Danny Berger (2:14)

It is, 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.

John Zito (2:29)

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 view as the, the, 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, what could you possibly do to invest in Intel? And we get 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 rub it was all about code was a scarce asset. Right now it's compute, it's data integrity, data, data quality. It's your talent. What kind of talent do you have? It's, it's all of these things. The whole framework is, is shifting I think and I from 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, in the strategic ecosystem of your business.

Danny Berger (3:40)

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?

John Zito (3:52)

I mean look at, look at what we've been doing. I mean asset, we're going much closer to the asset. We bought Atlantic Aviation this year we financed over $10 billion of chips for, for Space X. 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 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.

Danny Berger (4:51)

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. But if things don't go right in the path to AI, perhaps we go too far. Is that a real risk?

John Zito (5:05)

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, 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 3, 4 or 5 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, the, the, not the, not the core hyperscalers, but the second derivative and third derivative beneficiaries of all this I spend if in fact doesn't work or does not provide the margin or the return on capital, there'll be lots of, lots of, lots of failures in that. And you know, it's, this is not about, this is a much higher volume 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, 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 volume regime, but they're not acknowledging that credit is actually the typically been the safer place to be because it's senior in the capital structure.

Danny Berger (6:31)

So do you think that changes or have we just gotten stuck in the narrative that'll be hard to escape and potentially have ramifications for credit?

John Zito (6:38)

Yeah, it's going to have, 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 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? Do you actually. 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.

Danny Berger (7:15)

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.

John Zito (7:22)

I try to be much more of an optimist about it because it just. I don't think anybody really knows. I do. We're going to create some amazing new businesses that no one knows about. I think the venture community that what people can do. It took Palantir 17 years to get to $1 billion in sales. Companies like, you know, 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 is 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.

Danny Berger (8:03)

How so?

John Zito (8:04)

And in that when you, when you transform something, you're completely transitioning that business. Optimizing things was a much more nuanced thing. I'm going to cut costs 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, that I think is pretty exciting for. So for anyone out there who is 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.

Danny Berger (8:35)

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 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.

John Zito (8:55)

It's not all going to be. Every sector is not going to be all, you know, all bad or all good.

Danny Berger (8:59)

I think it sounds like the value proposition is just less that they're more efficient. The returns aren't as high, you can't command the same margins.

John Zito (9:05)

I think things are going to get more competitive. I think if you're, you going to have to constantly, if you're a 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, in a, in a way that most people you know in other, in other cycles have been able to do. There's, 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 2000, mid 2000, 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, it's an incredible environment. And again it's not, it's not private or public or what do you say

Danny Berger (10:03)

that or 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?

John Zito (10:27)

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, that runs sector focused funds and there's very few of those, those will inevitably struggle if they're, 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 earnings last couple of weeks, it's been pretty calming. It feels like it's been. I think most of these firms we know really well, they've done it a long time. They're going to, they're going to do just.

Danny Berger (11:12)

There have been 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 is finally, it has actually played out yet.

John Zito (11:22)

Yeah, I mean, consolidation so hard. It's a people business. You know, what I love about our business is that just culturally we, we just foundationally have not done a ton of M and A and we organically build the business from, from, from, from the ground up. And that 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, I don't see, at least for us, tons of M and A. But in the industry, if it's transformational, it can give you actual, a new, 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, that we've been doing it for a really long time and to that, you know, 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, it's, it's. To have one aligned firm is, is a, is a pretty strategic moat for us.

Danny Berger (12:36)

Do you think though that we get more firms that try to model themselves over diversification, that we get less sector specialists?

John Zito (12:44)

I don't, I again, I think this is about in, you know, 15 years ago, everybody, if you had an alternative firm, you could go into any asset class. There's, there's now been kind of 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 in, 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 the stuff. But again, I don't, I don't think there's going to be that big a pace of. On, I think financial service M and A is hard and so the bar is hard to get that done.

Danny Berger (13:24)

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?

John Zito (13:39)

Look, again, this is not about. Again, I don't want to go down the rabbit hole on public versus private, but obviously, you know, the last 30 days public markets, 72% of the return was 10 stocks. Yeah, 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 products.

Danny Berger (13:58)

Another hour for that.

John Zito (13:59)

Yeah, but, but the, 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 that 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 in the 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 a stock 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 we lend to 5,000 companies. And so when, when one, one, one situation goes wrong, it's hard to react too much to it.

Danny Berger (15:03)

So John, before I let you go, I just have to, I know we're in L. A 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?

John Zito (15:14)

Families there. I grew up there. I love, I love Miami. But you know, there's lots of, lots of, lots of good places. Both Texas and Florida have incredible options. And we're, we're assessing that the decision

Danny Berger (15:25)

has not been made yet.

John Zito (15:26)

I do, I do not think so, I do not think we've gone public with anything yet. So, so we're, but we're in the

Danny Berger (15:32)

process of feeling behind the scenes. You must be like wink, wink, nudge, nudge. Miami is a great place, guys.

John Zito (15:37)

Yeah, I do, I do love Miami. It's a sweet, sweet spot in my heart.

Danny Berger (15:40)

All right, John, leave it there. Thank you so much for joining. I really appreciate your time. And Matt, that was, of course, Apollo's John Zito.

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