The heftiest alternative investment managers have amassed enough capital in their credit businesses to make big loans for some of the largest corporations.
In 2020, the largest credit managers accounted for a big swath of the capital raised worldwide, according to a February Preqin report. The 10 largest private credit funds accounted for 39% of the total capital raised in 2020, up from 31% in 2019. And mega loans have been accounting for a greater percentage of total transaction volume over the past few years.
According to Preqin, 43.4% of the $82.4 billion in aggregate transactions in 2020 were loans of $1 billion or more, compared with 32.2% of the $102.2 billion in combined deal value in 2017.
Executives at the biggest alternative investment firms view making mega loans that only a year ago would have been provided by banks as an outsized investment opportunity. These executives expect these loan originations will not only propel further growth, but will serve as a source of excess return.
A number of alternative investment firms raised billions for their credit strategies in the last 12 months, including Clearlake Capital Group's $7 billion Clearlake Capital Partners VI; Blackstone Group Inc.'s direct lending fund, the $6.1 billion GSO European Senior Debt Fund II; Ares Management Corp.'s $3.5 billion Ares Special Opportunities Fund; and KKR & Co. Inc.'s $2.8 billion KKR Dislocation Fund.
Apollo Global Management Inc. in February closed its $2.34 billion Apollo Accord Fund IV, which invests in dislocated credit, just nine months after it held a final close for the $1.75 billion Apollo Accord Fund III B, an earlier dislocated credit offering.
During Apollo Global Management Inc.'s Feb 3 earnings call, Marc Rowan, co-founder and senior managing director, attributed a portion of the $88 billion the firm invested in 2020 to the growth of Apollo's private credit origination business as it expanded into making mega loans for large-cap corporations. Apollo has by far the largest credit business among the publicly traded alternative investment managers, with $328.6 billion as of Dec. 31 — 126% more than the next manager on the credit business list, Ares Management, with $145.5 billion as of Dec. 31.
"If we had sat here a year ago and we described for you the litany of transactions from (Abu Dhabi National Oil Co.) to Expedia to Albertsons ... you would have said those were going to come out of the auspices of the banks, that was their regime, that's their opportunity," said James Zelter, co-president and CIO of Apollo's credit business. "So the theme that we've talked about for several years, the evolution of intellectual capital from 'The Street' to the buy side, the search for yield, the regulatory environment, our footprint ... we just see those accelerating."
In the fourth quarter, Apollo provided $9.3 billion in financing to investment-grade companies. These transactions, some of which had institutional co-investors, included a $5 billion deal with ADNOC, leveraging the rental income streams of some of the oil company's properties that are under a 24-year master lease agreement, and a $4 billion financing for Hertz Global Holdings Inc. by Apollo insurance company affiliate Athene USA Corp., to allow the car rental company to refresh its fleet.