What is happening in America is frightening to everyone. The American wealthy investor are turning their back on private credit and wanting their money back.
Apollo are the biggest and a big buyer of UK insurance companies. They are also seeing a staggering amount of money being requested as redemptions. They are not alone, Oaktree and Blackstone are also into our life insurers and what brings all these firms running “lending funds” is that they’re being kept from being in trouble by “overseas investors”.
The problem is with retail investors whose demands are not being met
The Apollo fund, like most of the vehicles operated by its competitors, is relying on a gating mechanism that allows the investment manager to restrict redemptions when they eclipse a 5 per cent threshold.
That’s a good way to run a business so long as everyone’s on side. The institutional money that Apollo and others run is captive, in their case Athene and Athora have a fiduciary responsibility to (amongst others) British pensioners who’s monthly payments of their retirement wage is backed by this private credit. Of course , with no trustees around, the fiduciary responsibility falls on the insurers and ultimately the owner of the insurers – Apollo.
Recently I wrote about the fragmentation of regulation in the USA. Iowa regulates a lot of Apollo’s money. Would you like your pension to be regulated by authorities in Iowa? I don’t mean to sound xenophobic but I thought that British Life insurers were held responsible by the PRA.
Is the gravy train close to the buffers?
The firm’s $15bn Apollo Debt Solutions fund pitched to wealthy individual investors reported roughly $2.4bn of withdrawal requests in the most recent period.
The fund met less than 30 per cent of the withdrawals it faced in the quarter, capping redemptions at 5 per cent of the value of the vehicle.
The Apollo fund, which has an investment portfolio worth nearly $26bn, had been hit with withdrawal requests of 11 per cent in the first quarter.
The rising withdrawal requests at the fund signal that the broader investor exodus from private credit has not abated, even as public markets have rallied and a sell-off in loans to private equity-backed software companies has moderated.
The funds have been a significant fundraising source for private investment groups, offering lucrative fees for the asset managers.
Clearly Apollo are aware of circumstances that have gone before and putting distance from predecessors (who went bust). Here’s John Zito, co-president of Apollo Asset Management, explaining there’s no need to worry at a conference hosted by Morgan Stanley earlier this month…
“The nice thing is, is no matter how much you’ve attacked the private debt business, there’s been no run. There’s been no SVB,” he said, referring to the 2023 failure of Silicon Valley Bank when depositors raced to pull capital from the lender. “There’s been no financial institution failing. The structure is right.”
We’ll see. But I’m not sure that this question should be asked of backing for the pensions ordinary people in Britain expect to get paid.
Am I right to worry that what confidence Apollo has is grounded on its institutional business and not its retail one?
If “institutional” is captive insurance funds in private credit, shouldn’t I be worried about the value of private credit assets from which pensioners are paid ?
