Speaker 1: Private credit is now a serious rival to mainstream lending
Speaker 1: for all kinds of businesses, from real estate firms to
Speaker 1: tech startups, but the market in Europe is yet to
Speaker 1: take off in quite the same way as the US,
Speaker 1: and concerns remain about the industry's opacity and its ability
Speaker 1: to cope with a prolonged recession. Joining us now to
Speaker 1: discuss in studio, Tristram Leach, partner and head of Investments
Speaker 1: for Credit in Hybrid and Europe at Apolot. Just great
Speaker 1: to see you. Thanks so much for joining us on
Speaker 1: Bloomberg Radio. I want to know how you're thinking about
Speaker 1: the rest of this year. There's been massive upheaval in
Speaker 1: trade and geopolitics in the first half of twenty twenty five,
Speaker 1: but stock markets have been hitting repeated record hies in
Speaker 1: recent weeks, so private market's just as bullet So yeah.
Speaker 2: You're right that the public markets are obviously not reflecting
Speaker 2: a enormous amount of risk. Premium credit spreads in public
Speaker 2: credit are painfully tight. I'd say there's definitely some premium
Speaker 2: available in private credit markets, and I think people's focus
Speaker 2: is how much deal flow and volume there is for
Speaker 2: the remainder of the year. I think also when we
Speaker 2: think about private credit, and we think about it in
Speaker 2: a pretty expanded way, not just traditional sub investment grade lending,
Speaker 2: but also lending to large corporates, investment grade corporates, et cetera.
Speaker 2: And frankly, that's probably where the most scaled opportunity lies
Speaker 2: going forward, especially as we see Europe's need to invest
Speaker 2: in a lot of these areas infrastructure, defense, energy, etc.
Speaker 2: And so I think that's an opportunity set we're really
Speaker 2: ready to lean into.
Speaker 3: But is there sufficient risk appetite for investors in Europe
Speaker 3: for this?
Speaker 2: I mean I think so, look, investment grade private credit.
Speaker 2: To me, you know, we're not talking about an enormous
Speaker 2: amount of risk. We're talking about safe companies, large companies,
Speaker 2: and really the returns you can access by being able
Speaker 2: to provide solutions at scale with long dated and flexible capital.
Speaker 2: So you know, for me, it's not a question of risk,
Speaker 2: it's a question of being able to deliver those opportunities
Speaker 2: at scale. And certainly we have pocketive capital, our own
Speaker 2: balance sheets, you know, from Athene and Athora, which are
Speaker 2: very keen to deploy into that opportunity set.
Speaker 1: Where are those opportunities?
Speaker 3: Then?
Speaker 1: I mean, there's lots of focus in Europe on things
Speaker 1: like the massive ramp up and defense spending. Are you
Speaker 1: getting in on that act?
Speaker 2: So it's certainly an area we're engaging with them where
Speaker 2: we think there's a lot of opportunity. I think it's
Speaker 2: fair to say we haven't yet seen large scale financings
Speaker 2: and private financings in the defense space in Europe.
Speaker 1: Why do you think that is?
Speaker 2: Europe's wake up call on defense was relatively recent. It
Speaker 2: was kind of this year that really Europe realized that
Speaker 2: it needed to catch up in terms of defense spending,
Speaker 2: it needs to make good on its commitments to NATO
Speaker 2: and probably go a little bit further. So I think
Speaker 2: we're very very early in an evolution into an environment
Speaker 2: where there's more defense spending in Europe, and we certainly
Speaker 2: stand ready to engage with that, but it's the early days.
Speaker 1: What sort of engagement are you getting from that industry?
Speaker 1: Are they open and do they Are they aware of
Speaker 1: the opportunities that can come from tap in private markets?
Speaker 2: Yeah, they are, and I think it's a space where
Speaker 2: you're going to see more engagement, You're going to see
Speaker 2: deals happen, And we've certainly been on the front foot
Speaker 2: with engaging both with pol makers and with individual companies
Speaker 2: such that they know that the capital is there.
Speaker 1: Is this something that you feel that there is you know,
Speaker 1: particular countries where you're going to see more interest in that.
