Speaker 1: Bloomberg Audio Studios, podcasts, radio news A.
Speaker 2: Polo Global Management president Jim Zeltzer is highlighting a pressure
Speaker 2: point on the horizon. He writes the following, if Alphabet
Speaker 2: can't self fund AI Capex, think about the smaller players,
Speaker 2: June is shaping up to be a real stress test
Speaker 2: for the investment grade market. Jim joins us now from
Speaker 2: More Jim, good morning, can see you.
Speaker 3: Good morning. Always fun to be here.
Speaker 2: Think about the paper that we've been moving. We have
Speaker 2: priced almost a trillion dollars, a trillion dollars plus of
Speaker 2: investment grade credit in almost record time so far. The
Speaker 2: share we're talking about, mega IPOs on the horizon, Alphabet,
Speaker 2: Alphabet issuing numbers that are so difficult to internalize, an
Speaker 2: eighty five billion dollar capital race. Is the demand out
Speaker 2: there to meet the supply.
Speaker 3: I think it just shows the breadth of these global markets.
Speaker 3: And I think if I've come here in the last
Speaker 3: couple of years and I've used a term, it's always
Speaker 3: and not or, it's the IG market and the private
Speaker 3: credit market and the equity market. I think that theme
Speaker 3: just really continues. I mean, certainly what Alphabet executed this year,
Speaker 3: this past week in the scale, the scope. I suspect
Speaker 3: it won't be the first big mandatory convert that gets done.
Speaker 3: I'm sure many other companies in that sector are now
Speaker 3: looking at these securities. The ability for an investor to
Speaker 3: clip a nice coupon and have a debt exposure to
Speaker 3: these companies, I think that's a new market. But you know,
Speaker 3: I think also I would also ask you to take
Speaker 3: on our step back, so it's not only the scale
Speaker 3: of these I mean, last fifteen twenty years, the annual
Speaker 3: equity issues between IPOs and equity capital markets activity has
Speaker 3: been plus or minus two hundred billion a year. That's
Speaker 3: the number last twenty years. You take the year of
Speaker 3: twenty one out of spas you know with open Ai,
Speaker 3: Anthropic and SpaceX, those three companies will eclipse that number.
Speaker 3: And I think there's commentary about out what it means
Speaker 3: to take a company public today. I mean, the scale
Speaker 3: that you need to achieve to be relevant is much
Speaker 3: much higher than it ever was before. That impacts a
Speaker 3: lot of smaller enterprises that are five to ten billion.
Speaker 3: I also think as much as we're talking in the
Speaker 3: last four to six weeks about the AI cap ex boom,
Speaker 3: which is phenomenal and unprecedented. I think we're forgetting that
Speaker 3: there's a lot of other industries. There's a defense industry,
Speaker 3: there's the utility industry, There's going to be a number
Speaker 3: of other industries. So I think it's broader. But these
Speaker 3: numbers are unprecedented. But it just shows you the scale
Speaker 3: of the marketplace.
Speaker 2: You'll get into the heart of a potential issue, though,
Speaker 2: is the space for everyone, how much crown and gap
Speaker 2: will they be well.
Speaker 3: I do think we've been consistent. Torson has been consistent
Speaker 3: about the impact on longer tenor rates for governments around
Speaker 3: the globe. I think that is a very real issue.
Speaker 3: I've been consistent here coming here in January and February April,
Speaker 3: their rates were not going down in the short term.
Speaker 3: I do think, you know, we've always talked about fifteen
Speaker 3: twenty years ago, the crowding out effective government debt. I
Speaker 3: think you're seeing a potentially long term crowding out of
Speaker 3: this massive long duration capex boom around the globe and
Speaker 3: the impact on government debt yields around the globe. So
Speaker 3: I think there is some dynamics that But as I
Speaker 3: said a few weeks ago this year, the IG market
Speaker 3: will have net issuance higher than the treasury market in
Speaker 3: the US. I mean, we got to put these numbers
Speaker 3: in perspective. The mag seven capex this year will be
Speaker 3: larger than the Defense Department spending. I mean, these are
Speaker 3: phenomenal numbers. And again, I just think it's broader. I
Speaker 3: think there is no doubt that there is there is
Speaker 3: health and breadth in the market. But I think some
Speaker 3: pullbacks once in a while and some good questions that
Speaker 3: get answered. You know, these numbers are on precedent, and
Speaker 3: these companies will have to make the aren't on capital
Speaker 3: to justify the cabex.
