Apollo Global Management is currently on track for a record-breaking year in acquisitions, despite a high-interest-rate environment that has stalled many of its rivals. According to Jim Zelter, President of Apollo Global Management, the firm’s strategy has evolved beyond traditional private equity, with credit now representing 80% of its assets under management.
Capitalizing on the Global Industrial Renaissance
Apollo’s recent deal-making activity includes a £5.7 billion takeover bid for EasyJet and a £3 billion stake in Bayer’s contraceptives unit. Zelter identifies a "global industrial Renaissance" as the primary driver behind these moves. He notes that major industries—spanning energy transmission, industrial revitalization, and defense—require significant capital expenditure to remain competitive.
With government budgets currently constrained, private capital firms like Apollo are filling the funding gap. Over the past two years, the firm has provided financing to major European entities including Air France, Vonovia, RWE, and EDF. Zelter emphasizes that these investments are designed to optimize the equity returns of the borrowing companies, pointing to Intel’s performance as a successful precedent where the stock tripled following a financing deal in Ireland.
Jim Zelter noted that hyperscalers were negligible players in the investment-grade space several years ago, but they will be up to 7 to 10% by the end of this year.
Risk Management in the AI Infrastructure Boom
While Apollo is heavily involved in financing artificial intelligence infrastructure, including deals with Broadcom and Anthropic, the firm maintains a conservative approach to risk. Zelter explains that as a debt investor, Apollo focuses on "boxing the risk" rather than seeking the residual equity returns favored by venture capitalists.
Many of these transactions utilize amortizing structures, ensuring the firm is paid back systematically rather than relying on long-term project outcomes. When asked about the sustainability of hyperscaler spending, Zelter suggests that the sheer scale of capital required for the AI transition necessitates a hybrid approach, drawing from private credit, public investment-grade markets, and equity.
Evaluating Private Credit and BDC Stability
Despite recent concerns surrounding Business Development Companies (BDCs) and their exposure to the software sector, Zelter downplays the threat of systemic risk. He notes that the BDC space represents approximately $400 billion within a broader $3 trillion non-investment-grade private credit market.
While some market observers point to hidden leverage in BDC joint ventures, Zelter cautions that software is not the only sector vulnerable to disruption. He expects a wider dispersion of performance among managers over the next three years, particularly as other asset-light businesses face pressure from AI-driven shifts in the economy.
Frequently Asked Questions
Is the current BDC volatility a systemic risk?
No. According to Jim Zelter, BDCs represent a small portion of the $3 trillion private credit market, and the current challenges are limited to specific sectors like software rather than the entire financial system.
Why is Apollo targeting companies like EasyJet?
Apollo has a long history of investing in the aviation and aerospace sectors. While specific details on the EasyJet bid remain confidential, the firm utilizes its broad "toolbox" to provide both debt and equity solutions to businesses requiring capital for growth.
What is the "Global Industrial Renaissance"?
This refers to a widespread need for capital expenditure across energy, defense, and industrial sectors. As government spending remains tight, firms like Apollo are providing the necessary financing to help these companies compete globally.
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