Apollo's Zelter on AI Capex, 'Higher for a While' Rates

Apollo's Zelter on AI Capex, 'Higher for a While' Rates

Bloomberg

Wed, September 16, 2026 at 3:28 PM GMT+3

• APO +1.18%
• NVDA +2.54%

Apollo Global Management President Jim Zelter discusses the firm's partnerships with the New York Yankees and Nvidia, the "unprecedented" scale of the AI capex markets, and why he believes "rates are going to be higher for a while." He speaks on "Bloomberg Surveillance."

00:00 Speaker A

Apollo Global Management President Jim Zelter saying in the company's most recent earnings call, quote, the sheer size of the AI infrastructure buildout is unprecedented. We see an enormous opportunity for private capital to finance a portion of this along with public capital. Jim joins us now for more. Jim, welcome. It's good to see you.

00:24 Jim Zelter

Morning, good to see you.

00:25 Speaker A

No days off for Apollo. What an August you just had.

00:29 Jim Zelter

It was uh we didn't have an August break. It was it was pretty much uh pedal to the metal. uh a bunch of announcements, a bunch of travel and and a bunch of financing. So uh uh the firm did an amazing job.

00:46 Speaker A

Walked in with a Yankee's cap as well, distributed some merch. Romo, how do you feel about that? You're going to put that on?

00:56 Romo

Well, I'm going to just amend and embroider a couple of lines around the Y and I think it'll be fine.

01:02 Speaker A

Can we pair the two stories? The boom in Apollo Sports Capital with what's happening in AI. Is that one of the reasons why sport has become, I mean, such a big focus for investment firms?

01:14 Jim Zelter

Well, I do think, you know, as there's been a few themes as I've been on this uh show for the last couple of years. And there's no doubt there's a a broader theme with society as you as the AI technology plays a larger and larger role, you know, what are industries, what are activities, what are businesses that will have a very low chance of obsolescence. And I I think it's as simple as that. I mean, the last, you know, 50-100 years, there's been more and more leisure time, leisure time activities, whether it's the whole travel, entertainment business and other activities like that. And I think people see the purview of sports, um, especially mainstream sports and the aggregate followship, if you look at the top 100 shows in a year, you know, 95, 97 are sporting events and that's probably unlikely going to get disrupted. So I I think this was a thematic view that we had over the last three or four years about pushing putting our firm in the in the limelight of those activities. You know, the other thing I would say is we've been much more of a uh within the arena of of sports and entertainment, we've been much more of a a debt financing partner. Certainly there's transactions where there's equity along as well. I think a lot of folks have put their stake in just the equity side of the business, but we've done the equity as well as the debt financing and the CAPEX expansion.

03:00 Speaker A

Why is the debt slightly more interesting to you?

03:02 Jim Zelter

Well when you think about uh, you know, a franchise like like the Yankees, um, there has not been historically a variety of of financing alternatives of companies of that of teams. Um, and the the loan to value uh is exceptionally low that you can make a loan at versus other comparative industries. You're loaning 10, 15, 20 cents on the dollar of value versus other industries 50, 60, 70. So you have a a great margin of safety uh of protection on, you know, what we would say is world-class unique assets that uh we want to be associated with for decades.

03:52 Romo

How much is that applicable to the broader investment universe? This has been a debate on Wall Street for for the better part of 18 months now. Would you rather be on the debt side of the industrial build out or the equity side to participate in the upside of what could potentially come?

