the risk down on subordinated credit,

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Speaker 3: lean into senior investment grade opportunities.

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Speaker 2: Jim, We've seen these capex cycles throughout economic history. You've

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Speaker 2: lift a few of them for a long career as well,

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Speaker 2: But there's something different about this one. Versed in this

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Speaker 2: in a way that I'm not Some of these assets

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Speaker 2: depreciate rapidly for you and the team. Does that change

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Speaker 2: how you put together some of these deals that you

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Speaker 2: make it does?

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Speaker 3: I mean? I think you're raising a really interesting point.

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Speaker 3: Are we thinking is the right way to think about

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Speaker 3: a data center? Utility lines and electrical lines? Seventy eighty

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Speaker 3: ninety years ago, when day one, all you were doing

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Speaker 3: is wiring the house for lights, and then you wired

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Speaker 3: the house for a dishwasher, a TV, and everything else

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Speaker 3: that goes with it, And how do you think about

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Speaker 3: that technology and what really is the advantage of that

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Speaker 3: data center in five, ten, fifteen years with the power supply.

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Speaker 3: I differentiate that with how you might finance a portfolio

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Speaker 3: of chips GPUs that rapidly depreciate over three to five years.

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Speaker 3: And they might still all they might both be in technology,

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Speaker 3: but how you fund and structure both of those is very,

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Speaker 3: very different. And I think that's the subtlety behind behind

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Speaker 3: the headlines, which is going to differentiate the winners and losers,

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Speaker 3: Because in every industry, even the last twenty years that

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Speaker 3: I just mentioned, those are all sectors that drew in

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Speaker 3: a tremendous amount of capital and you really don't know

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Speaker 3: who the winner is from the debt and equity side

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Speaker 3: for a few years. And so certainly with valuations as

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Speaker 3: high as they are in this cycle right now, you

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Speaker 3: have to take a step back and pause and say, Okay,

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Speaker 3: do I want to be a lender? Do I want

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Speaker 3: to be an equity owner? What's the residual value assumptions

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Speaker 3: that I'm making. That's really what will differentiate the winners

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Speaker 3: and losers.

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Speaker 2: I'm not sure how many people have taken a step back, Lisa.

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Speaker 2: At the moment right.

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Speaker 1: Now, it seems like absolutely nobody. Those debt offerings are

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Speaker 1: absolutely flooding, and frankly, there is a real question about

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Speaker 1: whether there's behavior that potentially isn't as prudent as what

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Speaker 1: you're doing, that could potentially post some sort of risk

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Speaker 1: to the rest of the market.

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Speaker 3: Well, if you think about the meg seven, in the

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Speaker 3: last five to seven years, they have been a very

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Speaker 3: very small participant of the IG new issue market. In

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Speaker 3: the last two months, there's been a handful of these

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Speaker 3: companies that have been issued very very large benchmark transact

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Speaker 3: And again that's not a zip code we play in

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Speaker 3: day in and day out. But you have to wonder

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Speaker 3: as a CFO, are they being very strategic about accessing

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Speaker 3: that financing and what's the long term return of those opportunities.

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Speaker 2: Jim, you're going to stick with us, I'm sure. Say

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Speaker 2: we've got a lot to talk about. Jim's out to

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Speaker 2: that of Apollo