The script has three parts. Every credit cycle. Without exception.
Part one: nothing to see here. The assets are solid. The valuations are accurate. Anyone raising concerns is fear-mongering. Part two: okay, fine, there are problems...but not with us. Our book is clean. It’s those other guys who got greedy. Part three: everyone admits they’re finished and lines up to beg the Fed for a bailout.
This week, the private credit industry moved from part one to part two. Publicly. Out loud. And the guy doing the talking is the co-president of one of the largest private credit lenders on the planet.
John Zito, co-president of Apollo Global Management’s asset management arm, spoke to clients at a UBS conference last month in remarks first published by the Wall Street Journal and confirmed by CNBC.
What he said deserves to sit on a line by itself:
“I literally think all the marks are wrong.”
All of them. Every single private equity valuation in the space. Mismarked. Overstated. Too high. Not by a rounding error. By enough that loans to typical mid-size software companies could recover somewhere between 20 and 40 cents on the dollar when things go sideways.
The mainstream take is that Zito is just being refreshingly candid while positioning Apollo as the grown-up in the room. Their software exposure is less than 2% of total assets under management. Their book is 95% investment grade. They’re the careful ones...the ones who will be buying distressed assets at pennies on the dollar once the unraveling begins.
Maybe. But if the co-president of one of the industry’s biggest lenders is publicly saying every valuation in private markets is wrong...and a GFC-type event is his base case for the next 12 to 18 months...who exactly is going to be selling those assets at distressed prices?
And how many of the investors waiting in the redemption queue right now know any of this is happening? Let’s find out.