04:21 Jim Zelter

Well, it depends on the capital you have. I mean, we as I as I've spoke on this show many times, you know, half of our capital comes from regulated balance sheets. And on those regulated balance sheets, our objective is to make plus or minus 7% depending on the rate environment. And so, when you see the the short end right now in three and five years where they are and their yields right now, I'm focused in, we are focused on high quality spread in that short duration. so you don't have to take that equity risk. There's there's no doubt that what we bring and you know, you had the quote up on as the as the show started, the message that we've been saying is these, the scale of this CAPEX cycle is unprecedented. It's going to take any and all precincts, equity, public equity, private equity, private capital, investment grade debt and everything else in between. And so for us, you know, for our regulated balance sheets, we're really a debt financing provider and hence the Intel financing, the Broadcom financing, the Nvidia financing. On the other side of our business, transactions like what we announced for the Yankees. Uh we announced a very interesting transaction for uh Atlantic Aviation, which is arguably another business that I don't think is going to get disrupted. This is a an airline airport fixed-based operator, um of private aviation. Uh those are businesses that we think have, you know, amazing resilience. And so that's how we're trying to make sure that we are thoughtful on the debt side and on the equity side, being very, very thoughtful about about disruption. You know, I'm often fond of saying, we we don't want to provide uh take equity risk for a fixed coupon. And I think when you think about what's going on right now in in a lot of the build out, um across the whole spectrum from the the large language models to the racks and the chips, it's interesting to see today the gross margin is highest away from the models. Um and so companies like like like Broadcom and many others are doing very, very well uh notwithstanding who's the winner of the of the LLM race.

07:54 Romo

So in other words, if there's a huge debt issuance slate from the likes of Open AI and Anthropic wouldn't be as interested.

08:00 Jim Zelter

No, I think I think there's opportunities. I mean, the the big challenge and and another theme that we've talked about is the scale of this. If you look at the the largest company on the planet, uh Nvidia, um their four or five or their top 10 investors have upwards of anywhere from 2-3% of the equity to almost 9% of the equity. That's a that's a $500 billion dollar exposure. The biggest companies in the globe are not going to have people provide that scale of debt. So it's a it's a a scale and capacity issue. And so there's certainly financing opportunities for for OpenAI and Anthropic that we want to certainly be front and center in and we we have been uh and we will continue to do so, but it's all about sizing and diversification. Um and that's the that's the difference between funding debt and equity in this in this industry today. The equity you have massive convexity, you don't mind getting very, very concentrated because the nature of debt and just getting paid back par, it's much more of a diversification game.

09:29 Speaker A

Do you sense that investors are becoming more discerning about the available opportunities? We've talked about Nvidia a few times attempting to anchor borrowing costs for the ecosystem. You wouldn't think they'd have to do that. Demand was there for the amount of debt that needs to be raised. What do you think is happening there?

09:47 Jim Zelter

Well, I think that's a that's a complex question. I think there's a lot of reasons why the um the the reality is the IG market has seen a tremendous amount of issuance this year, the public investment grade market. Um and but now you're seeing the broad ecosystem of AI, people are predicting that that that that system will be 10% of the IG market. So I think those companies wisely are saying, we have to count on a variety of precincts to raise this capital. Um and whether it was what Alphabet did earlier this year with the debt and the and the mandatory, you you need to hit a variety of sectors. So there there's no one asset class that's large enough to fulfill the aspirations of all these companies. They're going to need any and all and I call it all calling all precincts.

10:48 Speaker A

Yeah, that's happening equity, that's happening debt, that's happening different currencies. We can see it from Amazon, from Alphabet. That competition for capital, the crowding out forces that we've been talking about all year. Who's the victim? Who's getting left behind?

11:03 Jim Zelter

Well, I think I think this is certainly, you know, we we had a uh the the the private capital and the private equity industry was one where for 20 years it was about asset light, go back to software, distribution businesses. and now we have we have transcended into an asset heavy industry. So there's no doubt we are in a winner take most environment in a lot of businesses and there's no doubt what you've just pulled the thread at is having access to capital is a competitive advantage. And whether you're seeing it in the industry that I happen to operate in day in day out or the industry that we're focusing on, there's the winners and the the haves and the have-nots and having access to capital in scale is certainly a competitive advantage.

12:00 Romo

It's one thing for an AI company with the prospect of 30% growth to borrow at a 6%, 7% rate. It's another thing for a mom and pop's uh company that's been grappling with supply shock after supply shock. How feasible is it for corporate America at large to handle almost 6% average yields on investment on the investment grade index going forward, especially with the refinancings coming to the four.

