Citigroup and Apollo Strike $25 Billion Partnership in White-Hot Private Credit Market

It’s just like they say: If you can’t beat ‘em, join ‘em. Sometimes that means entering a burgeoning sector that just so happens to compete with yours.

On Thursday, banking giant Citigroup and asset management giant Apollo Global announced an alliance to source $25 billion worth of deals in the next half-decade in the private credit market. The area was once seen as competition for banks, but now increasingly involves them.

Where Private Credit is Due

Private credit, simply put, means loans handed out by lenders like Apollo (that aren’t banks). The benefit for debtors is that private credit is less regulated, so  lenders can shell out cash to risky borrowers that most banks normally wouldn’t touch.

The International Monetary Fund estimated earlier this year that private credit is now a $2 trillion industry — JPMorgan thinks it’s more like $3 trillion, and BlackRock thinks it’ll hit $3.5 trillion by 2028. Little wonder that banks, initially threatened, have started to find ways to get in on the action: Wells Fargo partnered with Centerbridge on a $5 billion direct lending fund, and Société Générale started a €10 billion ($11.2 billion) fund with Brookfield Asset Management. The exclusive partnership between Citi and Apollo is the latest ambitious development:

• Citigroup will use its investment banking connections to source debt deals from its clients, taking a fee for each transaction. Apollo and its partners will pony up the money, initially focused on non-investment grade lending (it’s riskier stuff that Federal Deposit Insurance Corporation-backed lenders like Citi generally wouldn’t directly finance).
• Partners, you say? Mubadala Investment Company, one of the sovereign wealth funds of the Abu Dhabi government, and Athene, Apollo’s insurance arm, are joining the venture.

“This is where the industry is going,” Jim Zelter, Apollo’s co-president, told Bloomberg. “Citi goes from a very active M&A banker with a few tools to having the complete toolbox.”

America First: In the first year of their partnership, Citi and Apollo are aiming for $5 billion in deals. They will initially lend in North America “with the potential to expand to additional geographies,” according to a press release.