Apollo Global Management President Jim Zelter Talks U.S. Deficit
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Bloomberg Audio Studios. Podcasts, radio, news. Joining us now for a long discussion, Jim Zalter, the president of Apollo Global Management. Jim, good morning. Good morning, Jonathan. And happy birthday, sir. It's good to see you. Thank you very much. I appreciate it. Great day so far. We won't spend too much time on the Federal Reserve, but I do want your reaction to this journal piece overnight.

Well, I think that the president's already won. It's a great distraction of headlines. I personally don't think he's going to name anybody too early because right now he's in the catbird seat of blaming without accountability, which is classic Trump playbook.

So, I think the fact that we're talking about it is interesting. It's a great diversion from the reality. I think he does, there's no doubt he wants rates lower. That's what's part of his plan for many, many years and that's how he doesn't like to pay debt and he likes to pay low coupons on it. But the fact that, you know, I just don't think that if you're Trump right now and you take his playbook

he'll make this a conversation, but I don't suspect he's going to do anything premature because he's able to put blame on the current resident of the Fed and he likes to be in that position. - In your words, blaming with accountability, without accountability, is there something you think he should be accountable for?

Well, certainly I think if you think about what's going on in the last three or four months, the issues of tariffs, it feels like that's a little bit on the sidelines right now. I know we haven't resolved it, but the marketplace has absorbed the idea of a 10% plus or minus tariff, maybe a little bit higher. But to Trump's benefit and the administration's benefit, the market has absorbed that and moved on.

The issues about the Middle East and all the challenges of foreign policy, there was a lot of action last 10 days ago and a week and a half ago and now that has been sort of absorbed in the marketplace. The big elephant in the room is still our deficit issue.

You guys have talked about it quite a bit. It's obviously the topic of appropriate conversation. And so I think that is an important topic that still remains. But, you know, we talked earlier this year about the decline of U.S. exceptionalism. I think Mark Twain was right that my death is a bit premature.

And certainly the market has moved on. So I think the tariffs are a little bit off on the side. The foreign policy issues are a little bit off the side right now. The deficit issue is a real issue. We could talk a little bit about what's going on with the dollar. I personally think what's going on with the dollar, I think there was a lot of investors around the globe that invested in U.S. assets and they made money both ways, on the currency and on the underlying assets for almost 10 years. And they turned around and they found themselves really unhedged.

And I think you're going to see some pretty good numbers out of the big banks this quarter because investors around the globe have been rushing to hedge their dollar exposure. But I think it's a 10-year catch-up that people just didn't hedge their portfolios in massive scale.

So I don't look at this dollar decline as-- I look at it as more of a technical factor than a long, long run impact on the health of the US economy. There's a lot to unpack there, including the breakout of the hedging profits at some of the big banks, which we'll all be now looking for.

To build on what John is asking about, is the Fed on the brink, I don't want to say of a policy error, but of being too late kind of to build on what President Trump is accusing him because you are seeing the weakening in the dollar accompanied by the biggest negativity, the biggest increase in downside economic surprises that we've seen

In a year? If you look at the Bloomberg page on rates of the G7 economies, other than the UK, we're the outlier in terms of where our 10-year yields are and our yield curve is. You know, I sit in my seat and I see a variety of inputs that some tell me the economy is slowing down a little bit with consumers. Some tell me inflation is still a little bit more...

represented in the economy. We see inflation around 3%, 3%, 3.5%. And I don't think it's obvious that the Fed should be cutting right now. I think it is a very legitimate question to be asking what's the trajectory of the Fed activity. And so I don't think it's a slam dunk decision. I know the market, the futures would tell you three cuts in the next--the rest of the year, three, 3.5 cuts.

You know, Toris and I are a bit skeptical on that. We see what's going on and I think there's maybe one cut. Your basic question, is the Fed conversation a really important one right now? It is. I have a view that rates are gonna be a little bit stickier and higher in the US than people think. We've had that view for quite some time.

So it is a good question for the administration to have right now, but I'm not sure that's the primary question for the market. - One of the reasons why people keep asking this question is would the Fed be considering cutting for the right reasons or the wrong reasons? The right reasons being disinflation, which you reject, but the wrong reasons being because we are seeing a weakening in the labor market as we see as the increase in jobless claims.