Speaker 1: How are you at Apollo trying to protect yourself against
Speaker 1: the increasing risk as these numbers get bigger and bigger
Speaker 1: and as expectations get higher.
Speaker 3: Well, it all goes down to what your liability is.
Speaker 3: For us, because we have our third party business as
Speaker 3: well as our regulated balance sheet, We're trying to find
Speaker 3: yours where we can fund the picks and shovels the
Speaker 3: AI infrastructure, not just the AI capex to the equity.
Speaker 3: There's a difference. You know. We've been rumored to be
Speaker 3: involved in a variety of chip financings and those financings
Speaker 3: allow you to get in the middle of a variety
Speaker 3: of investment grade companies that want to fund the purchase
Speaker 3: of the chips for a variety of these companies, and
Speaker 3: you can do it in a structure that basically lets
Speaker 3: you amortize that risk over three, five, seven years. So
Speaker 3: you either are taking if you take residual risk, you've
Speaker 3: taken your basis down to zero. So I think there's
Speaker 3: ways to do that. I'm not suggesting there's investor who
Speaker 3: are really good at buying the equity of these businesses.
Speaker 3: That's not what we do. But I think the ability
Speaker 3: to fund the infrastructure and really structure at such you're
Speaker 3: not taking residual risk. I think there's an ability to
Speaker 3: do that. Now it comes at a lower rate a
Speaker 3: higher quality counter party. But that's all really structured.
Speaker 2: Well, let's talk about the rumors, so I'll explore them
Speaker 2: in ways that maybe don't put you on the spot
Speaker 2: too much. Let's just say there is a firm that's
Speaker 2: getting together with another firm maybe talking about roughly thirty
Speaker 2: six billion dollars of debt financing to help maybe some
Speaker 2: company like Anthropic pay for some chips from say Google.
Speaker 2: That broad coom House develop Let's just throw that out
Speaker 2: there and just say maybe that's a story that might
Speaker 2: be on the rise and something that happens. Let's get
Speaker 2: into how you structure that. So there's a senior part
Speaker 2: senior trunch, and then you've got a subordinated trunch as well.
Speaker 2: Can you just explain to us how you could use
Speaker 2: an ig balance sheet like broadcomp to support something like that,
Speaker 2: Just how people understand, how you get I.
Speaker 3: Think that what I would want to highlight is in
Speaker 3: every financing there's folks who want to take shorter duration
Speaker 3: risk one two, three years, there's folks who want to
Speaker 3: take longer duration risk three five, seven years. There's either
Speaker 3: senior and then they're subordinated. So between maturity between where
Speaker 3: you fit in that stack, you appeal to different buyers
Speaker 3: in the fixed income universe. The fixed income universe is
Speaker 3: like the equity universe. There's value buyers, there's growth buyers.
Speaker 3: There's growth in the reasonable praise buyers in the equity market.
Speaker 3: In the In the fixed income market, there's folks who
Speaker 3: like short duration risk one year, two year risk i e.
Speaker 3: Sometimes banks. There's longer duration investors who will take more
Speaker 3: of a residual risk, and so you're just appealing to
Speaker 3: different risk tolerance all in the investment grade community. But
Speaker 3: you're doing it just like in the equity market. When
Speaker 3: when Alphabet goes out and raises an equity deal and
Speaker 3: a mandatory convert, you get what they're really doing is
Speaker 3: they're appealing to an income buyer in the equity market
Speaker 3: that might not necessarily be able to buy that equity
Speaker 3: because of the low dividend yield. So again you're just really
Speaker 3: appealing to the beauty of the US is we have
Speaker 3: the most robust, deepest, broadest markets in the world, and
Speaker 3: so you know, a company can do a mandatory convert five, ten, fifteen,
Speaker 3: twenty billion in size, and there's plenty of equity income
Speaker 3: accounts that want to buy that, and you can also
Speaker 3: do a large equity offering and then they follow on
Speaker 3: at the money offering over the next several months, and
Speaker 3: there's breadth and depth very really. Nowhere else in the
Speaker 3: globe has that breadth and depth of the marketplace.
