Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Joining us now for the next thirty minutes or so,
Speaker 2: the perfect guest. Jim's out, the president of Apollo Global Management. Jim,
Speaker 2: it's good to see you.
Speaker 3: Good morning, Good morning as always.
Speaker 2: Congratulations on the new time talk because someone's focused to
Speaker 2: you for a number of months.
Speaker 3: Thank you. It's been a long journey and I appreciate
Speaker 3: the note.
Speaker 2: Well, let's get straight into it. You've called it macro paralysis.
Speaker 2: What is it now?
Speaker 3: Well, it is. I mean I sit here this morning
Speaker 3: and this really can't be a surprise. The reality of
Speaker 3: the surprise is a little bit more painful for everybody
Speaker 3: to digest. But this administration was very clear during the
Speaker 3: campaign what their objective was. They really wanted to revitalize
Speaker 3: American industry. They wanted to bring back manufacturing, focus on energy,
Speaker 3: focus on industrial renaissance, and tariffs, as Amrita said, tariff's
Speaker 3: taxes and deregulation with a three legged stool. And right
Speaker 3: now the focus is on tariffs. They have been probably
Speaker 3: signaling I know you have Secretary Lutnik on later on
Speaker 3: this morning, but they've been signaling this was the dialogue.
Speaker 3: This is obviously a long negotiation, but again, this was
Speaker 3: part of the administration's agenda. This is what they wanted
Speaker 3: to accomplish. They've been very clear in the communication. So
Speaker 3: the pain of the announcement is being felt this morning
Speaker 3: in the market. But again I'm not saying preaching patients
Speaker 3: and perspective, but certainly this should not be a surprise.
Speaker 3: And I think now as we think about the big
Speaker 3: trends in the last twenty thirty years, the first of
Speaker 3: which is globalization. Globalization is not going to be like
Speaker 3: we have seen it in the past. It's a new
Speaker 3: global world order. How the US manufacturing and financial base
Speaker 3: fits into that as a TBD, but certainly it's going
Speaker 3: to be one that plays out over the next several months.
Speaker 2: I can't think of many people outside of you and
Speaker 2: the team, more down into the c suite and corporate America.
Speaker 2: How are they planning for the changes in the global
Speaker 2: economy that you and the team are anticipating A plans
Speaker 2: going ahead? Do they on hold? Are they totally derailed?
Speaker 3: Yeah? Listen, I've used that's the term macro paralysis, because
Speaker 3: I think we came into the year the busiest folks
Speaker 3: on Wall Street were supposed to be the M and
Speaker 3: A bankers and the ECM folks, and that has not
Speaker 3: taken place, and so the pace of broad activity in
Speaker 3: the public markets has certainly been muted. And I think
Speaker 3: this really plays into and I've been on the show
Speaker 3: before talking about the role of public markets and the
Speaker 3: role of private markets, and not just private credit, but
Speaker 3: overall private markets, and you're going to see this will
Speaker 3: be a turning point where private markets play a larger
Speaker 3: role for a lot of these corporates that are still
Speaker 3: they have long term plans, whether it's what's going on
Speaker 3: in technology, energy mining, a lot of US domestics. Who's
Speaker 3: going to finance this reshoring? That's part of the master plan?
Speaker 3: So no doubt, I think in c suites and in
Speaker 3: boardrooms there's vision, there's a desire, but the practical reality
Speaker 3: is things have come to a stop. And I know
Speaker 3: you're going to have Torston on later on today the
Speaker 3: soft data. When you see what's going on on with consumers,
Speaker 3: consumer concern, corporate concern, it's really certainly it's amazing what
Speaker 3: the President has been able to do in seventy five days,
Speaker 3: what four hundred basis points didn't do over two or
Speaker 3: three years. As I said here, a couple of years ago,
Speaker 3: we talked about the tightening of financial conditions. It didn't happen.
Speaker 3: The US consumer led in a massive rally and a
Speaker 3: strength in the US economy in seventy five days. Talk
Speaker 3: of today has really slowed down the economy. So the
Speaker 3: soft data and anecdotes would tell you that we have
Speaker 3: the recession went from a one to five to one
Speaker 3: in three. That now, depending on who you talk to,
Speaker 3: it's north of fifty percent. It's probably fifty percent going
Speaker 3: higher depending on what happens on the ninth.
Speaker 1: There's a lot to unpack there. I want to go
Speaker 1: back to something that you said that this shouldn't have
Speaker 1: been a surprise to anyone, and maybe the objective shouldn't
Speaker 1: have been a surprise, but the execution is raising some
Speaker 1: questions for people about how it is going to be through.
Speaker 1: Is there anything about what you have seen over the
Speaker 1: past week that makes you materially change some of your
Speaker 1: strategy about how you go forward, how you advise the
Speaker 1: c suite.
Speaker 3: Sure, well, let's just go through two or three things
Speaker 3: about investing today, and a lot depends on the portfolio
Speaker 3: or the liabilities you manage. If you run a domestic
Speaker 3: US long short fund, this is obviously much more fundamental.
