Apollo Global Management CEO Marc Rowan defended the firm's strict 5% quarterly redemption limit for its private credit fund, criticizing competitors and investors for perceived knowledge gaps regarding vulnerable software valuations.
Defending the Private Credit Model
Speaking at CNBC's Invest in America Forum in Washington, D.C., Marc Rowan addressed mounting scrutiny over the private credit market, particularly concerning the firm's decision to cap quarterly redemptions at 5%. This limit, while stricter than some industry peers, is noted as a generally accepted standard.
Rowan emphasized the scale and stability of Apollo's assets to justify the policy. He stated that the firm's massive capital base makes the 5% limit manageable, even when faced with higher withdrawal requests.
- Apollo's Scale: The firm manages $750 billion in credit investments, alongside $16 billion in retail investor assets.
- Redemption Management: Rowan calculated that the $750 million in realized redemptions 'rounds to zero' when measured against the firm's total assets, reinforcing the feasibility of the 5% cap.
Criticism of Market Knowledge and Peers
As redemption requests rose, Rowan issued pointed remarks regarding the preparedness of other market participants. He questioned investors' understanding of the assets they hold, particularly in the software sector.
He stated: "We have a situation where investors do not actually know what they own. Maybe they should have known." Rowan further criticized the lack of awareness regarding technological risks, noting that knowledge of AI's potential impact on enterprise software is now widely available.
Rowan extended this critique to rival lenders, asserting that any competitor unable to meet the 5% quarterly redemption requirement should be considered professionally unprepared. He stated, "If you can't, as a first lien credit manager, meet 5% redemptions per quarter, I'll say it frankly: You're an idiot. This is not that hard to do."
The Role of Technology in Debt Markets
Despite the volatility in software stocks, Rowan maintained that technology's role in the debt market remains critical. He acknowledged the significant decline in enterprise software valuations, noting that the sector has seen drops of 60-70%.
- Sector Concentration: Rowan highlighted that the private equity industry has historically been heavily concentrated in enterprise software, making it susceptible to technological shifts.
- Market View: While acknowledging the risks, he framed the situation as one of 'over-concentration' and 'too much growth, too much risk,' rather than a fundamental flaw in private credit itself.
Apollo's recent activity included originating $310 billion in new investments last year, with 80% of that financing being investment-grade, naming major issuers such as Intel, Meta, and Shell.
