Private Equity: Global Alternertives Giant Apollo Moves Deeper Into Direct Lending

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Apollo Global Management is planning a $12 billion direct lending and alternative credit fund.  The firm will utilize these funds to provide $1 billion in loans to various companies.  Abu Dhabi fund Mubadala backs this Investment along with other investors involved in the project.  Direct lending will allow investors to invest in high-quality businesses and to take advantage of alternative credit.  According to Co-President and CIO of Apollo, James Zelter, “Apollo Strategic Origination Partners is designed to leverage our significant capabilities in origination and alternative credit to help strategic capital partners such as Mubadala invest with scale in high-quality businesses.”  Direct lending allows for more flexibility for investors avoiding big banks’ restrictions. 

Direct Lending

Direct lending has been increasing since the 2008 financial crisis.  Investors and asset managers alike have implemented this process to abstain from possible risks.  For instance, the business of direct lending has grown from $100 billion ten years ago to $800 billion today — with private investors playing a major role in the growth.  Currently, Apollo’s primary focus is on making loans to small businesses in the range of $100 million to $300 million.  James Zelter said “This is the great white space between our big corporate credit business and our middle-market sponsor business.”  However, Apollo will continue to build on its direct lending capabilities.  Eventually the firm will make larger loans.  Bigger borrowers will soon turn to private lenders like Apollo to finance their loans as direct lending expands.  As companies require more capital, Apollo will need to fill the void that larger banks create with their regulations. 

More About Apollo

As of March 2020, Apollo Global Management reported $315.5 billion in assets under management.  The credit business utilizes over 60 percent of these assets.  The rest of these assets are in the private equity and real assets businesses.   

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