Apollo Global Management President Jim Zelter Talks Tariffs
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Bloomberg Audio Studios. Podcasts, radio, news. Joining us now for the next 30 minutes or so, the perfect guest, Jim Zauta, the president of Apollo Global Management. Jim, it's good to see you. Good morning. Good morning, as always. Congratulations on the new title because I haven't spoken to you for a number of months. Thank you. It's been a long journey and I appreciate the note. Well, let's get straight into it. You've called it macro paralysis. What is it now?

Well, it is. I mean, I sit here this morning and this really can't be a surprise. The reality of the surprise is a little bit more painful for everybody to digest. But this administration was very clear during the campaign what their objective was. They really wanted to revitalize American industry. They wanted to bring back manufacturing, focus on energy, focus on industrial renaissance.

And tariffs, as Amrita said, tariffs, taxes and deregulation were the three-legged stool. And right now the focus is on tariffs. They have been probably signaling, I know you're having Secretary Lutnick on later on this morning, but they've been signaling this was the dialogue. This is obviously a long negotiation, but again, this was part of the administration's agenda. This is what they wanted to accomplish. They've been very clear in the communication.

The pain of the announcement is being felt this morning in the market. But again, I'm not saying preaching patience and perspective, but certainly this should not be a surprise. And I think now as we think about the big trends of the last 20, 30 years, the first of which is globalization. Globalization is not going to be like we have seen it in the past.

It's a new global world order. How the US manufacturing and financial base fits into that is a TBD, but certainly it's going to be one that plays out over the next several months. I can't think of many people outside of you and the team more dialed into the C-suite in corporate America.

How are they planning for the changes in the global economy that you and the team are anticipating? Are plans going ahead? Are they on hold? Are they totally derailed? Yeah, listen, I've used the term macro paralysis because I think we came into the year, the busiest folks on Wall Street were supposed to be the M&A bankers and the ECM folks.

And that has not taken place. And so the pace of broad activity in the public markets has certainly been muted. And I think this really plays into it. I've been on this show before talking about the role of public markets and the role of private markets, and not just private credit, but overall private markets.

And you're going to see this will be a turning point where private markets play a larger role for a lot of these corporates that are still, they have long-term plans, whether it's what's going on in technology, energy, mining, a lot of U.S. domestics. Who's going to finance this reshoring that's part of the master plan? So no doubt, I think in C-suites and in boardrooms,

There's vision, there's a desire, but the practical reality is things have come to a stop. And I know you're going to have Torsten on later on today. The soft data, when you see what's going on with consumers, consumer concern, corporate concern,

It's really certainly, it's amazing what the president has been able to do in 75 days, what 400 basis points didn't do over two or three years. As I sat here a couple years ago, we talked about the tightening of financial conditions. It didn't happen. The U.S. consumer led in a massive rally and a strength in the U.S. economy. In 75 days, talk of today has really slowed down the economy. So the soft

and anecdotes would tell you that we have, the recession went from a one in five to one in three, that now, depending on who you talk to, it's north of 50%. It's probably 50% going higher, depending on what happens on the ninth. There's a lot to unpack there. I want to go back to something that you said, that this shouldn't have been a surprise to anyone. And maybe the objective shouldn't have been a surprise, but the execution is raising some questions for people about how it is going to be

passed through. Is there anything about what you have seen over the past week that makes you materially change some of your strategy about how you go forward, how you advise the C-suite? Sure. Well, let's just go through two or three things about investing today. And a lot depends on

the portfolio or the liabilities you manage. If you run a domestic U.S. long-short fund, this is obviously much more fundamental. We're a long-term, long-duration investor with a lot of investment-grade assets. So when you look around the globe right now, is anything cheap? Not really.

Our rate's probably going to be, notwithstanding the rate move in the last 24 hours, our rate's going to be materially higher over the next few years than they have been because of de-globalization, probably. And then you have to weigh the geopolitics. So certainly your...

risk parameters and how you want to calibrate risk has certainly gone up the last several months and the idea of the hurdle of an equity return has certainly gone up the last several months and with base rates high and getting a coupon it's all about your calibration of risk so certainly this has taken

a situation where in terms of what you can get in base rates, in terms of bonds, in terms of fixed income, in terms of fixed income replacement, it certainly made the equity risk premium a lot higher. And certainly for us, we are in the private equity business, we are in the equity business,

And for us, as risk premiums have risen, it's a really high hurdle for equity these days. Which raises the question, especially if Apollo has really seen the debt portion of your business grow and exceed what you see in the equity. Is that only set to expand, especially if rates are going to remain structurally higher?

in this new regime? There's a reason why we positioned our business the way we have over the last five to seven years. Not suspecting a day like this would occur, but the reality is around the globe you have millions and millions of folks that are ill-prepared unfortunately for their retirement or pension. I was in Asia and Australia last week. Even as well as the superannuation funds have done for Australia, they do not really have a system on post accumulation and post retirements.

