Apollo's John Zito on $900B in private credit, financing AI infrastructure, and why OpenAI may go public sooner than expected

experts.

On a special day, you need a special watch. [music]

There's no better place to get it than Bezel. We have John Zita. John, good to meet you.

Are you Are you giving Eric a little pep talk there?

What are you saying?

You know, a couple couple things there.

You guys are friends, right?

Yeah. Yeah. Last time I saw him, he was uh he was like taking all his money. It's a small poker game. He was taking everyone's money. So, I can see that. He's such a nice guy, so he's got to be

Don't fall for the ramp pitch. You

counting everyone's money now.

He's like, I'm saving your I'm s I'm going to save you time and and your money. I'm going to actually take your money.

And I'll be saving it for later for myself.

Their team is amazing because what they're building is pretty incredible.

Tell me about tell me about your team. Tell me about what you've learned from him. What you've told him about managing building a team. What does it take to get a job and work for you?

Yeah. I mean, look, those those uh they don't need any of my advice. They'll come and talk to me about about building a culture. Yeah. Uh but you know what they're doing there and they have a bunch of people around them that are just building incredible business. For us, it's about

it's pretty simple. Find people with purpose. Find people high character. Find people that are, you know, generally good people first and then all the investment.

How do you like to evaluate people for purpose? I mean, for us,

how long do you want to spend with someone before you? Actually,

I mean, some of our best hires are probably the people that I've known for a really long time. I mean, a lot of our hires that we've made in the last,

I don't know,

5, seven years. I knew them for 20. Yeah.

You know, we've been in I've been in credit for 23 years.

Yeah. We So, quickly, can we zoom out and can you uh paint a picture for me of like the actual Apollo structure, the empire? Like, what's going on there?

Maybe share some of the same numbers you shared with our mutual friend Patrick. the best like the best because the velocity that you guys are moving at is is pretty

Patrick's a great guy. Center is a good guy. I know you guys are close to center too.

Center's the best.

Um

yeah, so Apollo uh largest one of the largest alternative credit managers in the world. Largest alternative asset managers in the world.

What's unique about us is half of our 9 o over 900 billion our own our own capital through retirement service.

Through a theme. Yes.

So we're writing we're a market leader in writing guaranteed income. So we'll write a guaranteed, you know, you want us 5% guaranteed income.

Somebody wants to retire someday.

Yeah. You want guaranteed income for the next 10 years at 5%. We'll guarantee you that money and then we'll invest it and we we keep some marginal spread between guaranteeing you the income and that's half our money. And then half our money is is managing third party money on behalf of our historically private equity business which is uh over hund00 billion and then our credit business which is worth of $800 billion. So oh here we go. But but I the guys out there told me I'm the first alternative asset manager leader on your on your show. I don't know if that's true, but you let's let's plenty of people that have uh that have I'm sure raised raised uh uh from Apollo, but uh yeah, this is the first uh yeah m maybe like let's talk about why private credit which people talk about as a monolith. Obviously there's subsections of it but why it's having such a moment right now uh in the context of these sort of like

large scale uh infrastructure projects that are happening uh in AI as well as defense.

Yeah. I mean look so because half our balance sheet is super long duration for retirement it and all these new projects need really longdated capital.

Yeah.

There's only two places you can get capital. You can get money from a bank or you can get money from investors. And the bank capital they're amazing at a lot of things. The capital tends to be more shortdated because it's led by deposits.

Y

so insurance,

we got to experience that with uh SV little duration mismatch.

Yeah. So, so if you want a 15-year project, you want someone who's going to understand your project,

much more of a bespoke solution, work with the company to have more flexibility in that capital structure or in that capital solution.

It's much more logical to be with private capital than it is in public markets. And a lot of the people in your guys universe, it's um historically they had to go public to get access to money. And now everybody's staying private way longer.

Like we've so legacy world, legacy capital was okay, we need new money. We're going to go public and that's how we would do it.

Now everybody in the growth world has gotten a lot more sophisticated.

Yeah.

They're staying private longer. They're raising capital through the private equity, not traditional, but in the private markets world.

And now they're realizing, wait a second, we can do this in our entire capital structure. Wait, what's this credit thing? Oh, we can access private credit access. Okay, we can do a long duration project level finance and it's more optimal for their equity markets. And so they're just like,

okay, so now that all now everybody's accessing this private markets, and because it's growing so quickly, it's in the news a lot because it's, oh, wait, it's growing fast. So it must be risky.