Speaker 1: I mean, I'm thinking about, you know, France and Germany.
Speaker 1: Where should we be looking to see where the next
Speaker 1: developments are going to come in that area?
Speaker 2: Across the European continent. There's needs to invest more in defense.
Speaker 2: I think there have been a lot of headlines around
Speaker 2: Germany's immediate willingness to expend more on defense and to
Speaker 2: drive its defense industry forward. So that's probably a place
Speaker 2: I'd be looking, But honestly, it's continent wide, Okay.
Speaker 3: Well, in the US, there's also been a lot of
Speaker 3: discussion about private capital being used for For one case, I
Speaker 3: wonder if there's any equivalent in Europe, you know, where
Speaker 3: a part of retirement savings could be used in private
Speaker 3: credit or do you think that the industry is too isolated.
Speaker 2: No, Clearly, we feel that the risk return is more
Speaker 2: compelling in private credit than in public markets, especially at
Speaker 2: the moment, and so the idea that you'd want savers
Speaker 2: to be denied the opportunity to benefit from the incremental
Speaker 2: return that's available seems to us, you know, bizarre. So
Speaker 2: so certainly making those products available to a broader swathe
Speaker 2: of the market is something that we feel strongly about,
Speaker 2: be that the wealth market or be that, you know,
Speaker 2: working with institutions to make those products available.
Speaker 1: And how does that work? I mean, how are those
Speaker 1: conversations going about trying to get that expanded base opened.
Speaker 2: We have been advocating for the availability of private credit
Speaker 2: and for the attractiveness is that as a product from
Speaker 2: you know, from the top of the house, and I
Speaker 2: think there's a pretty you know, widespread discourse around how
Speaker 2: attractive that product is, and certainly the relative value versus
Speaker 2: public markets yeah, becrourse.
Speaker 3: The flip side to this is the discussion of systemic risk,
Speaker 3: and over the past year you've had increasing discussion from
Speaker 3: the lights of Moody's and the IMF saying that private
Speaker 3: credit does pose this systemic risk. Is that fair? Are
Speaker 3: we going to see some fun collapse?
Speaker 2: What's interesting is that what we just discussed was the
Speaker 2: relative value of private credit versus public credit looking attractive,
Speaker 2: and yet you don't see these same points made about
Speaker 2: public credit markets. We've noticed liquidity in public credit markets declining,
Speaker 2: So for us to focus exclusively on private credit markets
Speaker 2: as a place where all the risk is doesn't make sense.
Speaker 2: Are you going to see funds a differentiation in fund performance?
Speaker 2: I think you are. You know, the last twenty years
Speaker 2: have been an environment where there hasn't really been a
Speaker 2: very deep cycle in credit markets, and so you've seen
Speaker 2: very highly correlated performance across the private credit industry. I
Speaker 2: think you're certainly going to see an environment where you
Speaker 2: see dispersion in credit outcomes, and you probably also see
Speaker 2: dispersion in manager outcomes. And frankly, that's something that an
Speaker 2: institution like Apollo, with the amount of resource that we
Speaker 2: put into our research and our process, you know, we
Speaker 2: welcome some dispersion in the market. Do I think it's
Speaker 2: a systemic risk that seems an overstretch to me.
Speaker 1: Where are you seeing stress at the moment within private credits?
Speaker 1: I mean thinking about you know, software companies coping demands
Speaker 1: of taking on AI or things like that. I mean,
Speaker 1: what sort of examples can you give us of where
Speaker 1: there are stresses being seen?
Speaker 2: Yes, software is a really good example. I think it's
Speaker 2: very early days in terms of understanding how AI is
Speaker 2: going to impact the software landscape. But if you think
Speaker 2: about software investing, it was traditionally a very high multiple
Speaker 2: sector and people lent extremely high leverage levels into that sector.
Speaker 2: We've been cautious on that sector really throughout. I'd say
Speaker 2: if you look at our book across both both Europe
Speaker 2: and the US, we're probably underweight software versus a lot
Speaker 2: of our peers, and a large part of that is
Speaker 2: because of our uncertainty about exactly how AI is going
Speaker 2: to impact the market. So that is certainly an area
Speaker 2: where we've been cautious. We remain cautious. We remain very
Speaker 2: very focused on trying to pass through the risk that
Speaker 2: our is likely to pose going forward. That's probably more
Speaker 2: a prospective risk than one that we're finding eventuating right now.
