(Bloomberg) -- The bar for approving investments at Apollo Global Management has gotten higher and higher over the last year or so, according to President Jim Zelter, amid rising tail risk from geopolitics.
"You have a lot of great things going on, a massive capex cycle and good economic growth and consumers in solid shape" in the US, Zelter said Thursday in an interview on Bloomberg TV, but "there's lots of challenges between geopolitics and concerns about inflation and the return of invested capital and AI."
Planned layoffs topped 1.2 million in the US last year, the most since 2020, stoking anxiety about the future direction of the economy. Those fears eased with the latest data, while falling interest rates, mortgage borrowing costs and low oil prices are expected to be positive catalysts this year.
The US has been in an extended credit cycle and it's "harder to have a real economic recession because of the diversity of funding against the board. We have the healthiest banks on the globe and a securitization market that's alive and well," Zelter said. "That disburses a lot of risk around the economy."
While there will still be economic and credit cycles, the evolution of the US economy since the financial crisis means "it's a lot harder to push over this machine than it had been in the past," he said. "It's not your father's economy."
On artificial intelligence, Zelter said there's a gap of $1 trillion to $1.5 trillion between hyperscalers' capital spending needs over the next five to six years and the amount that is expected to be raised from equity and public debt markets.
"That seems like it's a huge number," he said. "It's definitely going to have a strain on the IG market."
Hyperscalers will go from a negligible impact on the investment grade debt market to making up 10% to 15% of participants, he said.
An influx of capital into the massive build-out of artificial intelligence and data centers is fueling high valuations and increasing risk for investors, Zelter has previously said. New York-based Apollo agreed to buy a majority stake in Stream Data Centers last year as it jostles to be involved in the rollout of AI infrastructure.
--With assistance from Annmarie Hordern, Lisa Abramowicz, Jonathan Ferro and Laura Benitez.
More stories like this are available on bloomberg.com
