Private credit is not experiencing a bubble, and an economic downturn will not lead to “massive losses” for lenders in the space, according to a report by the Financial Times citing Jim Zelter, president of Apollo Global Management.
Speaking at HSBC’s investment conference in Hong Kong on Thursday, Zelter was bullish on how private credit, which has seen rapid growth in recent years, would perform in the event of a downturn.
“The biggest question I get from everybody around the globe is, is private credit a bubble? And I would say it’s not a bubble, but it’s certainly been long in the tooth in the cycle,” Zelter said.
While acknowledging that some market participants may be taking on aggressive portfolio construction, he argued that private credit lacks the “irrational actions” characteristic of previous financial bubbles, such as the 2008 subprime mortgage crisis.
The private credit market has become an increasingly dominant force, stepping into traditional bank lending roles as financial institutions face tighter regulations.
According to IMF estimates, private credit assets surpassed $2.1tn in 2023. While the sector provides economic benefits, the IMF has warned that private credit has never experienced a severe downturn at its current size, raising concerns about delayed loss realisation, potential defaults, and valuation markdowns in an adverse scenario.
“If the asset class remains opaque and continues to grow exponentially under limited prudential oversight, the vulnerabilities of the private credit industry could become systemic,” the IMF’s Global Financial Stability Report cautioned.
Apollo, one of the biggest players in the space, has aggressively expanded its private credit footprint, extending loans not only to mid-market companies – the industry’s traditional borrowers – but also to large multinational corporations.
Zelter framed private credit as “a $40tn ocean” and highlighted Apollo’s lending business as six times larger than its private equity arm.
“Credit is about a $600bn business for us, while private equity, which has been our historic expertise, is about a $100bn business,” he said.
