Private credit is now a serious rival to mainstream lending for all kinds of businesses, from real estate firms to tech startups, but the market in Europe is yet to take off in quite the same way as the US, and concerns remain about the industry's opacity and its ability to cope with a prolonged recession. Joining us now to discuss in studio, Tristram Leach, partner and head of Investments for Credit in Hybrid and Europe at Apolot. Just great to see you. Thanks so much for joining us on
Bloomberg Radio. I want to know how you're thinking about the rest of this year. There's been massive upheaval in trade and geopolitics in the first half of twenty twenty five, but stock markets have been hitting repeated record hies in recent weeks, so private market's just as bullet So yeah.
You're right that the public markets are obviously not reflecting a enormous amount of risk. Premium credit spreads in public credit are painfully tight. I'd say there's definitely some premium available in private credit markets, and I think people's focus is how much deal flow and volume there is for
the remainder of the year. I think also when we think about private credit, and we think about it in a pretty expanded way, not just traditional sub investment grade lending, but also lending to large corporates, investment grade corporates, et cetera.
And frankly, that's probably where the most scaled opportunity lies going forward, especially as we see Europe's need to invest in a lot of these areas infrastructure, defense, energy, etc. And so I think that's an opportunity set we're really ready to lean into.
But is there sufficient risk appetite for investors in Europe for this?
I mean I think so, look, investment grade private credit. To me, you know, we're not talking about an enormous amount of risk. We're talking about safe companies, large companies, and really the returns you can access by being able to provide solutions at scale with long dated and flexible capital. So you know, for me, it's not a question of risk, it's a question of being able to deliver those opportunities
at scale. And certainly we have pocketive capital, our own balance sheets, you know, from Athene and Athora, which are very keen to deploy into that opportunity set.
Where are those opportunities?
Then?
I mean, there's lots of focus in Europe on things like the massive ramp up and defense spending. Are you getting in on that act?
So it's certainly an area we're engaging with them where we think there's a lot of opportunity. I think it's fair to say we haven't yet seen large scale financings and private financings in the defense space in Europe.
Why do you think that is?
Europe's wake up call on defense was relatively recent. It was kind of this year that really Europe realized that it needed to catch up in terms of defense spending, it needs to make good on its commitments to NATO and probably go a little bit further. So I think we're very very early in an evolution into an environment where there's more defense spending in Europe, and we certainly stand ready to engage with that, but it's the early days.
What sort of engagement are you getting from that industry? Are they open and do they Are they aware of the opportunities that can come from tap in private markets?
Yeah, they are, and I think it's a space where you're going to see more engagement, You're going to see deals happen, And we've certainly been on the front foot with engaging both with pol makers and with individual companies such that they know that the capital is there.
Is this something that you feel that there is you know, particular countries where you're going to see more interest in that. I mean, I'm thinking about, you know, France and Germany. Where should we be looking to see where the next developments are going to come in that area?
Across the European continent. There's needs to invest more in defense. I think there have been a lot of headlines around Germany's immediate willingness to expend more on defense and to drive its defense industry forward. So that's probably a place I'd be looking, But honestly, it's continent wide, Okay.
Well, in the US, there's also been a lot of discussion about private capital being used for For one case, I wonder if there's any equivalent in Europe, you know, where a part of retirement savings could be used in private credit or do you think that the industry is too isolated.
No, Clearly, we feel that the risk return is more compelling in private credit than in public markets, especially at the moment, and so the idea that you'd want savers to be denied the opportunity to benefit from the incremental
return that's available seems to us, you know, bizarre. So so certainly making those products available to a broader swathe of the market is something that we feel strongly about, be that the wealth market or be that, you know, working with institutions to make those products available.
And how does that work? I mean, how are those conversations going about trying to get that expanded base opened.
We have been advocating for the availability of private credit and for the attractiveness is that as a product from you know, from the top of the house, and I think there's a pretty you know, widespread discourse around how attractive that product is, and certainly the relative value versus public markets yeah, becrourse.
The flip side to this is the discussion of systemic risk, and over the past year you've had increasing discussion from the lights of Moody's and the IMF saying that private credit does pose this systemic risk. Is that fair? Are we going to see some fun collapse?
