In conversation: Earl Hunt, Partner, Credit at Apollo Global Management

Ahead of the Private Equity Wire US Leadership Summit, Earl Hunt, Partner, Credit at Apollo Global Management, talks to us about the broad opportunities in credit, including asset-backed finance, the resilience of private credit amid recent market volatility and the evolving role of non-sponsored lending.

Private Equity Wire (PEW): Where do you see the most promising pockets of opportunity within the private credit space, particularly for 2024 and beyond?  

Earl Hunt (EH): Private credit has a big overlay and represents a wide swath of the overall credit market. At Apollo, we see it as a $40tn opportunity in aggregate, when we think about the entire private credit ecosystem. I think there are probably three areas that we find very promising and are particularly well suited to in the marketplace right now.

One is what I would call investment-grade private credit. We see significant opportunities within AI as well as data centers; we recently announced an $11bn transaction with Intel. Energy transition is another area of opportunity. We think of investment-grade private credit as a fixed income replacement in portfolios. We target senior secured, low-risk assets that generate roughly150 to 300 basis points of spread over comparable public investment grade assets.

Another area is asset-backed finance. It is a great time to be in that marketplace, given some of the structural shifts we’re seeing in banking that have created opportunities for alternative lenders like ourselves. We see opportunity in terms of structural security, alongside differentiated return streams and cash flows with low correlation to traditional corporate debt — that’s probably a $20tn opportunity. We have 15-plus years of investing experience in asset-backed finance and 28 direct sourcing platforms and/or partnerships, so we’re uniquely positioned to excel in this asset class

In addition, we’re focused on is large-scale direct lending: that is lending to companies that have EBITDA in excess of $100m. We’re seeing significant demand from sponsors as well as non-sponsors in this space. Consider the opportunity set for swaths of traditional public markets, bank loans as well as high yield to tap into the structural benefits of the private debt marketplace. We’ve been leaning into and active in this market.

In a nutshell, all these private credit opportunities lend themselves to platforms like ours that are scaled, well-funded and have long-dated capital. Given that many of these opportunities need highly structured and often complex solutions, we’re uniquely positioned to service lenders and create compelling assets for investors.

PEW: What are your initial reactions to the recent stock rout worldwide and its potential impact on lending? 

EH: I think our value proposition as a scaled, flexible capital provider with the ability to solve problems for issuers as well as investors — all the way from investment-grade to sub-investment grade in the private markets — has been amplified by the recent volatility. We’ve articulated that we believe public markets are inefficient and that private markets are likely a better place to be for long-term investors. We can extract higher-quality risk-adjusted returns and excess return per unit of risk for investors, versus what’s available in the public markets.

The idiosyncrasies and the volatility in the marketplace are reflected in our underwriting standards and why we’re defensive, in terms of targeting larger companies, lower LTVs and being top of the capital structure with first lien, senior secured risk and avoiding highly cyclical industries. For investors, it also continues to challenge the traditional 60/40 portfolio.

PEW: Will non-sponsored lending continue to exert dominance in the credit space?  

EH: We expect non-sponsored lending will continue to be a core part of our credit business. When I think about transactions like Intel or BDO, we’re going to leverage all our tools to serve the non-sponsor clientele.

In addition, we’ve oriented our business to be able to serve sponsors, having committed well north of $40bn of capital to sponsor-led deals. We think you need to be able to serve both of these clients at scale, and our credit ecosystem allows us to do that, given the flexibility and low cost of our capital. In terms of the sponsor community — the market is estimated to have about $2.6tn of total uncommitted capital between PE and venture capital that’s going to need to be deployed — I think we’re going to be one of the credit providers that PE sponsors look to partner with.

We’re also seeing a stabilizing cost of capital and expect to see more private equity activity, which we plan to take advantage of. Finally, we’re seeing a significant pickup in sponsor-related activity and a strong pipeline for the second half of the year, alongside non-sponsor deals, so we expect our deployment to continue to be robust.

PEW: Will you be drawing on some of the above themes during your panel at this year’s summit? What are you hoping to gain from the day?  

What we’ve just discussed are the key themes that are driving private credit. I would expect them to come up in our panel discussion and I look forward to an active dialogue around these topics.

I’m excited to participate in the panel. At Apollo, we’re always honored to be included in these opportunities to talk about how we’re seeing the market and engaging with our investors and peers.

Earl Hunt, Partner, Credit at Apollo Global Management – Earl Hunt is Partner, Credit at Apollo, where he serves as Chairman and CEO of Apollo Debt Solutions. Prior to joining in 2021, Earl was Partner in the global markets division at Goldman Sachs, where he was responsible for strategic client coverage. He also served as a member of the Goldman Sachs’s partnership committee and global markets operating committee. Previously, Earl was Co-Head of US Distressed & Par Loan Sales at Goldman Sachs. Before that, Earl worked at Citi as a director in leveraged finance sales. Earl has a BA in Economics from Brown University and is a member of Brown University’s board of trustees.

Want to learn more? Join us at the Private Equity Wire US Leadership Summit on Thursday, September 12 at Convene 101 Park Avenue, New York. Register for your complimentary pass here.  

* Please note that registration for this summit is only open to senior executives at fund managers and investors. If you are a service provider and would like to attend, please get in touch with us on [email protected].