Apollo says private credit may reach US$40 trillion by 2030

APOLLO Global Management said that a booming part of private credit is already a US$20 trillion industry and that the market as a whole may reach US$40 trillion within the next five years.

“We are going to get there really soon,” Akila Grewal, Apollo’s global head of credit product, said in Bloomberg Intelligence’s latest Credit Edge podcast. “You are going to see a lot more private credit offerings and strategies focused on asset-based” finance.

Apollo has an expansive view of what constitutes private credit, including everything from music royalties and inventory finance to infrastructure debt and agricultural lending. The asset-based market is already at US$20 trillion, Grewal said. More conventional definitions peg the market at around US$1.6 trillion, focusing strictly on direct lending, distressed debt and mezzanine financing.

Apollo estimates that the private credit market could grow to US$40 trillion “within the next five years”, Grewal said.

The asset manager sees growth mostly on the investment-grade side, including data centres and energy infrastructure, as well as in assets such as mortgages, which typically sit on bank balance sheets. It also expects the lines between public and private credit to continue to fade as the latter expands. Blackstone said in October that it sees an opportunity closer to US$30 trillion, fuelled by lending for infrastructure and energy transition.

Apollo says private investment-grade debt offers attractive risk-adjusted returns but has been overlooked because it does not fit neatly into existing asset allocation frameworks. It rejects the idea that private markets are riskier than public investments, either by liquidity, transparency, regulation, or issuer quality.

“Everything is relative, but private credit can actually be quite safe,” said Grewal.

The company is particularly focused on adding retail, including retirement accounts, to its investor base. The appeal to buyers is that private debt returns are typically 100 basis points to 200 basis points higher than in conventional corporate debt markets.

However, such a large relative advantage may not last as the asset class matures and becomes more competitive.

“You will see more private credit becoming more and more mainstream,” said Grewal, which would lead to “more compression in spread” overall in the marketplace.

At the same time, Apollo sees potential for trouble as excess cash pursues a limited number of private debt investment opportunities. “Certainly there are deals that are being done that we are passing on,” said Grewal.

Apollo is also eyeing European opportunities, including commercial real estate and asset-based finance in the UK. Grewal highlighted recent deals in sports financing and media rights from Portugal and Spain.

“We are really building our European capabilities across both direct lending in the sub-investment grade market as well as in asset-based finance,” she said. BLOOMBERG