Speaker 1: Breath and depth is certainly here, which is the reason
Speaker 1: why you're seeing these incredible IPOs and debt issuance. The
Speaker 1: scale of money being raised though around the world really
Speaker 1: is mind boggling. It's not just the US, it's Germany,
Speaker 1: it's also over in Asia in a number of places,
Speaker 1: whether it's IPOs, whether it's a corporate debt. Where is
Speaker 1: the money coming from?
Speaker 3: Right?
Speaker 1: I mean, how do you compete for this money? And
Speaker 1: how much higher do you yields have to go? Not
Speaker 1: just in the treasury world, but also on your end
Speaker 1: when you see coupons, don't they have to climb considerably
Speaker 1: just to compete for your capital?
Speaker 3: Well, you know, you know, relatively. Even though rates have
Speaker 3: risen to where they were three to four years ago
Speaker 3: in the US, rates in the US are approximately where
Speaker 3: they've been over the last thirty to forty years. Like
Speaker 3: we're in a more normal rate environment right now. And
Speaker 3: a theme that I've been talking about I've been here
Speaker 3: over the last couple of years is we have an
Speaker 3: amazing broad retirement challenge around the globe. There are many
Speaker 3: investors in the UK and Canada and Australia in the
Speaker 3: West that do not have the right retirement saving structure.
Speaker 3: At the same time, you've got this major global industrial
Speaker 3: cap BAX today it's an AI, It'll be in other
Speaker 3: industries and appropriately matching that duration of demand for assets
Speaker 3: with the duration of the companies needing to borrow money.
Speaker 3: It Actually you'd be surprised that depth and breadth of
Speaker 3: these markets. And so you know, we're active now in
Speaker 3: the UK. In the UK there's a concept called matching adjustment,
Speaker 3: whereas a regulated balance sheet you need to actually have
Speaker 3: long duration and so they funded student housing and a
Speaker 3: lot of other activities. So you know, I do think
Speaker 3: there is a natural point in time right now where
Speaker 3: we do have these retirement pools around the globe that
Speaker 3: are looking to invest long term. And actually, if you
Speaker 3: look at what the treasury market has done, the Treasury
Speaker 3: has really been funding a lot of their financing in
Speaker 3: the short end the last three to five years, really
Speaker 3: one to five year financing. There's a shortage of long
Speaker 3: duration paper out in the globe right now. You've had
Speaker 3: other guests on this show talk about the lack of
Speaker 3: long duration assets against the breadth of long duration liability.
Speaker 3: So I do think that's a broader theme that we
Speaker 3: should talk about. The other thing I would talk about is,
Speaker 3: you know this came up last year. We were talking
Speaker 3: about a lot of the teriff activity, the benefit of
Speaker 3: the breath of this of these capital markets is US
Speaker 3: companies are the beneficiary of lower cost capital and access
Speaker 3: to capital. That's a that's a that's a flywheel of
Speaker 3: economic growth. And again going back, what Alphabet was able
Speaker 3: to do their IPO was you know, one point seven
Speaker 3: billion twenty six years ago or twenty five years ago.
Speaker 3: And it is phenomenal, but it is a it's a
Speaker 3: hidden gem of the US economy. And so when we
Speaker 3: talk about taxing foreign investors, we have to be very
Speaker 3: very careful because this cost of capital, this breadth of capital.
Speaker 3: I think it's no surprise that we've been leading the
Speaker 3: globe in this, in this cappec cycle, because these companies
Speaker 3: do have access.
Speaker 2: It's the sacred source, without a date, no doubt, without
Speaker 2: a doubt. We at the creative stage of financing from
Speaker 2: the outside looking at and people might hear some of
Speaker 2: these stories the conversation we just had in I think
Speaker 2: circle of financing off balance cheet debt. At the creative stage,
Speaker 2: the more dangerous stage, I would suggest.
Speaker 3: You know, I think that you always have to be
Speaker 3: a where of who's taking equity risk at a fixed
Speaker 3: rate of return. I think my forty one years tell me,
Speaker 3: I want to be investing with the leading companies. When
Speaker 3: you think about the world today in terms of winner
Speaker 3: take most concentration in the top three or four companies,
Speaker 3: I think it would lead you to be wanting to
Speaker 3: invest alongside these companies and to do so in a
Speaker 3: manner where you are well structured with downside protection. But
Speaker 3: I think that there will, let me be me very clearly,
Speaker 3: there will be companies that enter this CAPEC cycle, some
Speaker 3: on the investment grade side, some on the non investment
Speaker 3: grade side, that their business models will prove not to
Speaker 3: be as resilient over five ten years. That's the destructive
Speaker 3: aspect of capitalism. And I think you're getting paid for
Speaker 3: it still with a lot of structure. But I do
Speaker 3: think the overall trend is in the right direction.
