Alternative investments giant Apollo Global Management has seen its stock swoon this year as a result of fears in the private credit market. At CNBC’s Invest in America Forum in Washington, D.C., on Wednesday, its billionaire CEO Marc Rowan offered the latest defense of its book of business, and latest attempt to distance the firm from the riskiest edge of the private credit market.
Apollo has faced scrutiny for its decision to limit quarterly redemptions in a private credit fund to 5% — other firms in the space have relaxed their redemption limits, though 5% is a generally accepted standard in the industry. Apollo has also been vocal in saying that many software valuations, the sector at the center of the private credit default fears as a result of the potential for rapid AI disruption, are “wrong.”
At the CNBC event, Rowan had even harsher words for some of Apollo’s peers and investors in the private credit space as redemption requests have risen.
“We have a situation where investors do not actually know what they own. Maybe they should have known,” he told CNBC’s Sara Eisen. “If you discovered eight weeks ago that enterprise software was vulnerable to AI, you kinda weren’t doing your job,” Rowan said. “This is knowable.”
Its private credit fund, which received redemption requests representing 11% of assets, has roughly 12% of loans in software, the single biggest sector in Apollo Debt Solutions BDC.
The redemption requests which Apollo did meet equaled $750 million.
“We are a trillion-dollar manager,” Rowan said. With $750 billion in credit investments, and $16 billion in retail investor assets, 5% quarterly redemptions of $750 million “rounds to zero,” Rowan added.
BlackRock drew a similar line in the sand at the stated 5% limit, with its CEO Larry Fink telling the BBC in March, “It’s not like it’s on Page 92 of a prospectus. It’s on Page 1.”
As for other lenders, Rowan added, “If you can’t, as a first lien credit manager, meet 5% redemptions per quarter, I’ll say it frankly: You’re an idiot. This is not that hard to do.”
Software stocks rebound, tech’s role in debt market will grow
Beaten-up software stocks are beginning to join the market rebound, and noted investor and short seller Michael Burry wrote in a new Substack post that he did not believe “the technical pressures brought on by the private credit/software debt issues are big enough to affect these stocks for much longer.”
But Rowan did say that the changes taking place in the debt markets, and the role of technology companies in those changes, are going to remain significant even if he continues to say the market is overstating the fears as they relate to Apollo specifically.
“Private equity spent a decade where 30% of the activity was enterprise software,” he said. “This is not a story of whether private is good or bad. It’s concentration in one industry being affected by technological change. … Enterprise software stocks are down 60-70%. It is all about selection of business. It’s over-concentration, it’s too much growth, too much risk,” he added.
Last year, Apollo originated $310 billion in new investments, 80% of which was investment-grade financing, with the largest issuers including Intel, BP, Shell, Air France, AB InBev, AT&T and Meta.
“We’re talking about two different things,” he said.
Apollo Global Management stock over the past year.
The private credit market overall is $40 trillion, with $2 trillion of that total in the levered direct lending at the heart of the private credit market fears, according to Rowan. Spreads have widened, but in most sectors, he said that widening will be seen as an opportunity to institutional investors and ultimately interest will return spreads back to a normal range, with the exception of enterprise software, where he said the risk of technological change, valuation change and default risk as a result of AI will remain.
In the levered lending private credit space below investment grade, “we round closer to zero than 1%,” Rowan said. “It’s 0.4%.”
He added that is the case for most of the regulated balance sheets in the U.S., where it’s “not an efficient asset class.”
“For the top 15 insurers, it’s nothing by nothing. This is just not the asset class that private credit insurers own. It’s Intel, BP, Shell, the NFL, and so on,” Rowan said. But he added, “I do worry about what we don’t know in the Caymans, in Barbados, and Anguilla.”
In his view, the presence of technology companies in the debt market remains headed in one clear direction: bigger. “The entire Silicon Valley ecosystem spent the past 50 years not needing capital, and all of a sudden it’s the most capital-intensive business anywhere on the planet,” he said. “The 10 largest issuers of investment grade today are all banks. Five years from now, it will be five large tech companies and five large banks, if everything holds,” he said.
Investment-grade debt issued by tech companies has already risen “from nothing,” Rowan said, to 11% of the index, and did so “in a flash, and the scale of capital we need is off the charts.”
“Right now, the big hyper-scalers, Google, Meta, Amazon, Microsoft, go down the list … they have cash flow in other businesses and are lending their credit in the form of guarantees and in the form of leases, and so if we as a financial system have issues with Microsoft and Amazon, we have other issues,” he said. “There are companies that do have that kind of credit rating and higher cost of capital, the Coreweaves and others, who are accessing another portion of the market … but risk is being segmented in a way where it’s hard to say risk will just be everywhere in the system. It’s going to places it should go,” Rowan said.