What's your sense of that based on what you've seen with portfolio companies, what you've seen with your investments? Is that valid? Yes. I think long term, you can't argue with the long term deflationary impact of technology and AI. That is out there. Now, whether that's six, 12, 18, 24 months, there's a massive deflationary impact from that activity.

I just don't think it's on the center of the plate right now in the markets. It's out there.

And I think that you're fighting with short-term still supply interruptions, hiring interruptions, and some short-term challenges that are inflationary versus a long-term backdrop of deflationary trends because of AI around the globe. I think that's sort of the center of conversation. When I'm back here in 2026 and 2027, I think rates will probably be a bit lower because of the technology impact.

But I think in the next six to nine months, I don't think rates are going to be dramatically lower. If you'd taken six months off and came back to work and look where the market was, I don't think you'd have a clue anything could happen here. Equity is close to all-time highs. Credit spreads are very tight. It's not a market that's screaming out for rate cuts. From your standpoint at Apollo, when you look at valuation, underwriting, any red flags getting your attention at all at the moment?

You know, the economy is amazingly resilient in the U.S. When I was here three or four months ago, there was concern hand-wringing about the trajectory of the economy. There was hand-wringing about U.S.--non-U.S. investors, global investors investing in the U.S. I've been all around the world the last 12 weeks. American exceptionalism is front and center back. You talk about where valuations are and levels of equities and rates that are back.

Global investors want to invest in the US. They made a lot of noise, they thought they were going to diversify themselves away, and they realized the breadth and depth and the strength of the US economy and the scale of what they need to invest, and the US is the primary place to invest. It still is.

You know, it's very interesting. I was in Europe a few weeks ago. I was with your folks. I want to talk about that. Amazing things going on in Germany right now. The reality is public markets are the narrative, but private capital drives the economy. And we're seeing it. We've been amazingly active. ED&F last week, Laudamatica, what's going on in a variety of financing. So it's been a very, very busy time, but I'm not seeing any red flags going off. And I really, I want to make sure we talk today about this

about the private capital, private credit bubble versus just an economic cycle. We're due for a credit cycle, but that does not mean it's a bubble. And private capital is playing a bigger and bigger role. Look what we did last week for EDNF in the UK and Germany.

four and a half billion dollars sterling private capital financing long duration debt to finish out their nuclear power plant build really really important that we're playing that role we'll sit in europe let's just stay there off the back of your travels so you mentioned ednf big sterling transaction yeah also a big target from you and the team to invest was 100 billion in germany over the next decade or so if you're if your leadership and journey right now your goal is to get a 4 trillion economy to a 6 trillion economy and you are

I was with the administration, you can talk to MERS. They really are embracing the role of private capital along with government spending over the next five or ten years. They've been so dependent on the banking system in Europe for such a long time.

Can they get away from that? Because I feel like I've been talking about this for more than a decade. Well, I think the evidence is there. If you look at the last 24 months and what's going on with the leading Italian banks, look what's going on with HSBC, look what's going on with Barclays and Deutsche Bank. They're operating in a much different...

capital regime with a focus on shareholder value, with a focus on ROE, and they're really not taking all the policy lending on their balance sheet like they had in the past. So they're actually operating the right way. What you didn't really see before is the government really embracing in Germany, in France, in the UK, they want private capital to be part of the solution because they know the government balance sheets cannot do all

that's needed in terms of the massive capex of transmission line, of transportation, of AI, of data centers. They know they're behind. So if anything, this administration in the U.S., the memo they sent out about what's going on in the U.S. and Europe stepping forward, European leadership has taken notice. Let there be no doubt.

I go to Europe three, four times a year. I've never been so embraced as we were three weeks ago in Germany and France about the role of private capital in this build-out. How much is that driven by this U.S. administration? A lot. I mean, it's clear that they know that the European leadership has, even if you look this morning, about how they're stepping up on defense spending with NATO. So I think...

