Apollo's Zito on Fears Facing Private Credit Investors

Apollo co-President John Zito said AI is contributing to a higher-volatility investing regime and argued that credit may be the safer place to be in that environment. The remarks, made at the Milken Institute Global Conference, are a qualitative view rather than a concrete market or company event. The piece suggests a defensive tilt toward private credit amid rising volatility expectations.

Analysis

The bigger takeaway is not that credit is “safer,” but that it becomes the default bid when dispersion rises and public equity multiples become less reliable. In a higher-vol regime, senior secured private credit should gain relative appeal because lenders can reprice faster than public bond markets, while equity investors absorb valuation compression and multiple risk. That said, the best relative winner is likely not generic private credit funds but managers with weak-documentation, sponsor-backed, floating-rate originations and strong workout capability; the spread between disciplined underwriters and yield-chasing competitors should widen over the next 2-4 quarters.

The first-order beneficiaries are likely large alternative managers with origination scale and distribution, but the second-order effect is more important: tighter bank lending and more expensive leveraged finance should push sponsor deal activity lower, reducing fee pools across M&A-adjacent businesses and pressuring smaller direct lenders that rely on aggressive leverage. In parallel, if AI sustains productivity gains for credit underwriting and monitoring, operationally strong lenders can expand ROE without taking as much incremental credit risk, which should compound franchise value versus subscale peers.

The contrarian view is that “higher volatility” is not automatically credit-positive if it is driven by faster earnings regime shifts or policy shocks. Credit looks safe until defaults reprice, and private markets can lag the truth by a full cycle; if refinancing windows close while AI capex concentrates cash flow in a few winners, lower-quality issuers could face a liquidity cliff within 6-12 months. The market may be underestimating how quickly a benign private-credit narrative can turn into markdown risk if spread compression has already crowded return expectations.

Key Decisions for Investors

• Long ARES / APO vs regional-bank credit exposure basket over the next 3-6 months: best-positioned managers should win share as borrowers migrate away from banks; target 10-15% upside if origination stays resilient, with lower downside than smaller BDCs.
• Pair long higher-quality private credit platform exposure (BX, APO) vs short subscale direct lenders or BDCs with heavier floating-rate leverage over 1-2 quarters: expect widening performance dispersion as underwriting standards matter more than AUM growth.
• Buy 6-12 month protection on leveraged loan / high-yield spread risk via HYG or JNK puts if available on a pullback: risk/reward improves if the market keeps pricing 'safe' credit too cheaply while refinancing risk builds underneath.
• Overweight AI-enabling financial infrastructure beneficiaries with pricing power over pure beta exposure, but keep position sizing modest; if the AI productivity story proves real, the first claim is on operating leverage, not loan growth.