Apollo CFO Signals Higher Rates as Origination Hits $300B
An Apollo Global Management CFO indicated that higher interest rates are likely to persist, a trend that challenges traditional LBO models. The firm has adapted, with origination volumes reaching $300 billion and fee-related earnings increasing by 23%. This highlights a broader private equity pivot towards credit and capital solutions in a higher-cost borrowing environment.
- CFO Martin Kelly’s view on rates is shaped by factors like fiscal stimulus, AI-related spending, and rising government debt, which he believes create upward pressure on long-term rates. Apollo's Chief Economist, Torsten Slok, reinforces this, expecting economic tailwinds in 2026 to make it difficult for the Federal Reserve to cut rates. - The record $300 billion origination volume was broad-based, with about 40% from lending platforms like Atlas, 40% from its credit businesses, and 20% from hybrid equity and high-grade lending. - Higher interest rates directly challenge LBO models by increasing debt service costs, which pressures cash flow, and by causing lenders to reduce leverage multiples, which requires larger equity checks from sponsors. - Apollo's strategy heavily emphasizes investment-grade private credit, distinguishing it from the below-investment-grade assets that typically dominate the Business Development Company (BDC) space. In a recent quarter, the firm originated investment-grade credit at a spread of 290 basis points over Treasuries. - The firm defines the private credit market opportunity as a $40 trillion addressable market, a figure that includes asset-backed finance (ABF) and other assets historically held on bank balance sheets. This is significantly larger than narrower industry definitions that place the market around $1.6 trillion. - Apollo's Capital Solutions business, which is linked to its origination activity, generated $800 million in a single year, exceeding the firm's internal expectations. - CEO Marc Rowan has set a target to grow total assets under management to $1.5 trillion by 2029, with credit AUM projected to comprise $1.2 trillion of that total.
