Apollo Defends Private Credit Amid Investor Concerns
(Bloomberg) — Apollo Global Management Inc. President Jim Zelter launched a full throated defense of private credit, downplaying investor concerns and describing recent developments in the asset class as mere “growing pains.”
Headlines around retail investors’ withdrawal of cash from private credit funds overemphasized a “skirmish on the sidelines” of the direct lending industry, Zelter said in an interview on Bloomberg Television on Thursday, noting that the rules capping redemptions were perfectly clear — and working as planned.
“On page one, in black and white, it talks about a 5% redemption structure of the portfolio to protect all investors,” he said. “We are doing what’s right as a fiduciary. It’s actually quite an easy conversation.”
Business development companies, a type of private credit fund for retail investors, have been hit with a wave of redemption requests amid growing anxiety around the $1.8 trillion market’s lending practices and exposure to businesses that are vulnerable to artificial intelligence disruption.
Shortly after Zelter spoke, Blue Owl Capital Inc announced that it would limit redemptions from two of its private credit funds after investors sought to pull around 41% and 22% of shares from them in the first three months of the year.
Last month, Apollo said that it was curbing withdrawals from one of its largest non-traded private credit funds for retail investors, joining other alternative asset managers who have grappled with a surge in such requests.
The $25 billion BDC, Apollo Debt Solutions, capped investor outflows at 5% of outstanding shares Monday after clients sought to redeem 11.2%, according to a shareholder letter. BlackRock Inc. and Ares Management Corp. are also among the firms that have curbed withdrawals from such funds.
Read More: Trapped in Private Credit, Investors Wait to Pull Out $5 Billion
Such rapid redemption requests have led to further questions about whether direct lending — an illiquid form of leveraged finance — is a suitable asset class for investors looking for pockets of liquidity.
Speaking at a conference in Asia last week, Zelter said that “certain distribution channels in certain parts of the globe,” may not have fully communicated the risks inherent to private credit to a retail audience. “And so you have a mismatch right now in shorter term redemptions.”
On Thursday’s TV appearance, however, he pointed out that the reason private credit was in the headlines at all was thanks to the hefty returns the asset class has generated for institutional investors.
“The last 15 years of so credit has compounded great returns for investors around the globe and they’ve done it in a manner which outbeats the high yield and loan indexes dramatically,” he said.
Zelter is not alone among industry titans lamenting recent media coverage of private credit. Blackstone Inc.’s Co-Chief Investment Officer, Kenneth Caplan also noted recently the “big disconnect between the headlines and the news cycle and what we see in the portfolio,” adding that there have been very low levels of default.
Middle East
Elsewhere, Zelter said that disruption from the ongoing conflict in the Middle East may see Apollo’s strategic partners in the region, including sovereign wealth funds, focusing more on domestic markets. “When this conflict ends, they’re going to need to focus on the capex at home,” he said.
That might have some marginal impact, Zelter said, but added that he hadn’t seen anything in recent weeks that would ultimately deter them from their broader investment objectives.