Apollo Jumps Into Second-Hand Credit Stakes With $1 Billion Fund

Apollo Global Management Inc. is venturing into its first new business line since announcing the merger with insurance offshoot Athene Holding Ltd. last month.

The investing giant is launching a $1 billion credit-secondaries business led by its insurance clients, to invest in second-hand stakes in credit funds. A boom in the private-debt market has attracted investors amid low rates, enlivening what was once a niche world of finance. Now Apollo is looking for a surge in secondary deals, which allow investors like pension funds and endowments to trade out of their positions in longer-term vehicles that invest in these markets.

“This is another reason when one thinks about the industrial logic behind the Apollo and Athene merger,” Jim Zelter, co-president of Apollo, said in an interview. “If you can create a credit-secondaries product for those types of balance sheets, it’s very effective.”

Secondaries transactions are driven by investors seeking to offload stakes early in otherwise illiquid funds, offering an attractive entry-point for firms like Apollo looking to snap up holdings. Such deals allow for institutional investors to readjust portfolios and draw on cash when needed.

The private-debt market has seen explosive growth in the last decade, jumping to nearly $1 trillion. While Wall Street prepared for a corresponding ramp-up in secondaries deals, that has yet to materialize. Such transactions remain more popular in private equity.

“On the private equity side, this secondary business has become a massive business really over the last 20 years,” said Scott Kleinman, who shares the president’s role with Zelter. “There’s virtually none of that happening right now in scale, certainly not institutionalized on the credit side because the growth of private credit funds has really only happened in the last five to seven years.”

Within private credit, Zelter estimated that only a few billion dollars traded in the secondary market last year despite the growth in overall private debt

“Our suspicion is that percentage of the market will increase as well as the underlying growth of private-credit allocations,” he said. “It’s inevitably going to be a very large market.”

Apollo is also turning its focus to is what’s known as the GP solutions business-- allowing owners in an investment fund to turn to the market as a way to hold onto a company while providing an exit strategy for the investors who want out. “This is a segment of the market that’s growing pretty dramatically,” Kleinman said.

The duo said the firm plans to raise dedicated funds to cater to the two-pronged approach, and will be making new hires. The pair was elevated to the role of president in 2018, marking out the next generation of leaders at the firm behind its founders.

Last week, Apollo’s middle-market lending arm, MidCap Financial, raised more than $800 million from global investors to cater to the growing demand for private debt, a typically illiquid asset class that offers up a shot at higher returns.

©2021 Bloomberg L.P.

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