Apollo: Private and public markets will continue to converge

Apollo expects to see the trend for partnerships between alternative investment managers and banks to continue into next year.

More than a dozen banks have partnered with private credit firms in the last 12 months, a significant increase from the two partnerships announced the previous year, the firm’s chief economist Torsten Sløk pointed out in its Apollo Academy 2025 Economic Outlook.

“We believe these partnerships should bolster the volumes of private credit origination and expand the breadth of companies accessing the private market,” his report said.

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The ongoing convergence also raises some existential questions, according to Sløk. “If a deal is originated by a bank but financed by an alternative manager’s balance sheet, is it is public or a private deal?”

Apollo itself announced a tie-up with Santander this week, investing in a $370m (£290m) portfolio of infrastructure credit.

The ongoing higher rates environment will mean higher yields in private credit, especially for newer vintages as investors seek potential substitution for on-the-run bonds, according to the report.

Apollo sees the most attractive opportunities in lending to businesses with recurring revenue streams that generate a lot of cash flow, that have variable expense structures, and low capex spending-to-revenue ratios, which it believes lead to stronger leveraged borrower profiles.

Read more: Banks increase exposure to private credit

The report highlighted the boom in data centres as a significant source of opportunity, as they are typically financed using asset-backed securities, project finance, and private credit.

“While leveraged buyout (LBO) activity has picked up in the public markets – the third quarter of 2024 saw the highest level of LBO volume since the first quarter of 2022 – LBO volume in the private markets was 50 per cent greater than in the public markets during the first nine months of 2024,” the report said.

It also highlighted that higher rates have exposed some of the weaknesses in business models that were dependent on a cheaper cost of debt capital. As such, “we see opportunities to get capital to companies that are good businesses in good competitive positions in their subsectors but are going through a change in their funding models,” Sløk’s report said. 

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