And so around the globe, and even in this country, 11,000 people a day are turning 65. We're ill-prepared for the pension system of tomorrow in terms of the needs. And that's why, listen, what's being written recently about private markets, certainly in Larry Fink's letter,

It's a tune that we've been talking about the last several years about changing market structure, the role of private markets with retirement systems, financing what this administration is putting forth. We think we're primed to be in a position of first and main in what's going on right now. But certainly, it's a wake-up call for retirees around the globe. Jim, let's talk about Europe. There's been a major sentiment shift towards the European side of financial markets.

and a pullback from the United States. For a long time we talked about so-called US exceptionalism. And one big feature of that, maybe even the secret sauce, I think Jeff Bezos himself said it, is risk-seeking capital, abundant markets, really, really deep markets, tons of liquidity. Is any of that under threat?

Well, I think that what you're seeing is maybe not the U.S. going down, but also parts of the other globe coming up. I mean, the Draghi letter that was put out last September that everybody had in the file, they've quickly pulled it out the last three or four weeks because certainly this administration has woken Europe up.

And as they wake up, they're saying, how do we create an economic environment where capital can grow, capital be created for growth companies? Think about a securitization market. You've got a $23 trillion economy with a nascent securitization market. And I think this administration has woken up Europe in terms of

thinking about how they actually fund, finance, and grow in this industrial renaissance that's going around the globe right now. So it's certainly been a massive wake-up call. And I think, again, you're going to see private market solutions for many of these countries, companies, and industries, not only in the U.S., but in Western Europe,

as they rise to the challenge. One discussion point has been that U.S. exceptionalism is predicated both on the AI trade as well as fiscal stimulus. That's going into reverse a bit, maybe, at the same time that the fiscal expansion is going on in places like Europe, in places like China. How much do you see that continuing in terms of market performance and something that you're willing to follow?

Well, what you're really addressing is mostly on the equity performance and the public equity performance, where public equity dollars go. Certainly, there's been a massive amount of global investment in the U.S. equity markets in the S&P, and that's going to be muted as there's a global pullback as investors think about other parts of the globe right now. But the bigger question, which you're really getting at, is if a recession coming into, if I was here six months ago, we would have said a recession in 25, 26 years.

was one in five and now that's certainly one in two if not higher with what's going on over the next several weeks. The other scenario is the stagflation scenario. That went from a one in six, one in seven to probably one in five right now, one in four. And that's the concern, that's gotta be the concern of policy makers in the US but also around the globe. - Just building on that, before it sounded like you didn't think the Fed could cut rates. You said that this is gonna be a permanently higher rate environment and that happens with both the US as well as Europe.

Why? You think that they're destined to allow that kind of scenario? No, but I think they have a, when you look at the balance of the dual mandate right now, it's certainly much more challenging. Certainly the White House is going to want to see them cut rates, and certainly some of the economic data in terms of slower growth would portray that to be the next move.

I think the Fed's gonna have to practice much more patience in here. - Lisa, this is the number one question in financial markets right now. Is that Fed put?

because of higher inflation further down the road. Right now, the market is betting that no, it is not, because what you are seeing is more than three rate cuts, almost four rate cuts being priced into the market by year end, with some, like Citi, saying that they're going to accelerate them, and others, like Morgan Stanley, taking away their call. Key question at a time we're coming off a real inflationary bump. Jim, we caught up with the Treasury Secretary yesterday in the immediate aftermath of the announcement from the President, and he was asked by Anne-Marie about the equity market sell-off since February, the highs of the year.

And he pointed to the NASDAQ and said, it seems like a Mag7 problem and not a MAGA problem. Now, you can push back against that, pour some cold water over it, but he has kind of got a point. There's something else going on here.

outside of just trade? Well, that goes back to my point earlier. When you look around, what is an investor right now? Are things cheap? No, they've gone down in price. But don't confuse a price move with something being cheap. And it was a marketplace that the Mag 7 took the market up.

and now the Mag 7 has taken the market down. But again, this is a very, very complex economy. And again, this is the big theme that we've been talking about for years. And I know we're talking about financial markets and the equity market, but these public markets only reflect a very, very small portion of the U.S. economy. Yes, these are great growth companies, they're global companies, but so much of the U.S. economy, so much of the European economy is private companies.

And how do they navigate this? And that's what gives us a great deal of enthusiasm because what's going on for investors in private markets, but also for companies needing capital, there's a lot more tools in the toolbox than there was a decade ago. Can we just finish though on data centers, which has been a major theme, not just in public markets. There have been some warnings about overcapacity in the last few weeks. How are you and the team navigating that?

We've certainly taken on much more as a debt provider to date. Certainly those who have been around for a few decades, you feel like you're seeing a bit of the conversation about dark fiber from '98 to '99 and 2001, 2002, build it and they will come.

Certainly there are economics that still need to be developed in terms of the economic model of the data center business. A lot of capital has been created up front to purchase the land, secure the power, create the facility. But who is the long-term offtake of that?

Who is the long-term capital? And again, this goes back to the conversation I had earlier about the pension deficit issue. There's a tremendous amount of long-term capital that wants to be matched up with that opportunity set. But to date, we've been much more of a debt provider. But I certainly think that questions that were raised last week by Joe Tsai, pretty legitimate questions about the long-term economics

and the short-term supply-demand mismatch about how these things come online and what the economics are. Jim, we could talk to you all morning. I know you've got a job to do, though. We appreciate your time. Always a pleasure. Thank you, Jim. Jim's out of there, the president of Apollo Global Management. ThriveVent can help you plan your finances for the people, causes, and community you love.

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