(Bloomberg) -- A chorus of Wall Street chiefs said the worlds of private credit and traditional bank debt are continuing to collide — with Apollo Global Management Inc.’s Marc Rowan predicting that in just 18 months some borrowers won’t be able to tell the difference between the two offerings.
The $1.7 trillion private credit market swelled in size by providing capital to private, non-investment-grade companies or other businesses that couldn’t get traditional bank financing. Now, though, asset managers like Apollo or rival Blackstone Inc. are trying to lend more to to established businesses — putting them in a position to further unseat Wall Street incumbents.
“There’s going to be a blur,” Rowan said during a panel at the Future Investment Initiative in Riyadh. “We will not know — in the investment grade landscape — the difference between public and private 18 months from now. It’s going to be the same types of companies, the same rating, the same size.”
For years, the threat for big banks like Citigroup Inc. or Goldman Sachs Group Inc. has been that direct lenders would lure away clients and siphon off lucrative corporate-loan business.
But big bank executives have repeatedly shrugged off that risk. Many even now partner with big asset managers on private credit deals as they hunt for ways to maintain their revenue without tying up their own balance sheets.
Take Citigroup: the lender announced last month it would join forces with Apollo to arrange $25 billion in financings for corporate and private equity clients in the next five years. For now, the arrangement only covers non-investment grade lending and will focus on North America, though the two have the ability to extend the deal and to broaden its scope to include additional regions.
“There’s clearly an opportunity for a win-win and I think that’s what Marc and I have seen,” Citigroup Chief Executive Officer Jane Fraser said on the same panel. “We can give our clients a choice: do they want to go into a private asset vehicle or do they want to go into the public markets? And I think that’s where we saw the win-win with Apollo.”
‘Unique Combination’
In some cases, banks are offering investing clients more ways to wriggle into the action. At Goldman Sachs, the firm has helped customers of its asset management business funnel $140 billion into private credit, according to CEO David Solomon.
“We manage significant private credit assets but we also have one of the leading syndication franchises,” Solomon said in an interview with Bloomberg Television. “So we have an ability to originate and distribute in addition to being an investor through our asset management business. That’s a very unique combination.”
Carlyle Group Inc. CEO Harvey Mitchell Schwartz, who himself used to be a top executive at Goldman, also noted that the growth of the private credit industry could be traced to companies choosing to stay private for longer as well as bank regulation that makes lending to such companies more difficult.
“This is about just the efficient delivery of capital,” Schwartz said. “Capital is like water coming down a hill. It will find its path. Sometimes it gets stuck but it will find its most efficient path.”
--With assistance from Joumanna Bercetche.
©2024 Bloomberg L.P.