Rowan reports consistent spreads of 340 basis points over treasuries at BBB average rating on originations.
“But most importantly, it's coming at consistent spread, three forty basis points over treasuries off an average rating of BBB.”
Rowan says Athene's exposure to levered lending is 0.4% and software exposure is 0.1%.
“Our exposure to levered lending, which people sometimes call private credit is de minimis. Rounds closer zero than to 1% came in at 0.4%. Our exposure to software, 0.1%.”
Rowan says credit managers unable to meet 5% quarterly redemptions are idiots.
“For us, if you can't, as a first lien credit manager, meet 5% redemptions per quarter, I'll say it frankly, you're an idiot.”
Rowan says Apollo's insurance company holds only 0.4% in levered lending due to regulatory inefficiency.
“to give you a sense for our insurance company, we round closer to zero than to 1%. It's like point 4%.”
Rowan explains banks excel at short-term lending while Apollo excels at long-term lending backed by retirement liabilities.
“And if you think about people like us, we borrow really long because we back retirement liabilities. And institutions, pension funds, endowments, sovereign wealth funds, they borrow really long.”
Rowan argues private credit has de-risked the United States by moving risky lending out of the government-backed banking system.
“I would say that private credit levered lending, direct lending, has actually been a de risking for the entire United States and for investors.”
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“That felt really good on the way up. That's not going to feel so good on the way down.”
Rowan says Apollo focused on first lien, cash pay loans to large companies with low leverage.
“And there are companies of which we are one, but not the only one who went all first lien, who went almost all cash pay, who went large companies, who work with low leverage.”
Rowan criticizes managers with 30% portfolio concentration in a single industry being disrupted by technology.
“If 30% of your portfolio is in one industry and that one industry is being impacted by technology, you have not been a good risk manager.”
Rowan predicts good risk managers will make record profits this year and next from defensive positioning.
“If you were a good risk manager, you are going to make more money this year and next year if it continues than you ever have before because you've been risk off.”
Rowan says investors use levered lending to reduce risk compared to equities and high yield bonds.
“We don't think anything of Nvidia or the S and P going up or down 10 or 15%, and yet one private credit loan or one broadly syndicated loan defaults and people lose their mind.”
Rowan contrasts tolerance for equity volatility with outsized reaction to single private credit defaults.
“We don't think anything of Nvidia or the S and P going up or down 10 or 15%, and yet one private credit loan or one broadly syndicated loan defaults and people lose their mind.”
Rowan says investors move from equity and high yield to levered lending for same returns with less volatility.
“Generally, what investors are doing is they're taking money out of equity or out of high yield bonds and moving into levered lending. It's roughly the same return, and it is less volatile.”
Rowan argues the boundary between public and private markets is currently in transition.
“We don't think of them as private anymore. This notion of what's public and what's private, I think, is in transition.”
Rowan distinguishes between traditional private equity and a new model of private equity without leverage or fund structures.
“I think we're heading to a world where we not just have private credit, but we have equity that is private, not just private equity.”
Rowan argues European regulators told banks to do less lending but forgot to enable investor alternatives, unlike the US.
“Everywhere in the world as I suggested, regulators have two choices as to where debt capital comes from, the banking system or the investor marketplace. Everywhere they've told the banks to do less.”
Rowan argues regulators have only two choices for credit: banking system or investment marketplace.
“And regulators have only two choices as to where credit comes from. It can come from the banking system or it can come from the investment marketplace.”
Rowan says investors can earn single A corporate rates plus 300 basis points for 90-180 days of illiquidity.
“If you can earn single A corporate bond rates plus 300 for being less liquid for ninety or one hundred and eighty days, it seems like a pretty good trade.”
Rowan says Apollo focused on private investment grade markets and now competes for assets amid banking turbulence.
“We went for the private investment grade market. That is the dominant franchise we have built. What we're seeing right now, particularly the turbulence in banking, these are the kind of assets we compete for.”
Rowan says origination strategy earns 150 to 200 basis points premium at near investment-grade level.
“And if you could earn 150 to 200 basis points more in origination at a very safe near investment grade level, that's a business we want to build.”
Rowan forecasts Apollo's yield business will double from $330 billion to roughly $600-700 billion in five years.
“And the ability to get it to $607,100,000,000,000, it sounds massive, but in the context of the markets in which they participate, it's just not all that big.”
Rowan says Apollo's yield business will double from $330 billion today to twice that size in five years.
“We are in, as I sometimes say, the fixed income replacement business. We're $330,000,000,000 today. Five years from now, that'll be twice its size.”
Rowan says the pool of assets yielding less than 5% is vastly larger than opportunistic credit.
“I like to say it's the pile of assets in the world that yields less than 5% is like this big.”