Yeah. So talk about I mean that that prompted the piece from Mark and it was Bloomberg yesterday. The

Yeah. He put out an oped yesterday.

Yeah. Maybe maybe Yeah. Talk as much as you can.

I mean look there's lots of uh everyone has a weird definition of private credit and so they have a hard time everyone has a hard time.

Okay. Private credit's risky and a lot of people think private credit's like the five or$10 million loan to like a tire manufacturer in Queens or something. That's what they think private credit is. We're doing 11 billion loans for Intel.

Yeah. Yeah.

And that's private credit, right? So,

we define it as everything from a mortgage to a commercial real estate loan against a building

to an aviation loan against a new aircraft, like super safe, secured, top of the capital structure, traditionally investment grade. Yep.

So,

but how do you set up your firm to deal with a $10 billion deal with Intel all the way down to some smaller deal? We're f we're the only we're the only firm that's full open architecture. Okay. So, we're one investment business. So,

you know, David Sber who runs private equity, you know, our the guys who lead our hybrid team, the you know, our credit team, all the people are all in the same investment meeting

talking about, okay, what's the best solution for the company? It's not really about let's solve for this small thing for a fund.

Yeah.

Once you start doing that, it's very hard to work with companies.

Yeah. you know, like historically the credit business was, hey, uh, we're going to go to a bank, we're going to issue a bond,

and then we would buy that bond. That was kind of the public credit business.

And most of those people were trying to were typically conservative

and they were trying to get

just their income

because most of us grew up in the opportunistic business and we've evolved into an investment grade business. We think more like builders and partners and we're just providing capital across the whole capital structure. And when you can show up and say, "Hey, do you need

a loan against the building? You need a by the way, you want a retirement program for your employees? And you want a a long duration preferred?"

There's there's not many people that can show up with huge amounts of checks and just make it. And also, by the way,

we're lenders to 5,000 companies. So now all of a sudden you're in our ecosystem and if you're growing the thing we're you know we can we can help and let and be a part a real partner not just a capital provider

and that's like the new modern companies. Aren't there only there's 4,000 public companies? How many so are you a lender to almost all of the public companies that are we have mortgages real estate loans?

Sure. Sure. Sure.

Right. How do you think about the real estate market? Mortgages uh even buying houses like how do you think about that portfolio there?

Yeah. We don't we don't buy we're not in the uh single family rent business or that business.

You like your brand.

It [laughter] does seem like it does seem like a like an like a hot iron, but I have a friend.

This isn't a gotcha cuz I have I have a friend who lives next to a house that was bought by private equity. He's like, "Yeah, they actually made it really nice and it's great. My neighborhood's getting better because of this." It's like kind of a hot take, but

yeah. I mean, look, that part that part has been in obviously affordability is a big flavor. So, um but we're we're more on the lending side. So, we just provide mortgages.

Sure. Sure. Sure. And so we have a big mortgage business and we'll it's it's relatively low

cost and and and I mean as you get lower into smaller deals, do you need to bring in more automation? Are you seeing returns to scale on, you know, IT spend or or AI spend or any of this stuff?

Yeah. So um I think that will happen for sure. I think that will happen for sure. um the the in the asset level side. So when you're when you're analyzing large pools of homes or mortgages sure

or in the security historically that that's going to be much more of a data AI driven over time and our models will get better and better and hopefully all things associated with big pools and a history

you're going to probably get more optimal pricing and you can see companies like

companies like Morpho like if you look at I don't know if you've seen the token like there's there are DeFi protocols that actually have market based pricing Yeah.

On the smaller side where it's more flow related businesses. We have Apollo which does a lot of our large lending

but then we have uh 16 companies

which invest on our behalf that do specialty stuff. So, our middle market lender, Midcap, will do that. Has its own brand, its own employees, its own balance sheet,

but we'll own some piece of the equity and some piece of those loans. We bought G's aviation business. Okay.

So, we they do all the smaller or medium or big size aviation loans, but in many cases, it's our capital. I I know there's some firms that that tend to brand themselves as like we will do a take private and we specifically want to focus on growth and then we know some other folks who will just buy stuff that's basically look the business has done everything it's going to do. We're winding it down and so we're just kind of cash flowing it out and eventually that thing will just put on life support and it's sort of like built to scale or built to die and that's the thing. Do you want to play in every market? Do you want to take advantage of every situation and be able to see what what the trajectory of a business is and then just accelerate it along that or do you find a particular niche works well for you?

