Investments in the form of Apollo Global Management, a company that is known for alternative investments, have faced a decline in their stock value this year due to concerns in the private credit market. During the Invest in America Forum held in Washington, D.C., the billionaire CEO Marc Rowan defended the company’s business practices and tried to distance themselves from the riskiest parts of the private credit market.
One of the main issues Apollo has been dealing with is the decision to limit quarterly redemptions in a private credit fund to 5%, while other firms in the same space have relaxed their redemption limits. However, 5% is considered a generally accepted standard in the industry. Apollo has also criticized the valuations of software, a sector that is at the center of private credit default fears due to potential AI disruption, stating that many valuations are inaccurate.
At the CNBC event, Rowan even criticized some of Apollo’s competitors and investors in the private credit space as redemption requests increased. He highlighted the importance of investors being aware of what they own and the risks involved in the market.
Despite facing redemption requests totaling 11% of assets, Apollo only met requests equivalent to $750 million. Rowan emphasized the company’s size and stated that 5% quarterly redemptions of $750 million have a minimal impact on their overall assets.
BlackRock also followed a similar 5% redemption limit, with its CEO Larry Fink emphasizing transparency in dealing with investors.
Rowan discussed the rebound of software stocks in the market and predicted that the role of technology companies in the debt market will continue to grow. He acknowledged the significant changes happening in the debt markets but reassured that the market’s fears were overstated, particularly in relation to Apollo.
He highlighted the dominance of enterprise software in the private credit market and raised concerns about over-concentration and risk within the industry. Despite these challenges, Apollo managed to originate a substantial amount of new investments last year, largely focusing on investment-grade financing with major issuers such as Intel, BP, and Shell.
Rowan also discussed the overall private credit market, estimating it to be $40 trillion with $2 trillion in levered direct lending, the segment causing fears in the private credit market. He highlighted opportunities for institutional investors and emphasized the role of technology companies, especially in enterprise software, as a key area of concern.
He expressed confidence in the future growth of tech companies in the debt market, predicting a shift towards larger tech companies dominating the investment-grade index in the coming years. Rowan also mentioned the rise of tech company-issued debt in the index and the need for substantial capital in the market.
Overall, Rowan emphasized the segmented nature of risk within the financial system, with different companies accessing various parts of the market based on their credit rating and capital needs. He highlighted the importance of understanding and managing risks in the evolving debt market.
