Apollo has a holiday gift it wants to hand out this year — and, unlike Blackstone’s, it’s not a cringey video.
Speaking to Goldman Sachs analyst Alexander Blostein at the Goldman Sachs Financial Services conference on Wednesday, CEO Marc Rowan let the surprise slip.
“I suggested to you before when I came on, you’re going to get a Christmas gift from us. It’s going to be a gift-wrapped book, it’s the definitive book of private credit,” Rowan said. “It’ll be on our website, so all of you will have access to it.”
Rowan said the book is an attempt to clarify the confusion he sees mounting over the definition of private credit, which he attributed to the “media-ization of financial markets.”
“One of the things that’s been frustrating to us is that we have this term private credit,” Rowan said. “No one actually knows what it means, and everyone uses it differently.”
This Christmas gift comes after the high-profile bankruptcies of Tricolor Holdings and First Brands, and JPMorgan CEO Jamie Dimon’s assertion that there may be more credit “cockroaches.” His comments sparked a firestorm over private credit’s risks, which had everyone from the head of the International Monetary Fund to the chair of UBS weighing in against the burgeoning asset class.
The industry’s big names have since been playing catch-up with the perception. Just a few days ago, Rowan wrote an op-ed for Bloomberg that goes over the “four myths” of private credit. Meanwhile, Blackstone CEO Steve Schwarzman last month said that attempts to link private credit to the high-profile bankruptcies are “misinformation,” and just this week said at Abu Dhabi Finance Week event that banks, not private credit, hold the blame.
“In fact, all three deals were due diligence by banks, underwritten by banks, syndicated by banks, and private credit was sort of not in the room,” Schwarzman said.
Unpacking Apollo’s definition
Rowan said the first page of the firm’s Christmas gift will ask, “Why do we get this wrong?”
“The first is, no one knows what private credit is, so we have to define it,” Rowan said. “And the second is people misunderstand private credit in the sense that they don’t understand the difference between a bank and an investor.”
Rowan conceded that private credit was a “better business” over the last few years than it is now, but similarly, it would have been better to buy Nvidia stock over the last four years than currently. The comparison between debt and equity investment profiles may seem irrelevant, but Rowan said that’s actually the comparison real investors are making.
“People are not moving their money out of their treasury portfolio and into direct lending,” Rowan said. “They’re moving it out of equity.”
From that perspective, private credit is a “derisking” trade, taking investor cash away from “equity volatility,” Rowan said.
That’s not to say that the asset isn’t without its own volatility, but from an investor’s point of view, it’s still the best bet, he said.
“Of course, there’s risk in private credit,” Rowan said. “We’re lending to BB companies; some number of these companies will default, but it’s a fraction of the risk of equity, and it’s a fraction of the risk of public high yield.”
Rowan then said that “not much has changed other than this media lens” in private credit, which creates a conflict between private credit and financial institutions. And in the end, aren’t they both investors?
“Most of what is inside of financial institutions, be it a bank or an insurance company, is investing,” Rowan said.
