Partner, Head of Credit Business & Co-President of Apollo Asset Management Inc., Apollo Global Management
Apollo Co-President John Zito Talks Private Credit Fears | Bloomberg Talks
Apollo Asset Management co-President John Zito talks about how AI is impacting investing and private credit. “Everyone is acknowledging we will be in a higher-volatility regime, but they are not acknowledging credit is actually the typical safer place to be," he told Bloomberg's Dani Burger at the Milken Institute Global Conference in Beverly Hills.
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About John Zito
At Apollo Global Management’s 2024 Investor Day, John Zito highlighted the firm’s performance since its 2011 listing, stating that its stock had appreciated sevenfold and outperformed the S&P 500 by an average of 1,000 basis points per year. He described Apollo as the largest eligible financial company for inclusion in the S&P 500 and discussed capital formation targets, including $150 billion in cumulative capital raises in the global wealth business and $150 billion per year in total capital formation on average, with $1 billion in ACS revenue targeted by year five. Speaking at the Milken Institute Global Conference in 2026, Zito addressed concerns about private credit, saying that “everyone is acknowledging we will be in a higher-volatility regime, but they are not acknowledging credit is actually the typical safer place to be.” He characterized fears about defaults in private credit as “overblown,” noting that Apollo lends to 5,000 companies and that isolated situations should not prompt broad reactions. Zito also discussed the impact of AI on investing, arguing that the valuation framework for both public and private market investors will need to change, and expressed excitement about investment-grade lending for capital expenditures tied to sovereignty and AI infrastructure. He stated that private assets remain “very under penetrated relative to almost everyone’s retirement in the world.”
Transcript (38 segments)
M
Matt Miller0:00
Fed Governor Michael Barr warning that stress in private credit could spark quote psychological contagion. He told Bloomberg News quite people might look at private credit. They might say, 'Wow, there seem to be cracks in our corporate sector. Maybe over here in the corporate bond market, there are also cracks.' Let's get reaction to that from Apollo co-president John Zito. We're sitting down with my co-host Danny Burger at the Milken Institute Global Conference in Beverly Hills. Danny?
D
Danny Burger0:38
Hey Matt, thank you so much. And I'm so pleased to say I'm here with co-president of Apollo John Zito. John, thank you so much for joining.
J
John Zito0:44
Thanks for having me.
D
Danny Burger0:45
I know we have a lot to talk about, but I do want to just start on that note from Barr, this idea that there are cracks, wider spread concerns. Do you think there's any merit to that?
J
John Zito0:53
Look, lots of talk about private credit. We've talked about it for a long time. For me it's been and for us at Apollo, it's really been what is what's the impact on the overall economy. It's not is it private credit or public credit? Is it private equity or public equity? There's software equities. There's several that are down 70% this year. Doesn't mean you don't invest in equities.
D
Danny Burger1:12
Right. And it doesn't mean there's cracks in the entire equity system and you shouldn't invest in any stocks.
J
John Zito1:17
So, we're in a completely different regime for investing. We're in a completely different regime for how things are going to be over the next three, four, five years. If you believe in AI, if you are in fact AGI pilled, then you know that the way that you're going to have to invest, the way that you're going to have to underwrite, the way that your entire business is going to have to function will have to shift. And the valuation framework for both public market investors and private market investors is going to have to change. And that's I think very exciting. I think it's very exciting for people in the industry who are adaptive and love investing and love seeing around the corner.
D
Danny Burger1:55
It is such a big difference though because it used to be an industry that loved asset light, high margins. This requires kind of the opposite of that. So much investing needs to go into that. Is this an industry prepared for it besides the, you know, giants, the Apollos, the Blackstones of the world?
J
John Zito2:12
Yeah, I mean look look at Intel for example. You know, Intel for like 10, 15 years effectively was a drag on the entire equity market. And for a decade they were viewed as the dumb money for actually investing in their infrastructure. And we financed the deal where when we financed the deal two years ago to finance their fab and to build new chips in Ireland, everybody hated it. Everyone called us and said, 'What could you possibly do to invest in Intel?' And we got refinanced this year. And the story is not about us getting refinanced. It's about the stock this year, which is up 500% because the entire world realizing that instead of wanting to be asset light, maybe it's about being asset heavy. Maybe what before was the rubric for success, it was all about code was the scarce asset, right? Now it's compute. It's data, data quality. It's your talent. What kind of talent do you have? It's all of these things. The whole framework is shifting, I think. And again, I think it's really exciting, but it's not about private or public. It's the whole valuation rubric and how you think about where you want to be in the strategic ecosystem of your business.
D
Danny Burger3:22
So, the valuation rubric has changed. Does the industry as a whole realize that? John, do you think everybody is going to start to have to change their mindset in this way or is it just a select few that can participate?
