Bloomberg Talks: John Zito (Podcast)

Apollo Asset Management co-President John Zito said AI is affecting investing and private credit, and argued that a higher-volatility regime may make credit a relatively safer place to be. The remarks were made in an interview at the Milken Institute Global Conference in Beverly Hills. The article is primarily commentary, with limited immediate market-moving content.

Analysis

The key second-order implication is not that AI is simply “good for credit,” but that it may widen the gap between lenders with real underwriting edge and everyone else. In a higher-volatility regime, borrowers with lumpy cash flows and asset-heavy collateral become more financeable on a relative basis than high-multiple public tech exposed to duration compression, which should channel capital toward private credit managers and away from crowded growth exposures. That favors platforms that can price complexity and structure downside protection, while pressuring direct-lending competitors that rely on spread compression and easy refinancings.

The more interesting market effect is on financing supply, not demand. If AI adoption increases capex needs while public equity remains punitive, private credit becomes the default bridge, but that also raises refinancing risk 12-24 months out if rates stay sticky and sponsor exits remain muted. Watch for a bifurcation: top-tier borrowers will keep accessing capital at acceptable spreads, while weaker vintages may require amendments, payment-in-kind features, or covenant resets, creating mark volatility for less disciplined lenders.

The consensus risk is that investors extrapolate “private credit is safer” without pricing the correlation shock that arrives in a volatility spike. Private assets look stable until they reprice all at once; the tail risk is an abrupt correlation increase between credit marks, fundraising conditions, and realized defaults if growth slows or AI spending disappoints. That makes long credit-beta exposure attractive only if paired with explicit convexity or downside hedges, because the carry can disappear quickly once the market re-rates risk premia.

A useful framing is that AI is a disinflationary force for some costs but an inflationary force for capital intensity, which should favor lenders and infra owners over levered operators. The hidden winner may be volatility itself: higher dispersion improves pricing power for structured credit, second-lien, and rescue financing, while passive spread buyers get weaker risk-adjusted returns. If macro volatility stays elevated for several quarters, the sector that can monetize complexity should outperform the sector that merely harvests spread.

Key Decisions for Investors

• Long KKR / APO vs short ARKK for a 3-6 month relative-value expression: own managers with underwriting and structuring edge while shorting duration-sensitive AI/growth multiples; target 15-20% spread capture if volatility stays elevated.
• Build a barbell in credit: long the highest-quality private credit platforms (APO, ARES, BX) and hedge with CDX HY protection or HYG puts over 1-3 months; carry should remain positive unless spreads gap wider by >75 bps.
• Avoid lower-tier direct-lending BDCs and levered credit funds that depend on refinance continuity; underperform risk rises over 6-12 months if exit markets stay closed and amendment volumes increase.
• If you want convexity, buy 6-12 month downside on over-owned AI winners financed by selling upside in defensives; higher rates and capex intensity make the long-duration equity tape vulnerable to multiple compression.
• Watch for any widening in private credit fundraising delays or NAV markdowns as a catalyst to add to credit hedges; that is the earliest signal the 'safe place to be' narrative is breaking.