Our private equity business historically been valueoriented not necessarily growth oriented that that'll help

with respect that we didn't buy any companies in 2122 that I think are going to be somewhat tougher to exit because of the prices that were paid

and they they our team's done an amazing job. Why didn't you buy any companies in 201 we have a 35 year history of buying at relatively low multiples. So just nothing was available under that framework to buy.

Um and so we've been we people think of us as being more valueoriented defensive equity and then everything around secured lending.

Yeah. And on on the private equity side you have uh uh deal team members, operating partners that go inside the companies. Is there a separation there or is it all one like kind of pool of

We have our own we have our own private equity team with our own dedicated uh operations team operations go in and operate. Yeah, exactly. Just a traditional traditional business.

Yeah. What what's your outlook on uh energy and and providing capital for various energy products everything from natural gas to traditional you know oil all the way through nuclear.

Yeah. So, uh, Europe, we we did a $4.5 billion deal for RWE. We did [clears throat] a $6.5 billion deal for EDF.

Keep doing this. Uh, so we've done we've done some of the largest European deals for power, energy, transmission, uh, defense. I think you'll see that continue. In the US, same thing. Very large for BP, multi-billion dollar transactions. It is.

If you told me 5 years ago we'd be doing multi-billion dollar deals for S&P 500, IG globally in Europe and the US, I would have said like that's that's not going to happen. Our our business the business

of private markets is across every risk spectrum. And it's really for some reason that's not again not really trans transmitted into the market. It's just private credit's growing. It must be risky.

Sure. Sure. Sure. And so um I think you're going to the logical answer for long duration power projects which require lots of construction or data centers.

The logical place is for retirement 401k long duration investment grade annuities. Anyone who wants long-term savings,

it's a great it's a great place to be. Um so I think you're going to continue to see private markets being the primary force around financing all that stuff.

Yeah. uh how uh how do you guys approach sort of like questions or debates around uh things on the data center side such as like GPU depreciation right everybody has everybody has different opinion you can look at um uh part of it is like there's some element of it that's unpredictable you can also look at the present right which is like people that have five

I see some 50-year depreciation right

uh uh but but uh you can look at the present and you can try to predict the future and then and then depending on who you talk to, you're going to get wildly different answers whether you're talking to somebody on uh over on this coast or somebody on on on the West Coast. I'm curious like your guys' general kind of approach to like finding the answers to some of these questions.

I think there's going to be winners and losers. I think um you know for us we've stayed more shortdated. So we did a large uh for Valor and XAI we did a multi-billion dollar GPU financing but we stay at 5 years. So effectively we're the senior trunch and then the equity holders are making uh the the assumption on what GPUs are worth later and longer.

That's that's hard for us as as credit providers. It's going to be hard. I think anyone who says they know what the value of GPUs or the release rates are in year 5, 7 or 10, I mean it's hard to take that with any sort of credible view. It's undoubtedly probably going to be the most violent cycle we've ever had. The no one really knows how fat the tails are both right or left.

Yeah.

But adding a lot of leverage to a assumption that you don't know if it's going to be a super bull case or a super bear case

is kind of scary for us. So, we've been a bit quieter on that side. I do think that uh folks in Silicon Valley, folks in our audience are just really struggling to wrap their minds around uh the role of private credit here because it's a completely different uh just mental model to be in as opposed to just being a venture capital equity investor.

Yeah. I mean the thing is with this cycle uh it's so much more asset heavytally all these growth companies, defense companies, Seronic and Okay. They're going to need manufacturing facilities, the nuclear companies, the power companies, the AI companies. It's all asset heavy

as opposed to you go back to Google 20, 30 years IPO.

It's all asset. It's all and and and the mental model is always asset light and the debt is bad.

And so, you know, I'm friends with lots of the guys on your show because this is changing.

Sure. Totally.

And it's going to be all about who they can partner with and trust.

Yeah. Tech wasn't tech wasn't like didn't have low leverage because they just didn't like leverage. They didn't need it this cycle. You need it

and it can be financed off balance sheet and it can be better optimized than actually raising equity

and there's logical place for it. It's just and so I think also the scale is not necessarily just directly tied to the problem. I always I always go back to like you know the mortgage there are plenty of people that are making six figures and have a seven figure mortgage and it's like so if you talk about a company and you're like yeah the company's making a billion dollars and they have $10 billion of debt or something. like that could math out fine if everything's, you know, flowing through and they're growing and whatnot. Um, but yeah,

listen, there's definitely a big pivot last week and a half.