12:32 Jim Zelter

No doubt, if you also look where mortgage rates are right now. That's having an impact. If if I I was here I I did look up I've been here 15 times since last January, thank you very much. I kept I've been counting it. and and because I wanted to talk about how many times I've talked about higher for longer. And if I was sitting here six months ago and the short end and the long end in rates and oil would have been at these levels, I think we all would have been surprised at the level of the equity market. This economy and market have been resilient. And um I suspect that when you think about where we are on the rate curve right now, it is a combination of some inflation issues, some fiscal concerns as well as a massive amount of supply hitting the market. And it's a combination of all three of those. But you're asking the good question about at what point does the economy say no mas and the actual rate of of of of of cost of capital is going to slow down things. We're not seeing it right now. Now we're right in the middle of this massive CAPEX cycle. You do worry about the breadth of that CAPEX cycle being narrowed a little bit because of the cost, the financing cost, but it's certainly a a macro concern that investors have to think about.

14:02 Speaker A

Kevin Warsh center stage a little bit later on. The Fed Chair expected to hike interest rates by 25 basis points. We've still got Jim Zelter of Apollo Global Management with us around the table. Jim, you were thinking back to the last 15 conversations in the last one year plus. I'm thinking about going back a few years with you when interest rates were climbing and you were talking about an economy that could withstand this. What difference does 25 basis points make? What difference does 5 on 10s make to this economy?

14:34 Jim Zelter

You know, I I I think that um the real conversation is the conversation that Torsten's been having for a long time. It's it's the higher for longer rather than the number of rate hikes going forward in the next, you know, six to nine months, which I know there's a very, very high percentage of. So I I I think it shows you the depth and breadth of this of this econo- economy, the strength of the consumer overall. Uh and I've talked a little bit also about the lack of of uh uh transmission mechanism that raising rates has on slowing down the economy. We've seen it. It's had it's had very little impact.

15:26 Speaker A

What changed Jim? Just to go back over that. What changed?

15:29 Jim Zelter

Well, I think, I think the the economy and the breadth of the economy and how the structure of the banking system works today, it's very different than it was 20 years ago. and I and I don't think many people spend a lot of time thinking about that. There's no doubt that the that with the rates higher in the US than the rest of the world right now, but we are the beacon of economic activity. um it just shows you that you know, the underlying economic strength and growth of the cycle is is is is very, very strong. I do worry about where mortgage rates are right now. I think that's going to have a a greater impact than north of 7% right now, which is not great for overall strength. It's certainly not great for the administration in terms of the midterms. Um but as I said during the break, you know, we're not in Kansas anymore. Rates are going to be higher for a while and whether that's one rate hike today, which I I suspect uh the the the Fed will do or a handful over the next 6 to 12 months. We're in a higher rate environment and it's I don't see it going back anytime soon.

17:09 Romo

We've been in a bond bear market for about five years now and rates potentially could go higher from here as a number of investors have said as they come on. Is it a good time to be a bond investor?

17:21 Jim Zelter

Well, again, I I go back to the mandate you have in front of me. If you are a a I'm I'm not a we're not macro investors and and we when we think about our business today, you know, 80% of our assets are credit and credit-like with a massive amount of investment grade exposure with a regulated balance sheet/insurance company liability. If you're in that world, the world we are in right now, and base rates are between four and a half and 5%, it's an amazing time to be a credit investor. I mean, as a credit investor, you want to see a strong economy, check. You want to see economic activity strong, check. You you want to see an environment where uh MMA and the equity markets are uh, you know, strong and positive and broad, check. So for us, this is an amazing time to be in our business. and as I mentioned to you before that last sector between you know, Atlantic Aviation, the Yankees, Nvidia and and all the other activities, we we have been uh bustling at Apollo.

18:41 Romo

How much could the Fed hike rates and do you see any chance they would cut them back or is this really the new normal?

18:50 Jim Zelter

Well, you know, I think whenever you, whenever anybody in these seats starts to extrapolate for years and years, that's a mistake. And I again, it's it's it's humbling to see a year or so ago, the market was pricing in three or four cuts and we see how wrong that is. So um I I I think that when I when I go out and just operate day-to-day as you all do, very few things are cheaper or cost less than they did a year, one year, three year, five years ago. And that's around the globe, everywhere you travel uh in the G7 economies. So I I think this, you know, I think Torsten has been spot on about a higher rate backdrop and whether that's between a a 10 year between 4 and a quarter and 5 and a half, I think that's the zip code we're going to be in for quite some time.