John Zito - Inside Apollo - [Invest Like the Best, EP.426]

Here is the English translation of the provided Chinese investment research notes.

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This is an analysis report on the podcast "John Zito - Inside Apollo - [Invest Like the Best, EP.426]".

Quick Overview of This Episode

John Zito, Co-President of Apollo Global Management, explains how Apollo transformed from a traditional alternative asset manager into an "aggregator" financial giant with a massive balance sheet and deep alignment of interests with its clients. John Zito's core judgment is that the boundary between private and public markets will completely disappear. The future asset manager will not compete for 20% of a client's alternative allocation, but with product innovation, scaled origination capabilities, and deep participation of its own capital, will compete for the client's entire 100% portfolio.

Theme 1: The Convergence of Private and Public Markets, and the "No-Wall" Organizational Structure

John Zito believes the future of asset management lies in breaking down the barriers between private and public markets. Apollo's "no-wall" organizational structure and "bottom-up" product design are the core of navigating this trend.

• Mechanism Breakdown: Traditional institutions typically organize by fund, with traders aiming to achieve a specific fund's return target. In contrast, Apollo's teams are encouraged to start from the "company" and "risk/return" perspective to design the optimal capital solution, regardless of whether it ends up being a public market bond, private credit, or equity. Zito analogizes: "We don't have a 'hammer looking for a nail' problem. We are not driven by a single fund."
• Data Support: The effectiveness of this model is reflected in Apollo's scale. The company originates over $250 billion in transactions annually, has nearly $800 billion in assets under management, and is growing at a rate of $150 billion per year. The diversity of its business (from AAA-rated to equity) allows it to conduct multiple, different types of transactions with the same company.
• Deduction and Verification: The effectiveness of this model depends on whether it can consistently generate higher efficiency or lower capital costs compared to traditional models. If a major credit event occurs in the future, whether Apollo's "no-wall" model can maintain its advantages in internal risk isolation and decision-making speed will be a key point of verification.

Theme 2: Athene and the "Principal" Model – The Core of Interest Alignment

John Zito views the merger of Apollo and Athene as a fundamental innovation, transforming Apollo from an "agent"-type asset manager into a "principal" deeply aligned with client interests.

• Historical Context: The story of Athene began after the financial crisis, when spreads on investment-grade credit were huge while long-term liability costs were low. Apollo discovered that by acquiring Athene, it could build a business model of "originating excess spread," investing its own capital and providing clients with guaranteed yield products.
• Mechanism Breakdown: The core of this model is the "spread business." Athene sells annuities at a cost of 4-5%, then invests the funds (approximately $300 billion), with 95% allocated to investment-grade assets and 5% to alternative investments, targeting a return of around 6.5%. Apollo retains the spread and takes the first-loss position. This makes Apollo the largest investor in most of the products it manages, achieving indisputable alignment of interests with clients.
• Unique Judgment: Zito points out that the key to this model is "building in-house origination capabilities." To service Athene's balance sheet, Apollo invested nearly $10 billion of its own capital from 2014 to 2022 to acquire or build multiple origination platforms (e.g., PK Air, NewFi, Atlas), hiring 4,000 employees specifically to originate assets for the balance sheet. This allowed Apollo, after interest rates rose from zero to 500 basis points, to become one of the largest and most professional origination institutions in the market, capable of offering excess origination capacity to third-party clients.

Theme 3: Investment-Grade Private Credit – From "Alternative" to "Customized" Solutions

John Zito argues that Apollo is upgrading private credit from a synonym for "subordinated debt" to the preferred solution for S&P 500 companies seeking "customized, off-balance-sheet, long-duration" financing. The core is "customization" rather than "standardization."

• Mechanism Breakdown: Traditionally, investment-grade companies finance through banks and public bond markets. Zito notes that Apollo's solutions have three key features: off-balance-sheet treatment (does not increase the company's existing debt capacity), longer duration (up to 30+ years), and structural flexibility (e.g., coupon payments adjustable during project construction). This allows companies to obtain more "tailor-made" capital than what is available in public markets.
• Data and Cases: Zito cites the $11 billion transaction with Intel as an example. This deal had a complex structure and a duration exceeding 30 years, effectively representing capital between debt and equity, leveraging Apollo's combined capabilities in investment-grade and equity. Other notable cases include InBev, BP, and Air France. Zito emphasizes that this is not about replacing traditional financing channels, but providing large companies with an important "diversification option."
• Competitive Landscape and Risks: Zito acknowledges that Apollo's brand image is still tied to "distressed investing," a "brand issue" that needs to be overcome. However, he believes this perception is changing as more transactions with well-known companies are completed.