Lots of questions about uh offbalance sheet debt. Should it be on balance sheet, lots of questions about Oracle and others, lots of questions about some of the Neoclouds.

I think that's just going to that's going to push anthropic and and OpenAI public earlier.

Oh, interesting. I I think you'll see them I think I think they'll go public way earlier than is anticipated. I'm not sure what consensus is, but I suspect that the more pressure and questions about that

will require them to access

convert market, equity market, securities, other markets than than just traditionally these kind of offbalance sheet leases.

I mean, what's your overall view on that all over the world? So,

feels like it's going to happen soon.

Yeah, I I think it makes sense. What how are you feeling about the IPO market in the present? Kramer was on talking about frustrations with different biotech companies going out and and and some of them being potentially lower quality. Uh where are we in your view?

Well, you brought me to the New York Stock Exchange to talk about private markets, which is the funniest thing ever. [laughter]

But we we we spend I would say 70 70% [laughter] of our time talking about privacy. Oh,

do you? And we're here. So that's good partnership. Um

well the funny thing the funny thing Kramer kept speaking in share price and we're like we only think

exactly

like ramp the $33 billion company.

I mean look there's going to be next year's going to be I'm usually the credit guy is usually always the bearish guy.

I'm like I think lower rates I think tons of M&A. I think you'll see a lot more huge technology where who knows what the 4 trillion 5 trillion whatever the estimate of capital who will it will benefit but it's going to benefit the consumer

at the end of the day it's going to benefit the consumer

and

when you say M&A though is this is this PE funds that loaded up in 2021 2022 finally I think I mean I don't think anyone thought you know you see what's happening there's some very large M&A transactions you saw

uh Echoar this year sold a bunch of assets in exchange for SpaceX stock and

you know And people were like, "Wait, this company owns half of or not half but like half like they've got like but then you look at the you look at the debt and you

No, but even that it's pretty it's pretty attractive. I mean it's a pretty way to actually get to get access to space. I mean it was a pure play tracker, you know. I'm not I don't know if I'm supposed to talk about that kind of thing, but it's pretty it's a pretty interesting way to get access to it.

Yeah.

Uh they're making an open AI movie. They're making a new social network Facebook movie. Do you think they'll ever make a Caesar's Palace Heist movie?

Oh jeez. I don't know. [laughter] I don't know. I hope not. Um but uh

but I mean seriously like because uh that book was introduced to me through our friend group and we were all like this is awesome. But oftent times internally at these firms they're like everyone in Silicon Valley is like yeah social network awesome movie. It inspired me to start a tech company and and Mark Zuckerberg is like not a fan right. And so I'm wondering internally does the firm how does the firm remember the book? Listen, we we um that that was so long ago in terms of the context of the business.

Uh we've become a complete kind of credit passive.

Sure. Sure.

Uh and and the and the kind of activity we do dayto-day by and large is far different.

I I think generally speaking, our investors look at that situation and say, "Listen, they're going to fight for every dollar and everything." So

I think there's a balance between what the one thing as you grow

Yeah.

is you want to maintain your investment culture. And so how do you make sure you maintain your investment culture, recruit the best people and the paradox of growing but also really being a good investor?

Yeah,

that's like a very tough balance sometimes. And so, you know, I I wake up every day trying to make sure that we

who on your team evaluates uh various AI tools that I'm sure you're getting pitched a hundred times.

We have a whole team. I mean, we have a team, it's called Lab 42, but um

Rob Bitten Court really leads the thematic investing. You should have him on. I mean he spends all his time assessing

all the hypers scale all all the entire ecosystem both public [cheering] and equity you know let's go

this is tree lighting the tree has been

this is why we're together spirit

we can't hear They said they've never done an IPO on tree lighting day.

Oh, really?

The last 10 years or something.

Somebody's got to [cheering] do it.

Yeah.

It's Hank. It's Who is it? Isaria. That's

They got Santa here, too.

It's Hank Aaria, isn't it?

No way. Oh, yeah.

Last time I saw him, he was in like a He's in a cover band.

He plays in a cover. He's amazing. He's a cover band. It's actually pretty good. That's amazing. Uh there are a ton of people here. This is as big as an IPO in terms of folks uh roaming the floor. There's a lot of folks there. There's some mascots over there. They're having fun.

Anyway, thank you so much for coming on the show. We really appreciate you. Thank you so much. Talk to you soon.

Talk soon.

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