J
John Zito3:34
I mean look at what we've been doing. I mean we're going in much closer to the asset. We bought Atlantic Aviation this year. We financed over $10 billion of chips for SpaceX. So, GPU financings, power, defense, all of the things that are going to require to grow all the CapEx needs and to go asset heavy is actually the exciting part of private credit, not the old LBO loans that people made and everyone talks about. The actual excitement is investment grade lending for all this CapEx for a lot more asset heaviness. And all the sovereignty, the whole what you're seeing both with problems out in Europe and in the Middle East is a refocus on sovereignty and sovereignty meaning do you have your own power? Do you have your own AI sovereignty? Can you own your own compute? Can you make your own chips? All of these things are really the future of how credit orients itself around that. And as a business, it's nothing I thought we'd ever be in the middle of. But it is I think a really exciting thing.
D
Danny Burger4:34
But if you're not AGI pilled, is there this risk that maybe we go too far? That you build out too far? Some of the outcomes not exactly bimodal, but have that kind of flavor of it that if things don't go right in the path to AI, perhaps we go too far. Is that a real risk?
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John Zito4:48
Yeah, for sure. I think look, inevitably we're going to see a lot more efficiencies in most businesses because people are just using AI as a mechanism to actually tighten up their businesses, get their data cleaner, run their business more efficiently. And whether or not AI takes their business to the next level will be a question. Lots of the CapEx, I mean we're talking about three, four, five trillion dollars of CapEx that's getting spent. In the grand scheme of global economies, it's actually not that large a number. There will inevitably be the not the core hyperscalers, but the second derivative and third derivative beneficiaries of all this AI spend.
D
Danny Burger5:29
Mhm. If in fact it doesn't work or does not provide the margin or the return on capital,
J
John Zito5:34
there'll be lots of failures in that. And you know, this is a much higher vol regime because you're in the early days of a total technology platform. And I've mentioned it before that the technology platform can be a very violent platform in different paths. And so that's going to create more uncertainty, more variety of outcomes. And usually that's a good time to go into credit because you're going senior and you're getting closer to the asset. For whatever reason, everyone's acknowledging that we're going to be in a higher vol regime, but they're not acknowledging that credit is actually typically been the safer place to be because it's senior in the capital structure.
D
Danny Burger6:14
Does that change or have we just gotten stuck in this narrative that will be hard to escape and potentially have ramifications for credit?
J
John Zito6:18
Yeah, it's going to have ramifications for the whole ecosystem of investing, what the enterprise value, what companies are worth, what the exit multiple is. If you are a services company, you used to be able to transact at one multiple, you won't be able to do that anymore. So, this is all about what sector are you in? How protected are you in the different regimes? Are you asset heavy or asset light? Do you control your customer, yes or no? How close are you to how much capital do you have? There's some probability that you shift that lots of the value shifts from labor to capital. And that's scary for people, scary for us. We think about the world in that way. It's a scary thing.
D
Danny Burger6:57
Are you one of these people that the labor market's going to have huge ramifications that I know numbers have been thrown out there, 70% of jobs disappear.
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John Zito7:04
I try to be much more of an optimist about it because I don't think anybody really knows. I think we're going to create some amazing new businesses that no one knows about. I think the venture community, what people can do. It took Palantir 17 years to get to a billion dollars in sales. Companies like my friends at Cognition, they get to a billion dollars in sales in less than three years with less than 300 employees. I mean, the ability for the most dangerous people with really smart group of folks that are actually sitting in a room with not that much, they can actually design amazing companies. So, I'm extremely bullish growth and venture and people who can transform things. Fully optimizing things is different than transforming things.
D
Danny Burger7:46
How so?
J
John Zito7:48
And when you transform something, you're completely transitioning that business. Optimizing things was a much more nuanced thing. I'm going to cut cost by 20%. I'm going to raise sales by 10%. I'm going to do this thing a little bit more efficiently. You can now transform things with much less capital than you did before. And that I think's pretty exciting for anyone out there who's more of an entrepreneur. I think it's an incredible environment. And so I get excited about that and I try not to get into the doomer stuff too much.
D
Danny Burger8:18
I still go back to this idea though that what happens if you're investing in the rest of the economy? What if you haven't changed your rubric to valuations that asset heavy is the place to go? Because there are plenty of firms out there and plenty of credit shops that don't want to venture into this AI data center spend. Is there a place for them or is there sort of a crowding out where investment necessarily needs to go to this project?
J
John Zito8:37
It's not all going to be every sector is not going to be all bad or all good. I think things are going to get more competitive. I think if you're an asset light business or you're a services company, you're going to have to be constantly evolving, moving in front. And if you do that well, you'll be able to monetize the cycle in a way that most people in other cycles have been able to do. There's lots of companies that in the late '90s said the internet would be amazing for their business. There was incredible companies that came out of that. And there inevitably will be great companies that come out of this, but through that cycle from mid to late '90s to early 2000s, mid-2000s, there was lots of companies that didn't struggle, didn't pivot, were too bureaucratic, were too bloated, couldn't move quickly enough. And so, again, this is all about your talent, being adaptive, being willing to actually see what's on the field. And if you can do that, I think it's an incredible environment. And again, it's not private or public.
