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So, Pollo Global Management just posted third quarter roundings that surpassed Wall Street estimates, as the firm edges closer to reaching one trillion dollars of assets. The Apollo president Jim Seutzer, joined us Now for more. Jim, good morning, Good morning.
I was good to be here.
Congratulations. We choked when you walked in. What happens when you hit a trillion? Does Mark run around popping champagne? Has this work? Well?
Listen, as we said yesterday, we've said before, assets under management are just a great vote of confidence for great performance and if you deliver for investors over time. We find ourselves that the flywheel of our business is really in place. Whether it was capital formation, whether it was origination, we just find that our business model is really hitting the mark right now and accelerating, and we're very happy with the quarter, but feel very good about the trajectory of the business.
In runt of us, there's a phrase that you in the tain use, we are what we originate? Can we talk about that a little bit more sure to scale? Can you just flesh that out? How things attract into the moment?
Well, they're tracking very well. But I think you know, if you go back to our investor to day six years ago, in a year ago, we really put a pin in the key attribute of success in our business. As we see the financing markets evolve, when we see the evolution of banking system, when they see the evolution of private capital. You know, many in our industry, and we're guilty of it quite a bit. In fact, your first question, we're guilty of it. It's all about AUM.
It's not about AUM. It's about your ability to really generate very strong, proprietary, scalable origination across the spectrum, whether it's investment grade, private credit, or private equity transactions and everything in between. And we have taken that to heart. We have invested a tremendous amount of money in terms
of our origination platforms. And I think that's what when investors come to us today on the institutional side, when sovereign funds come to us to partner, when insurance companies come to partner, Yes, it's because of our investor returns, but it's because of our origination. And I just think that's the bigger story here. People want to talk about this company, that company first brand's tricolor. You know, it's
been sixteen years since the Great GFC. The real story is the evolution of modern finance and the role that we all play. And so I think that's the thread and the theme that investors are really engaging in today. I got back from nine countries in two and a half weeks, which I'm happy to talk about. And the impact around the globe of this model evolving is really the story.
We'll spend some time on that. Just for the record, you brought up first Brand and Strike Color before we did. We'll get to that in just a moment too. You want to talk about origination, let's talk about it that you originated. You talked about this a bit yesterday. What was the average rating and are you able to maintain excess spread as you scale up?
Yeah. So if you look at our we think about the world investment grade and non investment grade, not private and public. And when you think about the spreads that we garnered in terms of our non in our investment grade business, you know, it's in the mid three hundreds. And we've been able to really create that spread over the last twenty four months with a little degradation of
fifteen to twenty basis points a year over year. On the non investment grade side, it's in the mid four hundreds, and again we've been able to generate that spread over the last twenty four months. And again it's not just the direct private lending, but it's all the things you do to a sponsor. So our origination put foot print is about eighty percent investment grade twenty percent non investment grade. But really it's the change of the model in the
last twenty thirty years. As a credit investor or fixed income investor, you were an agent in the market. Whatever the origination machine wanted to deliver you. It was only price that you actually had to negotiate, and so you were an agent. Was really not a lot of the
ability to really conduct and have the outcome. In our model where we're the origination principle, where we actually have an m pact, it allows you really to have a much greater degree of control of documentation and return and yield, and that's going to suit us well over time. So it's this principal agent issue, and we find ourselves really in the leading pack of the origination principal model versus the old model of an agent or vendor model.
And Jim, what this does is it allows you to look at a lot of documents, It allows you to look at a lot of companies. It allows you to see a broad swath of the economy to understand exactly where the pitfalls may be. Do you find some of these arguments about cockroaches and in growing weakness in the economy credible or are you just not seeing it in what you're viewing even among the things that you're rejecting.
You're fifteen sixteen years in a credit cycle right now. In terms of the expansion since the GFC, You're going to find issues and challenges in the last five to seven years. You've had companies like SVB and First Republic Bank, and so yes, these are clearly idiosyncratic. We're seeing a much larger theme of a strong economy towards some talk
about yesterday in terms of a K shape economy. We're seeing an administration it's very pro business, antira, not very regulatory friendly, want to push rates lower, and so all of those things where you will see challenges in certain companies late in a cycle. But we are not seeing any kind of credit cycle on the horizon. That's waning anytime soon. We are not seeing it.
Are you seeing a scary allocation of resources? And I say this given the fact that it has been very top heavy to AI related endeavors. Deutsche Bank this morning a story in the Financial Times looking for ways to hedge against some of their data center loans because they're worried about the overall concentration the risks that you're seeing overnight. Are you staying away from that?
Well? I think what you're talking about is whenever you see a massive impulse infusion of capital into a sector dark fiber E and p shale in the US software enterprises and now AI in the brought ecosystem, you have to think about debt and equity returns on invested capital.
And there's been a tremendous rise in valuations on the debt side on the equity side in the last twenty four months, and certainly the assumptions that you're making on the debt side as an investor and a lender to those companies, you're taking more residual risks than you did six, twelve, eighteen months ago. So valuations are high. You have to be a bit more cautious. You want to be a lot more senior. You want to be secured, and so I think there's going to be a dispersion between returns
between the investment grade and non investment grade market. But that's just late cycle behavior. And when you look around the globe, as we talked about yesterday, their valuations are high, geopolitical risks are a bit greater, and we don't see rates dramatically lower in the next twenty four months. So that tells us take the risk down on subordinated credit, lean into senior investment grade opportunities.
Jim, We've seen these capex cycles throughout economic history. You've lift a few of them for a long career as well, But there's something different about this one. Versed in this in a way that I'm not Some of these assets depreciate rapidly for you and the team. Does that change how you put together some of these deals that you make it does?
I mean? I think you're raising a really interesting point. Are we thinking is the right way to think about a data center? Utility lines and electrical lines? Seventy eighty ninety years ago, when day one, all you were doing is wiring the house for lights, and then you wired the house for a dishwasher, a TV, and everything else that goes with it, And how do you think about that technology and what really is the advantage of that data center in five, ten, fifteen years with the power supply.
I differentiate that with how you might finance a portfolio of chips GPUs that rapidly depreciate over three to five years. And they might still all they might both be in technology, but how you fund and structure both of those is very,
very different. And I think that's the subtlety behind behind the headlines, which is going to differentiate the winners and losers, Because in every industry, even the last twenty years that I just mentioned, those are all sectors that drew in a tremendous amount of capital and you really don't know who the winner is from the debt and equity side for a few years. And so certainly with valuations as high as they are in this cycle right now, you have to take a step back and pause and say, Okay,
do I want to be a lender? Do I want to be an equity owner? What's the residual value assumptions that I'm making. That's really what will differentiate the winners and losers.
I'm not sure how many people have taken a step back, Lisa. At the moment right.
Now, it seems like absolutely nobody. Those debt offerings are absolutely flooding, and frankly, there is a real question about whether there's behavior that potentially isn't as prudent as what you're doing, that could potentially post some sort of risk to the rest of the market.
Well, if you think about the meg seven, in the last five to seven years, they have been a very very small participant of the IG new issue market. In the last two months, there's been a handful of these companies that have been issued very very large benchmark transact And again that's not a zip code we play in day in and day out. But you have to wonder as a CFO, are they being very strategic about accessing that financing and what's the long term return of those opportunities.
Jim, you're going to stick with us, I'm sure. Say we've got a lot to talk about. Jim's out to that of Apollo