Apollo CEO Warns of Private Credit 'Shakeout'
Apollo CEO Marc Rowan is predicting a shakeout in the private credit market, pointing to a rising tide of defaults on software company loans. His warning suggests the high-flying sector could be facing its first major stress test as economic headwinds mount.
The private credit market has exploded since the 2008 financial crisis, growing from a niche alternative to a market estimated at $1.67 trillion in 2025. Fueled by post-crisis banking regulations like Dodd-Frank that constrained traditional lenders, non-bank entities have stepped in to finance middle-market companies, with assets under management projected to reach nearly $3 trillion by 2030. The current anxiety is centered on the disruption from artificial intelligence, creating what some call a "SaaS apocalypse." Over $17.7 billion in loans to tech companies fell to distressed levels in a recent four-week period, bringing the sector's total distressed debt to roughly $46.9 billion. The concern is that AI could render many traditional software business models obsolete, undermining the once-stable recurring revenue that backed these loans. Rowan's warning specifically targeted poor risk management and over-concentration. He noted, "If 30% of your portfolio is in one industry and that one industry is being impacted by technology, you have not been a good risk manager." This suggests the "shakeout" will differentiate between disciplined underwriters and those who chased returns in crowded, vulnerable sectors. The episode highlights inherent risks in the private credit asset class, including valuation opacity and illiquidity. Unlike public equities and bonds, private loans are not priced daily, which can mask underlying credit deterioration and create a false sense of low volatility. This lack of transparency is a growing concern for regulators as the market's systemic importance increases. Nervousness has already materialized in the retail investor space, where firms like Blackstone, Ares, and Blue Owl have faced a spike in withdrawal requests from their semi-liquid private credit funds. While Blackstone President Jon Gray has publicly dismissed the fears as "a ton of noise," the redemption pressure indicates that investors are becoming more risk-averse. The core of the stress test lies in how floating-rate loans perform under pressure. While these loans offer protection against rising interest rates, the higher costs can strain borrowers. Some analysts are now forecasting a worst-case scenario where an aggressive AI disruption could push default rates in private credit as high as 15%.
