Apollo Sees Higher-for-Longer Rates Fueling AI Infrastructure Financing Boom

Key Points

• Apollo expects interest rates to remain higher for longer, while estimating only a 10%–20% chance of a recession over the next year. Consumer spending, inflation and AI infrastructure investment are supporting economic activity, though geopolitical and energy risks remain.
• The firm views AI primarily as a large-scale financing opportunity, providing structured capital to investment-grade companies involved in digital infrastructure, energy, logistics and defense rather than betting on individual technology winners.
• Apollo reported strong institutional fundraising, including a $12 billion first close for its Fund XI, and expects private-equity industry consolidation as smaller or overexpanded managers struggle to return capital. Its high-grade capital-solutions business has completed more than 200 transactions totaling roughly $150 billion.

Scott Kleinman, co-president of asset management at Apollo Global Management NYSE: APO, said the firm sees a “higher for longer” interest-rate environment continuing as consumer spending, persistent inflation and investment in artificial intelligence infrastructure support economic activity.

Speaking at a Barclays conference, Kleinman said Apollo’s chief economist estimated the probability of a recession over the next 12 months at between 10% and 20%. He said geopolitical instability, trade policy questions, inflation and energy prices remain risks, but markets have continued to focus on consumer spending and the AI build-out.

AI infrastructure and large-scale financing

Kleinman said Apollo is approaching AI primarily as a financing and structured-investment opportunity rather than making directional bets on which companies will capture the most value from the technology.

“How do we sell the pickaxes to the gold miners as opposed to being the gold miners ourselves?” Kleinman said, describing the firm’s strategy of providing bespoke capital solutions to large investment-grade counterparties.

He said the capital needs tied to digital infrastructure, energy, industrial infrastructure, transportation, logistics and defense are occurring at a “once in a generation type scale.” In response, companies are increasingly using a mix of public equity, public bonds and private capital rather than relying on a single source of financing.

Asked about Apollo’s recently announced transactions with Broadcom and NVIDIA, Kleinman said the deals were highly structured and designed to be investment grade. He did not provide transaction-level financial details, but said such investments can be placed on Apollo’s balance sheet, client balance sheets and with syndication partners. Apollo expects a meaningful share of its transactions to remain on its own balance sheet, subject to issuer and sector concentration limits, he said.

Europe, high-grade solutions and origination

Beyond AI, Kleinman pointed to opportunities in traditional and renewable energy, transportation and logistics infrastructure, and structured or hybrid corporate financing. He said Apollo is also expanding its presence in Europe through investments in personnel and country offices.

European companies are increasingly looking to private capital because local capital markets are less robust than those in the United States, Kleinman said. He cited transactions involving EDF, BP, Air France and RWE as examples of the firm’s activity in the region.

Kleinman also highlighted Apollo’s high-grade capital solutions business, which provides customized financing to large investment-grade companies. He said Apollo has completed more than 200 such transactions representing about $150 billion of capital.

These financings can offer companies more tailored terms and access to capital pools that may not be available through traditional investment-grade bond issuance, he said, while not necessarily requiring more risk. The business requires extensive structuring and ratings-agency engagement, according to Kleinman.

He said origination remains central to Apollo’s business model, including its Apollo Capital Solutions, or ACS, platform. ACS revenues have exceeded $200 million for five consecutive quarters, according to the Barclays interviewer. Kleinman said the platform’s principal purpose has been to help Apollo source assets, finance portfolio companies and syndicate transactions, with fee revenue being a secondary benefit.

Fundraising and private-equity outlook

Kleinman said Apollo is experiencing a “banner year” in institutional fundraising across hybrid capital, credit and private-equity products. The firm’s Fund XI private-equity vehicle launched in January and held a first close of $12 billion last month, he said. Apollo expects to pursue its target through the rest of the year and into the first half of next year.

He said institutional investors remain interested in private equity but have become more selective among managers. Apollo’s discipline during the prior cycle and its ability to monetize investments have supported fundraising, Kleinman said.

Looking across the industry, he expects the number of private-equity managers to decline as firms that expanded rapidly during the era of low interest rates face challenges returning capital. He also expects continued innovation around long-term company ownership, capital structures and more market-like forms of active equity management.

Wealth products and AMAPS

On semi-liquid private-credit products, Kleinman said recent redemption pressure was not unexpected following significant fundraising in the sector. He said redemption caps are functioning as intended and that he expects demand to improve as investors recognize that the market is not currently in a broad credit cycle, though he cautioned that his outlook was conjecture.

Kleinman said Apollo is pursuing daily pricing, enhanced transparency and an Intercontinental Exchange identifier for certain private assets as it seeks to make private-market products more accessible to wealth managers, retirement plans, mutual funds and institutional investors.

He also discussed AMAPS, an Apollo-created structured-credit product designed as an alternative evolution of the collateralized loan obligation market. Unlike traditional CLOs that he said are optimized for triple-A investors, AMAPS is designed around the single-A portion of the capital structure and has included roughly 50% investment-grade collateral.

Apollo has completed five AMAPS issuances totaling about $25 billion, Kleinman said. About half has been acquired by Apollo’s own balance sheet and the remainder by third-party investors. He said the firm is sharing the product’s technology with other credit originators in hopes of developing a broader market.

Regarding Athene, Kleinman said the annuity market has always been competitive and that success depends on client service, products, pricing and excess-spread delivery. He said AMAPS is one component of Apollo’s effort to create excess spread without taking excess risk, adding that the firm was “cautiously optimistic” about improving conditions.

About Apollo Global Management (NYSE:APO)

Apollo Global Management, Inc NYSE: APO is a global alternative asset manager that provides investment management and retirement services. The company serves institutional investors, businesses and individual investors through a range of strategies focused on private equity, credit, real assets and other long-term investments.

Apollo's asset-management business invests across industries and geographies, with activities that include corporate and structured credit, private equity, infrastructure, real estate and hybrid strategies.

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