Speaker 2: So we're not at the prospect the very precipice of
Speaker 2: hitting capital constraints right now.
Speaker 3: I don't think so. I think. I do think it's
Speaker 3: interesting when you think about, you know, why Alphabet did this.
Speaker 3: I mean there is a depth and breadth in the
Speaker 3: IG market. We talked about it earlier, how much they've done.
Speaker 3: What's interesting, though, is I talked about a lot is
Speaker 3: in the equity market. If you're an investor, you don't
Speaker 3: mind or you can absorb the idea of getting very
Speaker 3: concentrated in a name because you can move in and
Speaker 3: out of it very quickly and you're getting paid because
Speaker 3: of the convexity of that equity. In the fixed income market,
Speaker 3: as a IG buyer, bonds don't go to two hundred,
Speaker 3: they can go down dramatically. And being a little facetious there,
Speaker 3: but my point is you need to have breadth of
Speaker 3: distribution and diversification in the fixed income markets. And so
Speaker 3: it's not as if Alphabet or Microsoft or Broadcom doesn't
Speaker 3: have exposure. They're just trying to find a broader universe
Speaker 3: of other buyers that will be able to access and
Speaker 3: provide funding.
Speaker 2: Jim, You're going to stick with U. Jim's out to
Speaker 2: that of Apollo Global Management. So here's the lass this morning,
Speaker 2: the President maintaining a deal could be there, as Tyran says,
Speaker 2: there has been no tangible progress, and Haspala and Israel
Speaker 2: continue to exchange strikes.
Speaker 3: They continue to exchange strikes.
Speaker 4: And a question we have been asking on this program
Speaker 4: is at what point would this administration say, actually drones
Speaker 4: coming at our allies. Ballistic missiles coming at our allies
Speaker 4: and our air bases means that the ceasefire is over.
Speaker 4: I think the most important story is the Wall Street
Speaker 4: Journal overnight saying Trump has told aids privately that when
Speaker 4: he would consider ending the ceasefire is if Iran targets
Speaker 4: American troops directly. So if American troops lives are injured
Speaker 4: in a way or that they're killed, that is when
Speaker 4: maybe he would decide to end the ceasefire. So basically,
Speaker 4: I think this tells Iran they can continue with some
Speaker 4: of these clashes and skirmishes until now until they get
Speaker 4: a deal. The President says, we're going to get a
Speaker 4: deal soon. But the point you've been making continuously is
Speaker 4: how many times still wait in here Since the end
Speaker 4: of February.
Speaker 2: For markets, it hasn't really mattered who remembers this conversation
Speaker 2: from a few months back. Take a listen to this.
Speaker 3: Sometimes there's days we should just go out and take
Speaker 3: a walk around for thirty minutes. You just had a
Speaker 3: quarter with record M and A, literally record M and
Speaker 3: A in the United States and globally we've really lost
Speaker 3: a plot on credit. We're talking about a little bit
Speaker 3: of skirmish on the sidelines here. I suspect if I'm
Speaker 3: sitting here, in three to six months, we'll be talking
Speaker 3: about a much much different backdrop. Here we are.
Speaker 2: A few months later, Jim's out to bank with his Jim,
Speaker 2: congratulations because you were dead on, absolutely right. A few
Speaker 2: months later the markets stopped having this conversation about this issue.
Speaker 3: Well, it was interesting to see with a strong earnings
Speaker 3: season in the last six weeks, you know, and they
Speaker 3: were strong across the board. The big focus was Capex.
Speaker 3: You know who has the bigger Capex budget? Almost it's
Speaker 3: in essent. That's a marketplace where there's more greed driving
Speaker 3: the market than fear, is David Solomon quoted yesterday. So
Speaker 3: that's certainly the backdrop. I mean, certainly, I've been consistent
Speaker 3: having a view that for the next year to two years,
Speaker 3: we think that inflation is a bit more of a concern.
Speaker 3: I don't think it's going to affect the fundamentals of
Speaker 3: the market. I am candidly surprised, and I've been consistent
Speaker 3: that if we were still talking about Iran at this point,
Speaker 3: with the straits being closed and the impact on oil prices,
Speaker 3: that we would see some second and third derivative volatility.