Speaker 2: There's not a bunch of software to stress happening immediately
Speaker 2: because of that, but it's certainly something we're focused on.
Speaker 3: How do you think that in the future private credit
Speaker 3: is going to evolve? Do you think we're ever going
Speaker 3: to see true liquidity?
Speaker 2: I mean, you know, I touched earlier on the way
Speaker 2: the public credit markets appear to be getting less liquid
Speaker 2: and I think in the same way, private credit markets
Speaker 2: are clearly becoming more liquid. So I think we are
Speaker 2: moving to a world where there is greater liquidity in
Speaker 2: private markets. I guess it depends what you mean by
Speaker 2: true liquidity, but you know, my subjective view is that,
Speaker 2: you know, when we do a large loan private loan,
Speaker 2: you know, the phone tends to run off the hook
Speaker 2: with people trying to buy it from us. So you know,
Speaker 2: in good times you can sell public credit risk and
Speaker 2: you can tell private credit risk, and in bad times,
Speaker 2: you know, both are relatively tricky to shift. So I'd
Speaker 2: say the liquidity profile of public and private credit is converging.
Speaker 1: I'm kind of intrigued with the idea of how the
Speaker 1: European side of this business can develop to you know,
Speaker 1: I suppose perhaps approach what's happening in the US and
Speaker 1: what you know, are there regulatory steps that you'd like
Speaker 1: to see being taken to try and open up how
Speaker 1: much European private credit can evolve. Are things like the
Speaker 1: Capital Markets Union helpful?
Speaker 2: Certainly that would be helpful. I mean, just just by
Speaker 2: way of thinking about the scale of our markets. You know,
Speaker 2: the seventy five percent of US corporate financing is non
Speaker 2: bank financing, and that's twelve percent in Europe. So there's
Speaker 2: an enormous amount of growth out there ahead of us. Obviously,
Speaker 2: things that make the somewhat nuanced environment of investing across
Speaker 2: the European Union and Europe as a continent more straightforward
Speaker 2: and capital markets Union will be part of that would
Speaker 2: clearly move things forward at an accelerated pace. But look,
Speaker 2: I think the growth is there regardless, just because at
Speaker 2: the moment so little of corporate financing has done from
Speaker 2: private credit and non bank financing.
Speaker 3: I got to ask you about the football We've had
Speaker 3: reporting from Bloomberg this morning suggesting that five billion pounds
Speaker 3: of Europe's football transfer markets ignited this private debt boom.
Speaker 3: Is that a new area of growth for Apollo.
Speaker 2: I'm not a big football guy, and I saw the
Speaker 2: headline this morning and I'd get asked about it. It's
Speaker 2: it is an area we're involved in in player financing.
Speaker 2: You know, five billion is a big number. It's probably
Speaker 2: not gigantic by the scale of you know, the credit
Speaker 2: markets and our activities in Europe, but certainly it's an
Speaker 2: area we're involved in, we think is interesting, we think
Speaker 2: represents compelling risk award, and look, it's part of our
Speaker 2: We look at that as part of our setback to business,
Speaker 2: where you know, lending against against receivables from high quality
Speaker 2: counterparties is something we're happy to do and we think
Speaker 2: we can do in a competitive way. And look, the
Speaker 2: sports world seems to be attracting more and more money
Speaker 2: all the time.
Speaker 1: Are you going to be prout of a drive up
Speaker 1: driving up player.
Speaker 2: I'm sure they're going to drive themselves up regardless.
Speaker 1: Okay, christ and great to have you with us. Thank
Speaker 1: you very much for joining us Sin Studio this morning.
Speaker 1: Tristram Leach, their partner and head of investments for Credit
Speaker 1: and Hybrid in Europe at Apollo. Really interesting conversation about
Speaker 1: this growing area of interest for investors as well. So
Speaker 1: a great time to take the temperature of where things
Speaker 1: are after what has been a very interesting run for
Speaker 1: the sector