Apollo’s Zito Sees Private Credit Pain Lasting Up to 18 Months

(Bloomberg) — Apollo Global Management Inc.’s John Zito said the turmoil facing private credit could continue into next year but downplayed the idea that a wave of withdrawals in some funds was a problem.

The next 12 to 18 months will likely be tougher, the co-head of Apollo’s asset management arm said Wednesday at the Bloomberg Invest conference in New York.

“I was surprised that only private credit was isolated,” Zito said during a panel discussion. “There is still a complete misunderstanding of what this represents in the economy.”

Zito added that investors can protect themselves by being more diverse and senior in their capital structure. He also took a more nuanced stance on a recent note from UBS Group AG predicting a 15% default rate for private credit. Zito, Ares Management Corp. He said the report, which Chief Executive Michael Arougheti derided on Tuesday, had been “taken out of context” and presented as a “serious bear case”.

“The idea that if the private credit market moves to a 15% default rate, as UBS says it does, the public high-yield market, the public equity market, and all of those public markets will be perfectly fine while the entire private debt market melts, the likelihood of that is extremely, very low,” he said.

Zito disputed framing withdrawal from business development firms as a problem, adding that executives make decisions about how to meet customer needs.

On Tuesday, Apollo CEO Marc Rowan warned of a shakeout in the $1.8 trillion private lending industry, which is struggling with repayments and growing concerns of defaults on loans to software companies.

“There will be a clear distribution,” Zito said. “It will be interesting to see.”

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