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