Speaker 3: We're a long term, long duration investor with a lot
Speaker 3: of investment great assets. So when you look around the
Speaker 3: globe right now, is anything cheap not really. Our rates
Speaker 3: probably going to be notwithstanding the rate move in the
Speaker 3: last twenty four hours, Are rates going to be materially
Speaker 3: higher over the next few years And they have been
Speaker 3: because of deglobalization probably, And then you have to weigh
Speaker 3: the geopolitics. So certainly your risk parameters and how you
Speaker 3: want to calibrate risk has certainly gone up the last
Speaker 3: several months, and the idea of the hurdle of an
Speaker 3: equity return has certainly gone up the last several months.
Speaker 3: And with base rates high and getting a coupon, it's
Speaker 3: all about your calibration of risks. So certainly this has
Speaker 3: taken a situation where in terms of what you can
Speaker 3: get in base rates, in terms of bonds, in terms
Speaker 3: of fixed income, in terms of fixed income replacement, it
Speaker 3: certainly made the equity risk premium a lot higher. And
Speaker 3: certainly for us we are in the private equity business,
Speaker 3: where we are in the equity business, and for us
Speaker 3: as risk premiums Arisen. It's a really high heartle for
Speaker 3: equity these days, which.
Speaker 1: Raises a question, especially if Apollo has really seen the
Speaker 1: debt portion of your business grow and exceed what you
Speaker 1: see in the equity, is that only set to expand,
Speaker 1: especially if rates are going to remain structurally higher in
Speaker 1: this new regime.
Speaker 3: There's a reason why we positioned our business the way
Speaker 3: we have over the last five to seven years, not
Speaker 3: suspecting a day like this would occur. But the reality
Speaker 3: is around the globe you have millions and millions of
Speaker 3: folks that are ill prepared, unfortunately for their retirement their pension.
Speaker 3: I was in Asia and Australia last week. Even as
Speaker 3: well as the superannuation funds have done for Australia, they
Speaker 3: do not really have a system on post accumulation and
Speaker 3: post retirements. And so around the globe and even in
Speaker 3: this country, eleven thousand people a day are becoming sixty
Speaker 3: or turning sixty five. We're ill prepared for the pension
Speaker 3: system of tomorrow in terms of the needs. And that's
Speaker 3: why listen what's being written recently about public about private markets,
Speaker 3: certainly in Larry Fink's letter, it's a tune that we've
Speaker 3: been talking about the last several years about changing market structure,
Speaker 3: the role of private markets with retirement systems financing. What
Speaker 3: this administration is putting forth. We think we're primed to
Speaker 3: be a position of First and Maine in what's going
Speaker 3: on right now, but certainly a wake up call for
Speaker 3: retirees around the globe.
Speaker 2: Jim, let's talk about Europe. There's been a major sentiment
Speaker 2: shift towards the European side of financial markets and a
Speaker 2: pullback from the United States. For a long time, we
Speaker 2: talked about so called US exceptionalism, and one big feature
Speaker 2: of that, maybe even the secret source Jeff Bezos himself
Speaker 2: said it is risk seeking capital, abundant markets, really really
Speaker 2: deep markets, tons of liquidity. Is any of that under threat?
Speaker 3: Well, I think that what you're seeing is maybe not
Speaker 3: the US going down, but also parts of our globe
Speaker 3: coming up. I mean the Drogy letter that was put
Speaker 3: out last September that everybody had in the file. They've
Speaker 3: quickly pulled it out the last three or four weeks
Speaker 3: because certainly this administration has woken woken Europe up, and
Speaker 3: as they wake up, they're saying, how do we create
Speaker 3: an economic environment where capital can grow, capital being created
Speaker 3: for growth companies. Think about a securitization market. You've got
Speaker 3: a twenty three trillion economy with a nascent securitization market.
Speaker 3: And I think this administration has woken up Europe in
Speaker 3: terms of thinking about how they actually fund, finance and
Speaker 3: grow in this industrial renaissance that's going around the globe
Speaker 3: right now. So it's certainly been a massive wake up call,
Speaker 3: and I think again you're going to see private market
Speaker 3: solutions or many of these countries, companies and industries, not
Speaker 3: only in the US but in Western Europe as they
Speaker 3: rise to the challenge.
Speaker 1: One discussion point has been that US exceptionalism is predicated
Speaker 1: both on the AI trade as well as fiscal stimulus
Speaker 1: that's going into reverse a bit maybe at the same
Speaker 1: time that the fiscal expansion is going on in places
Speaker 1: like Europe, in places like China. How much do you
Speaker 1: see that continuing in terms of market performance and something
Speaker 1: that you're willing to follow.
Speaker 3: Well, what you're really addressing is mostly on the equity performance,
Speaker 3: in the public equity performance where public equity dollars go.
Speaker 3: Certainly there's been a massive amount of global investment in
Speaker 3: the US equity markets in the S and P, and
Speaker 3: that's going to be muted as there's a global pullback
Speaker 3: as investors think about other parts of the globe right now.