Theme 4: Asset Liquidity, Secondary Markets, and the "100% Portfolio" Strategy

John Zito presents a counter-intuitive judgment: almost all assets will become more liquid in the future, fundamentally changing asset allocation logic and creating new liquidity solutions.

• Viewpoint: Zito believes that traditionally considered "high-risk, high-return" private equity and private debt will see their liquidity significantly enhanced with the development of secondary markets and tokenization. He asserts: "We have a high-level view that all assets will become more liquid over time."
• Data and Analogy: He cites the fixed income market as an analogy, noting that "portfolio trading" can be executed at very low cost, while trading a single bond is expensive. He predicts that when private assets are viewed as "private markets beta" rather than individual positions, their liquidity will greatly increase. Apollo is already experimenting, including partnerships with State Street and Lord Abbott, and tokenizing funds on the blockchain, enabling 24/7 trading.
• Strategy Deduction: If assets become more liquid, the labels "private" and "public" will lose meaning. Zito believes the future conversation between Apollo and clients will no longer be about "20% alternative allocation" but about "the optimal risk/return for the 100% portfolio." This requires an asset manager to provide products covering all asset classes and structures, and Apollo's "no-wall" architecture is designed precisely for this.

Mentioned Positions

Position	Guest Attitude	Key Data
Intel	Positive / Transacted	$11 billion, duration over 30 years, complex investment-grade solution
InBev	Landmark Case	First private credit provided to an S&P 500 company in 2020, seen as a milestone
Carvana	Investment Success / Trust Building	From a $500 million loss to a $1 billion profit, provided a "Co-op" solution, ultimately benefiting all participants
Hertz	Demonstrating Platform Capability	Total investment of approximately $10 billion, involving various capital forms: DIP, senior secured, securitization, preferred equity, platform business acquisition
Atlas (formerly Credit Suisse platform)	M&A Success / Integrating	Acquired $28 billion in assets, expected to grow to $50-100 billion, controls 280 independent warehouses, employs 180 people
BP / Air France / Vinovia	Investment-Grade Client Cases	Specific data not disclosed, but represents Apollo entering the core business domain of traditional banks
Ari Emanuel (Endeavor)	Collaboration / Provided Financing	Provided financing for the Miami Open and Madrid Open, part of the "experience economy" investment theme

Judgments Worth Remembering

1. "The future is the 100% portfolio, not 20% alternative allocation." (John Zito) — Supporting evidence: Asset liquidity will increase, and asset managers need to provide a full spectrum of solutions from public market bonds to private equity to address the entirety of clients' investment needs.

2. "Put the smartest people on investment-grade business, not on high-return funds." (John Zito) — Supporting evidence: Apollo allocates its most creative "artists" to the seemingly mundane "investment-grade" business to achieve customized capital structure design for large companies like Intel, which requires more intelligence than standardized public market transactions.

3. "A 32% annual return doesn't mean you made more money than 13%, because compounding and income orientation are more valuable in a higher-rate environment." (John Zito) — Supporting evidence: He uses a vivid cartoon story to illustrate that in a low-rate environment, high-IRR private equity funds, lacking dividends and reinvestment opportunities, may ultimately result in less wealth accumulation than a "evergreen" strategy that generates continuous cash flow with lower but more stable returns.

4. "Aligning with clients is not about designing a co-investment clause, but about being the largest 'first-loss' investor in every product." (John Zito) — Supporting evidence: Through Athene's balance sheet, Apollo fundamentally changed the incentive structure, which aligns with client interests more than any "2/20" fee model.

5. "The credit market is a 'village,' not a 'zero-sum game'." (John Zito) — Supporting evidence: Using the Carvana case, he explains that in the credit market, long-term, trust-driven personal relationships (with CEOs, with peers) are key to success, starkly contrasting with the "zero-sum game" culture of the equity market, making cooperative models like "Co-op" possible.

6. "Assets will become more liquid, not because of regulation, but because of market and technology drivers." (John Zito) — Supporting evidence: Secondary markets and tokenization are transforming previously illiquid private assets into tradeable commodities, fundamentally shaking the old investment paradigm of "private = high risk."

7. "Artistry at Scale is the moat." (John Zito) — Supporting evidence: Scale itself is not a moat, but by leveraging scale to serve companies across their entire lifecycle with capital (like the Hertz case) and having expert teams covering all asset classes, it creates complex solutions that smaller institutions cannot replicate.

8. "The core of building an in-house origination platform is 'extremely clear credit rules' and 'rapid redefinition'." (John Zito) — Supporting evidence: Using Atlas as an example, clear underwriting standards can unleash the creativity of front-line employees, while vague rules only lead to inefficiency and brand reputation damage.