Speaker 3: That so I'm a bit surprised, but you know, momentum
Speaker 3: and emotions can work both ways, and they can change
Speaker 3: pretty quickly. But I do believe this bigger trend is
Speaker 3: upon us, and I think this will be the conversation
Speaker 3: we have for the next couple of years.
Speaker 2: Take a walk. That was the advice at a time,
Speaker 2: and it was good advice too, based on how things
Speaker 2: have turned out. The one thing that really surprised us
Speaker 2: is how much earnings expectations have climbed through this war.
Speaker 2: That was the surprise and clintingly to the market as well, Bromo,
Speaker 2: given the price sanction we've seen.
Speaker 1: Yeah, and when they don't out surprise perform in a
Speaker 1: significant way than they're penalized at will cost. And ultimately,
Speaker 1: this is one thing I'm wondering whether this is keeping
Speaker 1: either Jim Upper or others the labor market. And at
Speaker 1: what point do we start to see the ramifications of
Speaker 1: all of these cuts potentially to pay for AI. And
Speaker 1: we're seeing that some of the Challenger Christmas Challenger reports
Speaker 1: earlier this morning.
Speaker 2: Jim will steight chown we are the return on investment stage.
Speaker 2: Is that still further down the line, and we at
Speaker 2: this point where you have to cut operational expenses to
Speaker 2: support a lot of this funding at a lot of
Speaker 2: this money, I think.
Speaker 3: There's some marginal optimization around hiring right now. I think
Speaker 3: the secular trends that are the big question mark in
Speaker 3: front of a lot of folks. If we're sitting here
Speaker 3: in June of twenty eight, we will have a much
Speaker 3: better insight in terms of really what's the secular impact
Speaker 3: of these this CAPPEC cycle and AI on broad broad
Speaker 3: employment numbers. I think any changes you see over the
Speaker 3: next year or two were you know a percent, you know,
Speaker 3: a quarter of a percent up or down. I don't
Speaker 3: think there are long term secular trends. And I think
Speaker 3: we'll be talking about how does the extent of this
Speaker 3: CAPPEC cycle, the extent of the AI boom, the extent
Speaker 3: of the return of investing capital. That's the conversation I
Speaker 3: think we'll be having. And I think that then at
Speaker 3: that point in time, once you have a sense of
Speaker 3: the employment numbers, are the employment impact, Once you have
Speaker 3: a sense of the returns, then that's going to feed
Speaker 3: into is the inflation going to be curtailed? And turning
Speaker 3: into a deflationary environment. But I think that's eighteen to
Speaker 3: twenty four months out. I think anybody that tells you
Speaker 3: they really have it nailed right now, I would suspect
Speaker 3: that they really have not been doing this for a
Speaker 3: long time. So I think there's a healthy degree of
Speaker 3: humility you have to have by making those huge macro views.
Speaker 1: Does the labor market keep you up at night this transformation?
Speaker 3: I think it does. I think any leader of a
Speaker 3: business today is thinking about how they want to evolve
Speaker 3: their business. Last week, I was at a leadership meeting
Speaker 3: of a bunch of CEOs done in Texas. They were,
Speaker 3: you know, these were not all tech companies, and the
Speaker 3: big questions were, how do I fund my aspirations in
Speaker 3: my industry? That was an industry. That was a conversation
Speaker 3: that they would not have invited the head of Apollo
Speaker 3: to be there twenty four months ago. Okay, we were
Speaker 3: front and center in that conversation. And they're also thinking
Speaker 3: about how they deploy their resources, of which human capital
Speaker 3: is the biggest element, and they want to execute their
Speaker 3: plan today, but they also want to make sure they're
Speaker 3: investing in the future. And I don't think anybody is
Speaker 3: having a massive Yeah, you're seeing sub highlines of companies
Speaker 3: that will make ten or twenty percent, you know, hiring
Speaker 3: cuts across the board. Yeah, I don't think that's that's
Speaker 3: the mainstream.
Speaker 2: Jim So always got to see you, buddy. I thank you.
Speaker 2: Jim's own to there of a public global management A
Speaker 2: good lesson for a soul.
Speaker 3: I took a walk yesterday, good beautiful day in New York.
Speaker 3: Ronal