Alternative investment giant Apollo Global Management has seen its stock price plummet this year as a result of concerns in the private credit market. On Wednesday at CNBC’s American Investment Forum in Washington, D.C., the company’s billionaire CEO Mark Rowan offered the latest defense of the company’s book of business and the latest attempt to distance it from the riskiest end of the private credit market.
Apollo is facing intense scrutiny over its decision to cap quarterly redemptions on its private credit funds at 5%. Although 5% is a generally accepted standard in the industry, other companies in the sector have also relaxed their reimbursement limits. Apollo also vocally argues that many of the valuations of software, a sector at the center of concerns about private credit defaults due to the potential for rapid disruption by AI, are “wrong.”
At the CNBC event, Rowan had more harsh words for some of Apollo’s peers and investors in the private credit space as redemption demands mount.
“We’re in a situation where investors don’t actually know what they own, and maybe they should have known,” he told CNBC’s Sarah Eisen. “If you discovered eight weeks ago that your enterprise software was vulnerable to AI, you’re not doing your job,” Rowan said. “This is understandable.”
The company’s private credit fund, which has redemption claims representing 11% of its assets, holds about 12% of its loans in Software, the single largest division of Apollo Debt Solutions BDC.
The actual redemption requests that Apollo satisfied amounted to $750 million.
“We’re a trillion-dollar operator,” Rowan said. With $750 billion in credit investments and $16 billion in retail investor assets, the quarterly redemption of 5% of $750 million “rounds up to zero,” Rowan added.
black rock The company has drawn a similar line with its prescribed 5% limit, with CEO Larry Fink telling the BBC in March: “It’s not on page 92 of the prospectus. It’s on page one.”
Rowan added about other lenders. “As a first lien credit manager, if you can’t achieve 5% redemptions every quarter, let me tell you frankly: You’re an idiot. This isn’t that hard.”
Software stocks rebound as technology’s role in fixed income markets expands
Tattered software stocks are also starting to join the market rally, with prominent investor and short seller Michael Burry writing in a new post on Substack that he doesn’t believe the “technical pressures posed by private credit and software debt issues are significant enough to impact these stocks long term.”
But Rowan said the changes happening in the bond market and the role of technology companies in that change will continue to be important, especially as it relates to Apollo, even as the market continues to say the fears are exaggerated.
“Private equity has had 30% of its activity in enterprise software for 10 years,” he said. “This is not about private companies being good or bad. It’s about being concentrated in one industry as a result of technological change… Enterprise software stocks are down 60-70%. It’s all about business choice. It’s too concentrated, it’s too grown, it’s too risky,” he added.
Last year, Apollo made $310 billion in new investments, 80% of which were investment grade loans, with some of 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 total size of the private credit market is $40 trillion, of which $2 trillion is in leveraged direct lending, which is at the center of private credit market concerns, Rowan said. Spreads have widened, but in most sectors the widening is seen as an opportunity for institutional investors, and interest will eventually bring spreads back to normal ranges, he said. The exception is enterprise software, where technological changes, valuation changes and default risks as a result of AI remain, he said.
For leveraged lending private lines of credit that are below investment grade, “we round to a number closer to zero than 1%,” Rowan said. “It’s 0.4%.”
He added that this is the case with most regulated balance sheets in the U.S. and that it is “not an efficient asset class.”
“For the top 15 insurers, this is nothing. It’s just not an asset class that private credit insurers own. It’s Intel, BP, Shell, NFL, etc.,” Rowan said. However, he added, “I’m worried about what we don’t know in the Cayman Islands, Barbados and Anguilla.”
In his view, technology companies’ presence in the fixed income market is still trending in the clear direction of “bigger.” “The whole Silicon Valley ecosystem went from spending the last 50 years without needing capital to suddenly becoming the most capital-hungry business anywhere on the planet,” he said. “Currently, the 10 largest investment-grade issuers are all banks. If all goes well, in five years they will be five big tech companies and five big banks,” he said.
Investment-grade corporate debt issued by tech companies has already grown from “zero” to 11% of the index, Rowan said, “and it’s growing very quickly, and the amount of capital required is extraordinary.”
“Right now, the big hyperscalers – Google, Meta, Amazon and Microsoft – are at the bottom of the list. They have cash flow in other businesses, and they lend credit in the form of guarantees and leases. So if we have a problem with Microsoft and Amazon as a financial system, we have other problems as well,” he said. “There are companies that have those credit ratings and high costs of capital. There are companies like Coreweaves that have access to different parts of the market… but risk is fragmented in a way that you can’t say it’s everywhere in the system. Risk is going to go where it needs to go,” Rowan said.
