Amid soaring sovereign debt, Apollo (APO.US) targets major government financing deals.

Apollo Global Management Inc. (APO.US) is evaluating a larger role in financing heavily indebted governments and state-backed enterprises, as these entities increasingly turn to private capital to fill budget gaps. Apollo President Jim Zelter said in an interview in London on Tuesday that governments, especially in Europe, are viewing private capital as "one of the solutions" to address mounting debt. Apollo, known for innovative financing, is exploring ways for government-backed enterprises to shore up their balance sheets, including by bringing in long-term capital. Zelter said one option is to place hard assets into subsidiaries to raise funds. Over the years, this tool has helped Apollo expand its client list, particularly in Europe. Apollo's expansion in Europe includes investments in European energy infrastructure companies, such as a major Orsted offshore wind project in the UK, RWE's German grid business, and an agreement to provide financing for the construction of the Hinkley Point C nuclear power plant in the UK. "The challenge in Europe is that the banking system, the investment system and the pension system are not really ready, nor do they have the capacity to take on these needs," Zelter said. Apollo has been recruiting well-connected bankers and policy advisers to help unlock large deals. The company reorganized its European and Asian leadership teams earlier this year and appointed former Standard Chartered Chief Financial Officer Diego De Giorgi to head its European business. Zelter said Apollo has also spent more time in Washington and other global capitals looking for ways to finance the defense industry. He expects private capital to play a larger role in procurement and supply programs in the US and Europe. The company is also seeking to capture the trillions of dollars in funding needed by companies for AI infrastructure. Zelter said Apollo has set an exposure cap on participating in the AI construction boom, adding that savvy credit investors keep portfolio exposure to any single sector in the mid-to-high single-digit percentage range. Alternative asset managers including Apollo and Blackstone have invested billions of dollars in AI and the infrastructure needed to build and power it. At the same time, investors have been pressing asset managers to understand the extent to which AI-related investments have permeated various funds. "As investors today, we are all trying to figure out what the unintended consequences are, or what the second- or third-order effects are," Zelter said.