D
Danny Burger9:44
Well, I was going to say that the kind of freak out over private credit has been this idea that maybe the industry is too exposed to those bureaucratic software companies that aren't going to be able to adapt. I know you get asked about wealth a disproportionate amount to actually how much that is of Apollo's business. But I do wonder for the funds, should there be a concern that some did over index to things like BDCs, to wealth products? Is there going to have to be a rethink of that going forward?
J
John Zito10:09
So, we've all been in the asset management industry for a long time and MLPs were exposed to energy during '12, '13, '14 and lots of MLPs didn't do great because they were exposed to that. If you're an asset manager that runs sector focus funds and there's very few of those, those will inevitably struggle if in fact software companies go through some sort of cycle. But again, most of the large managers that are public managers have been through this. It happened in the real estate business. You can see the ones that did it really well. I suspect that those firms will do an incredible job again and you've already seen it in earnings last couple weeks. It's been pretty calming. It feels like most of these firms we know really well. They've done it a long time. They're going to do just fine.
D
Danny Burger10:55
So many calls in this industry though for consolidation and I wonder if we've seen the real pain for those that can't survive this, if that process has actually played out yet.
J
John Zito11:03
Yeah. I mean, consolidation's so hard. It's a people business. You know what I love about our business is that just culturally we've just foundationally have not done a ton of M&A. And we organically build the business from the ground up and in the investment business particularly in times of heavy change, that cultural design is really one of your moats and one of your strengths. And so unless it's very transformational, I don't see at least for us tons of M&A. But in the industry, if it's transformational and can give you a new resource or a new asset class that you weren't in, maybe you could see those firms merge. But the name of the game I think is, I'm obviously biased, is in the credit business and I'm pretty biased two things. One that we've been doing it for a really long time and two that we have no walls across everything and so we're just one investment unit at the end of the day. And again, in times of increasingly more and more change where the pace of change is much faster on the outside than it is at the inside of many of these firms, to have one aligned firm is a pretty strategic moat for us.
D
Danny Burger12:19
Do you think though that we get more firms that try to model themselves over diversification, that we get less sector specialists?
J
John Zito12:25
I don't, again, I think this is about 15 years ago everybody if you had an alternative firm, you could go into any asset class. There's now been probably more specialization by asset class but diversification by industry and so most firms invest in almost every industry. You know, for us we've been leaning into infrastructure and credit and hybrid. And in equity we've always been very value oriented and so we haven't been caught up in most of this stuff. But again, I don't think there's going to be that big a pace of financial service M&A is hard and so the bar is hard to get that done.
D
Danny Burger13:06
And then for these wealth products again, for those that are very exposed to it, felt like a really big bullish thesis for this industry that there was this untapped resource of wealth of retail. Do we rethink that as well?
J
John Zito13:18
Look, again, this is not about, I don't want to go down the rabbit hole on public versus private but obviously, the last 30 days public markets 72% of the return was 10 stocks. I mean, if you're talking about retirement and wealth products and what's the right product design, we can talk at length about what the appropriate product design and the pros and cons of all the product design. But the idea that you would not invest and lend money to the companies that we lend to on a diversified basis for the long-term retirement is highly unlikely. It's very prudent to invest in income oriented long duration products that generate yield over decades and decades of history. It's highly likely you're going to make a good return on that. And so I suspect we're still very under penetrated relative to almost everyone's retirement in the world in private assets and that's the overwhelming theme. This is a moment in time around product design and some fears around over indexing of a cycle into industry. That will work itself through. And so not to say there won't be defaults but again, when a stock goes down 70% do you not invest in the stock market again? No. If there's a default in a high yield company, do you not lend money to a company again? This is a little bit overblown with respect to the reactions of every single company when we lend to 5,000 companies and so when one situation goes wrong, it's hard to react too much to it.
D
Danny Burger14:45
So, John, before I let you go, I just have to, I know we're in LA but I want to ask about your hometown of Miami. Might we see an Apollo Miami headquarters? I feel like you got to be advocating for that as a Miami man yourself, right?
J
John Zito14:57
I grew up there. I love Miami. But you know, there's lots of good places. Both Texas and Florida have incredible options and we're assessing that.
D
Danny Burger15:07
So a decision has not been made yet.
J
John Zito15:09
I do not think so. I do not think we've gone public with anything yet. So we're in the process of doing it.
D
Danny Burger15:16
Like behind the scenes you must be like wink wink nudge nudge, Miami's a great place, guys.
J
John Zito15:19
Yeah, I do love Miami. It's a sweet spot in my heart.
D
Danny Burger15:21
All right, John, we'll leave it there. Thank you so much for joining. I really appreciate your time. And Matt, that was of course Apollo's John Zito.