Speaker 3: But the bigger question, which you're really getting at, is
Speaker 3: if a recession coming into If I was here six
Speaker 3: months ago, we would have said a recession in twenty
Speaker 3: five twenty six was one in five, and now that's
Speaker 3: certainly one and two, if not higher. What's going on
Speaker 3: over the next several weeks. The other scenario is the
Speaker 3: stagflation scenario that went from a one in six one
Speaker 3: and seven to probably one in five right now one
Speaker 3: in four, And that's the concern that's got to be
Speaker 3: the concern of policy makers in the US but also
Speaker 3: around the globe.
Speaker 1: Just building on that, before it sounded like you didn't
Speaker 1: think the FED could cut rates.
Speaker 2: You said that this is going to be.
Speaker 1: A permanently higher rate environment, and that happens with both
Speaker 1: the US as well as Europe. Why you think that
Speaker 1: they're destined to allow that kind of scenario.
Speaker 3: No, but I think they have a When you look
Speaker 3: at the balance of the dual mandate right now, it's
Speaker 3: certainly much more challenging. Certainly the White House is going
Speaker 3: to want to see them cut rates. But and certainly
Speaker 3: some of the economic data in terms of slower growth,
Speaker 3: would portray that to be the next move. I think
Speaker 3: the Fed is going to have to practice much more
Speaker 3: patience in here, Lisa.
Speaker 2: This is the number one question in financial markets right now.
Speaker 2: Is that Fed put constraint because of higher inflation further
Speaker 2: down the road?
Speaker 1: Right now, the market is betting that, No, it is not,
Speaker 1: because what you are seeing is more than three rate cuts,
Speaker 1: almost four rate cuts being priced into the market by
Speaker 1: year end, with some like City saying that they're going
Speaker 1: to accelerate them, and others like Morgan Stanley taking away
Speaker 1: their call key question at a time we're coming off
Speaker 1: a real inflationary bomp.
Speaker 3: Jim.
Speaker 2: We caught up with a Treasury secretary yesterday in the
Speaker 2: immediate aftermath of the announcement from the President, and he
Speaker 2: was asked by a Marie about the equity market selloff
Speaker 2: since February, the highst of the year, and he pointed
Speaker 2: to the nastack and said, it seems like a Max
Speaker 2: seven problem and not a MAGA problem. Now you can
Speaker 2: push back against that, pour some cold water over it,
Speaker 2: but he has kind of got a point. There's something
Speaker 2: else going on here outside of just trade.
Speaker 3: Well that goes back to my point earlier, like you
Speaker 3: know when you look around, like what as an investor
Speaker 3: right now, are things cheap? No, they've gone down in price,
Speaker 3: But don't confuse a price move with something being cheap.
Speaker 3: And it was a marketplace that the mag seven took
Speaker 3: the market up, and now the mag seven is taken
Speaker 3: the market down. But again, this is a very very
Speaker 3: complex economy. And again this is the big theme that
Speaker 3: we've been talking for years. And I know we're talking
Speaker 3: about financial markets in the equity market, but these public
Speaker 3: markets only reflect a very very small portion of the
Speaker 3: US economy. Yes, these are great growth companies or global companies,
Speaker 3: but so much of the US economy, so much of
Speaker 3: the European economy is private companies. And how do they
Speaker 3: navigate this? And that's what gives us a great deal
Speaker 3: of enthusiasm because what's going on for investors in private
Speaker 3: markets but also for companies needing capital. There's a lot
Speaker 3: more tools in the toolbox than there was a decade ago.
Speaker 2: Can we just finish that on data centers which has
Speaker 2: been a major thing. Sure, not just in public markets.
Speaker 2: There have been some warnings about over capacity in the
Speaker 2: last few weeks. How are you even the team navigates
Speaker 2: in that.
Speaker 3: We've certainly taken on much more as a debt provider
Speaker 3: to date. Certainly those who have been around for a
Speaker 3: few decades, you feel like you're seeing a bit of
Speaker 3: the conversation about dark fiber from ninety eight to ninety
Speaker 3: nine and two thousand and one, two thousand and two.
Speaker 3: Build it and they will come. Certainly, there are economics
Speaker 3: that still need to be developed in terms of the
Speaker 3: economic model of the data center business. A lot of
Speaker 3: capital has been created upfront to purchase the land, secure
Speaker 3: the power, create the facility, but who's the long term
Speaker 3: off take of that? Who's the long term capital? And
Speaker 3: again this goes back to the conversation I had earlier
Speaker 3: about the pension deficit issue. There's a tremendous amount of
Speaker 3: long term capital that wants to be matched up with
Speaker 3: that opportunity set. But to date we've been much more
Speaker 3: of a debt provider. But I certainly think that questions
Speaker 3: that were raised last week by Joe Sai pretty legitimate
Speaker 3: questions about the long term economics and the short term
Speaker 3: supply demand mismatch about how these things come online and
Speaker 3: what the economics are.
Speaker 1: Jim.
Speaker 2: We could talk to you well, Monik, and I've got
Speaker 2: a job to do, though we appreciate your time.
Speaker 3: Always a driver, BUYE.
Speaker 2: Thank you, Jim. Jim's out to there, the president of
Speaker 2: Apollo Global Management,