Jim Zelter on Private Credit Opportunities in Investment Grade Assets

The Shifting Landscape of Private Capital

• 🌍 The SuperReturn conference in Berlin highlights a significant shift from a purely private equity focus to a broader gathering of players across credit, capital, and equity markets.
• 💡 Jim Zelter, President of Apollo Global Management, notes a revitalized enthusiasm for investing in Europe, with a substantial portion of Apollo's assets ($100 billion out of $800 billion) already based there.
• 🤝 US investors are showing palpable interest in European markets, driven by both domestic pull and global competitiveness needs of European industry leaders.

Private Credit: Beyond Risk and Illiquidity

• 🎯 Apollo Global Management has carved a niche in striking complex private deals with investment grade businesses, challenging the convention that private credit is inherently risky and illiquid.
• 📈 The firm has seen significant transactions in Europe, including deals with Intel, Vonovia, and Air France, focusing on high-grade capital solutions.
• 💰 While acknowledging concerns in the non-investment grade market (levered capital structures, subordinated paper), Apollo has strategically avoided these financings.

Navigating Market Concerns and Opportunities

• ⚠️ Zelter identifies potential red flags in specific sectors, such as over-enthusiasm in parts of health care (medical reimbursement) and the enterprise software business due to rapid technological innovation and AI.
• 🇺🇸 The US deficit has become a more prominent concern than tariffs, with market forces (bond vigilantes) waking up to the issue, overshadowing other headlines.
• 📊 Despite macro concerns, Zelter sees it as a wonderful time to be a player in credit as lenders are being paid for risk for the first time in 15 years, with real rates at 4% plus.

Investment Grade as the Primary Opportunity

• 🌊 Private credit is described as a much broader ocean of opportunities, with Apollo focusing on the investment grade side, which constitutes three-quarters of their assets.
• 🏦 This focus on investment grade assets, mostly at the top of the capital structure, offers a different setup with stronger underlying credit metrics compared to the non-investment grade market.
• ✅ Apollo is leaning heavily into the investment grade segment of private capital, emphasizing its historical convention-defying approach to private markets being both safe and liquid.