Even one of private credit’s biggest proponents is warning of a potential industry “shakeout.”
Marc Rowan, CEO of private credit giant Apollo Global Management, told Bloomberg News editor in chief John Micklethwait at the Bloomberg Invest conference on Tuesday that he thinks that there “will be a shakeout” in the alternative investment sphere.
The comments come as fears mount over non-bank lending, with investors in semi-liquid retail funds at firms like Blackstone and Blue Owl ramping up withdrawal requests.
Rown cited geopolitical instability, inflation, and technological change among the factors behind the impending private market shakeout. He said good managers will continue to excel, while others will suffer.
The private markets industry has been facing a walloping of its stock prices over the last year, amid liquidity fears, private credit jitters, and the prospect of widespread AI-disruption of the software industry.
Apollo’s stock price is down more than 27% this year so far, while Blue Owl is down over 33% during the same time period and is now trading below its initial offering price in 2020.
While private market players were previously buoyed by “structural” forces, the industry’s performance will now depend on the actual skills of individual firms, Rowan said.
“I like where we sit,” he said, adding, “Jamie Dimon said it, there’s always going to be fraud, there’s always going to be underwriting mistakes. But the question is who’s a good risk manager and who’s not a good risk manager.” Rowan added: “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.”
Rowan doesn’t think that there will be mega-mergers as a result of this shakeout, however. The issue isn’t with capital raising, Rowan said — it’s finding good places to invest.
“Unlike a public asset manager who can buy anything, any day, we can only grow as fast as we can originate good risk we actually create,” Rowan said. “And therefore, if we grow too fast, we start commoditizing our business because we’re forced to take things we don’t want.”
At the conference, Michael Arougheti, the CEO of Ares Management, agreed that a shakeout may be coming, and said that the main way to “mitigate risk” is “diversification.” It’s important to “understand deeply what you own,” Aroughteti said, but at the same time, if you’re “concentrated” in a sector like software, you’re at risk.
“There are going to be winners and losers,” Arougheti said. “Generally speaking, those that are more diversified will survive, consolidate, and probably grow disproportionately.”
Arougheti said he sees these dynamics driving consolidation already. His firm has purchased businesses like secondaries-specialist Landmark Partners and infrastructure and logistics manager GCP in recent years.
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