When I think about the globe right now, again, tariffs are a little bit off on the sidelines. They're part of the conversation. It's a question of how much, not if or when. And I do think they feel like there's a responsibility that they have for their citizens because when you look at the last 15 years and where the U.S. has grown versus Europe growth, it's startling. When I got out of college...

a few decades ago was all about Japan. Japan was going to take over the world. It was all about Germany, industrial taking over the world. That did not come to play and I know they have a lot of catching up to do. And I just think it's a very, very -- now, you know, if you watch -- if you listen -- if you read the Draghi letter and what he put forth 18 months ago now,

If they follow all 156 pages in great detail, it would be a watershed economic opportunity. And I think parts of that will come forth. But they're already making moves on securitization, other activities. And to Jonathan's point, the European banks are,

a bit behind the US in terms of the fundamental focus on ROE and shareholder return and capital efficiency. But I think they're, I don't want to say they're catching up, but they're getting in line clearly. You've talked about macro paralysis in the past. I don't see any sign of paralysis when I look at, say, high yield issuance, when I look at activity. Do you see paralysis at all?

I don't. And back to this last topic, I mean, as you point out, Lisa pointed out, the two big topics that they need to really deal with right now is the tariffs on July 9th and the big beautiful bill. But we're not talking about that this morning. We're talking about a Fed chairman in nine months. And I look at everything through what this president has been in the past. As a real estate developer, it's all about location, location, location. The Fed pick will be about loyalty, loyalty, loyalty. Let's not get confused.

There isn't paralysis in the market. As I mentioned before, you know, the public markets are the narrative, the private capital is really the driver of the economy. A lot of activity going on in the U.S. on refinancing, in Europe on the global industrial renaissance. So we are on pace to have our busiest quarter in origination we've had in a number of years.

a tremendous amount of activity across our equity platform, our infrastructure platform, our credit platform. So I do think there was a lot of hand-wringing, as I said, three or four months ago. And I think that's now on the sidelines, maybe not on the narrative, but certainly on activity. Is that activity in lieu of some of the deals activity that we were expecting? Was it sort of expected to be the deals and the IPOs and the big boom for the banks and instead it's...

Apollo coming in and doing a lot of financing deals in the back? Well, I think, too, I think beginning of the year, people projected that the busiest folks on Wall Street would have been the ECM, equity capital markets teams, and the M&A teams. And while they've both been busy, the busiest folks have been the rate hedging and derivatives teams because of what's gone on in the dollar and concern about tariffs and such.

But it's an interesting backdrop. Even listening to your program this morning, the fundamental economy is doing fine. It's doing well, maybe not to the growth expectations that people had earlier this year and will come out somewhere around a 2% growth with about 3% inflation. But whether it was Nvidia, whether it was Micron, a lot of CapEx still going. A lot of companies in the AI space raising tremendous amounts of capital at high valuations.

with a long list of investors coming in. And the activity, as I said earlier, what's going on in Europe right now about that industrial renaissance, it's still going on. So again, I think there's the headlines and then there's the reality of the underlying economy and the role of private capital, which is a much, much bigger, longer-term story. How do you think you're going to decipher the reality versus the headlines when it comes to New York City? You have a huge company here in New York, and a lot of people are concerned about a democratic socialist becoming the mayor of the city.

It's probably one of the most complicated jobs in the world on the political stage in terms of bringing a variety of the five boroughs together, the business,

the business, the community, the unions, all the folks that make New York the special place it is. As I mentioned before, three out of every hundred college graduates a year come to New York in the U.S. It's still the magnet of talent and ambition. So when you see somebody that on the surface does not appear to have a long career,

resume of leadership and making tough decisions really concerning. And I think that we'll see now just winning the primary while in the past it might have been the litmus test for being the mayor, I think there's still a long time coming until November.

build out the office in Florida. Is that what you're hearing? - Texas. - That was the most diplomatic response ever. - No, no, no. We are a New York company. - There we go. - We are determined to be here. I'm determined to be here. Our leadership's determined to be here. We have people in the office five days a week.

He's running. You know, it's... You tell him, Jim. Jim, it's good to see you. Happy birthday. Thank you very much. For enterprise organizations, managing all your food needs is a tall order. But with Easy Cater, you get a single workplace food vendor with the tools and resources to make it easy, giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform, all while consolidating your corporate food spend so you can control costs.

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