Apollo Global Management President Jim Zelter outlined the firm’s perspective on the evolving landscape of private credit during a discussion at Bank of America’s 34th Annual Financial Services Conference. He emphasized that private credit, often narrowly defined by direct lending, encompasses a vast array of assets historically held by banks, including commercial and residential real estate debt, and asset-backed securities (ABS). Apollo views this sector as an approximately $40 trillion asset class, which has gained prominence as traditional banking has retreated, shifting more financing toward non-bank investors.
Zelter highlighted the anticipated capital needs for artificial intelligence infrastructure, estimating them to be between $5 trillion and $7 trillion over the next five years. He stated that Apollo plans to selectively finance AI initiatives where it can leverage structural advantages, favoring bespoke, contract-backed transactions, such as chip sale-leasebacks. The firm is also focusing on enhancing its origination capabilities and distribution channels, which include wealth management, retirement services, and strategic partnerships.
During his address, Zelter noted the current macroeconomic environment, describing several market forces as “a bit interest rate insensitive.” He pointed to a “massive AI build,” a “global industrial renaissance,” and the supportive policies of a pro-growth U.S. administration as beneficial to economic conditions, yet he cautioned about significant downsides if these circumstances were to shift. Using a golf analogy, he characterized the current landscape as a narrow fairway with severe rough, implying that any missteps could lead to substantial penalties.
Zelter expressed skepticism regarding expectations for a large equity monetization cycle, arguing that initial public offerings (IPOs) may not be as robust or swift as many anticipate. He estimated that the U.S. IPO market could represent around $250 billion to $300 billion, a stark contrast to the private equity asset class, which encompasses $5 trillion to $6 trillion. This discrepancy highlights a substantial need for monetization strategies that rely on mergers and acquisitions rather than solely on IPOs.
Apollo’s recent white paper titled “Private Credit: Fact or Fiction?” challenges the narrow interpretation of private credit. Zelter pointed out that the growth of sponsor-backed direct lending has evolved alongside high-yield bonds and leveraged loans, expanding from “zero to $2 trillion.” He contended that dismissing the potential for continued growth in private credit overlooks significant economic transformations, particularly in the wake of the global financial crisis which reshaped banking regulations and return-on-equity metrics.
The firm has invested “billions” in developing origination platforms, positioning itself as a key player capable of providing capital solutions across various markets. Apollo intends to capitalize on several themes shaping the next three to five years, which include a global industrial renaissance, increased engagement with individual retail investors, and public-private convergence opportunities. Zelter also referenced collaborative initiatives with traditional managers and distribution partners, such as Schroders and State Street’s PRIV initiative, aimed at enhancing Apollo’s sourcing and packaging capabilities.
On the potential for private credit to trade similarly to liquid markets over time, Zelter acknowledged some compression logic but maintained that the premium for providing large-scale private solutions would likely persist. He compared this evolution to the leveraged loan market, where initially illiquid products grew into a significant market. Apollo has facilitated liquidity in certain high-grade capital solutions, trading “a shade under $10 billion” of these assets last year.
As for the private equity fundraising landscape, Zelter confirmed that Apollo commenced fundraising for Fund XI late last year, with a target between $22 billion and $25 billion. He expressed confidence in achieving a first close before mid-year, although fundraising efforts could extend into 2027. Zelter emphasized Athene’s robust growth capabilities, highlighting its leadership in fixed annuities and a multi-faceted approach to capital-raising strategies including mergers and acquisitions, organic retail, and pension risk transfers.
The discussion also underscored the pressing “retirement crisis” in the U.S., linked to shifts toward defined contribution systems. Zelter noted a compelling demand for guaranteed income solutions and identified potential growth markets outside the U.S., such as Japan, Korea, and Australia, as well as opportunities in Western Europe, conditional on regulatory environments. Apollo Global Management continues to position itself at the forefront of the alternative investment landscape, leveraging its expertise in private equity, credit, and real assets to navigate an evolving market.
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