What's interesting is that what we just discussed was the relative value of private credit versus public credit looking attractive, and yet you don't see these same points made about public credit markets. We've noticed liquidity in public credit markets declining, So for us to focus exclusively on private credit markets as a place where all the risk is doesn't make sense. Are you going to see funds a differentiation in fund performance?
I think you are. You know, the last twenty years have been an environment where there hasn't really been a very deep cycle in credit markets, and so you've seen very highly correlated performance across the private credit industry. I think you're certainly going to see an environment where you see dispersion in credit outcomes, and you probably also see
dispersion in manager outcomes. And frankly, that's something that an institution like Apollo, with the amount of resource that we put into our research and our process, you know, we welcome some dispersion in the market. Do I think it's a systemic risk that seems an overstretch to me.
Where are you seeing stress at the moment within private credits? I mean thinking about you know, software companies coping demands of taking on AI or things like that. I mean, what sort of examples can you give us of where there are stresses being seen?
Yes, software is a really good example. I think it's very early days in terms of understanding how AI is going to impact the software landscape. But if you think about software investing, it was traditionally a very high multiple sector and people lent extremely high leverage levels into that sector.
We've been cautious on that sector really throughout. I'd say if you look at our book across both both Europe and the US, we're probably underweight software versus a lot of our peers, and a large part of that is because of our uncertainty about exactly how AI is going to impact the market. So that is certainly an area where we've been cautious. We remain cautious. We remain very very focused on trying to pass through the risk that
our is likely to pose going forward. That's probably more a prospective risk than one that we're finding eventuating right now. There's not a bunch of software to stress happening immediately because of that, but it's certainly something we're focused on.
How do you think that in the future private credit is going to evolve? Do you think we're ever going to see true liquidity?
I mean, you know, I touched earlier on the way the public credit markets appear to be getting less liquid and I think in the same way, private credit markets are clearly becoming more liquid. So I think we are moving to a world where there is greater liquidity in private markets. I guess it depends what you mean by true liquidity, but you know, my subjective view is that, you know, when we do a large loan private loan, you know, the phone tends to run off the hook
with people trying to buy it from us. So you know, in good times you can sell public credit risk and you can tell private credit risk, and in bad times, you know, both are relatively tricky to shift. So I'd say the liquidity profile of public and private credit is converging.
I'm kind of intrigued with the idea of how the European side of this business can develop to you know, I suppose perhaps approach what's happening in the US and what you know, are there regulatory steps that you'd like to see being taken to try and open up how much European private credit can evolve. Are things like the Capital Markets Union helpful?
Certainly that would be helpful. I mean, just just by way of thinking about the scale of our markets. You know, the seventy five percent of US corporate financing is non bank financing, and that's twelve percent in Europe. So there's an enormous amount of growth out there ahead of us. Obviously, things that make the somewhat nuanced environment of investing across the European Union and Europe as a continent more straightforward and capital markets Union will be part of that would
clearly move things forward at an accelerated pace. But look, I think the growth is there regardless, just because at the moment so little of corporate financing has done from private credit and non bank financing.
I got to ask you about the football We've had reporting from Bloomberg this morning suggesting that five billion pounds of Europe's football transfer markets ignited this private debt boom. Is that a new area of growth for Apollo.
I'm not a big football guy, and I saw the headline this morning and I'd get asked about it. It's it is an area we're involved in in player financing.
You know, five billion is a big number. It's probably not gigantic by the scale of you know, the credit markets and our activities in Europe, but certainly it's an area we're involved in, we think is interesting, we think represents compelling risk award, and look, it's part of our We look at that as part of our setback to business, where you know, lending against against receivables from high quality counterparties is something we're happy to do and we think
we can do in a competitive way. And look, the sports world seems to be attracting more and more money all the time.
Are you going to be prout of a drive up driving up player.
I'm sure they're going to drive themselves up regardless.
Okay, christ and great to have you with us. Thank you very much for joining us Sin Studio this morning. Tristram Leach, their partner and head of investments for Credit and Hybrid in Europe at Apollo. Really interesting conversation about this growing area of interest for investors as well. So a great time to take the temperature of where things are after what has been a very interesting run for the sector