In this conversation with managing director Diana Sands and partner Alex Wright, Akila Grewal discusses what Apollo is hearing from allocators around the world – how they are evaluating exposure across public and private credit, preparing for potential dislocations and thinking about capital deployment in the next phase of the cycle.
Q&A Summary
Diana: What are the themes and opportunities that you're hearing today with the institutional client business?
Akila: I think it's a really interesting time for the markets in general, but in particular when we focus on these institutional investors. They're focused on many things that we're focused on, whether that is what is happening geopolitically, what do I need to know about impending volatility, what themes in terms of AI and how that is going to interfere with my portfolio.
Software has been at the center of potential risk going forward and what that might mean for legacy software versus more advanced tech companies and technologies. But more and more institutional investors are saying, what's the pull-through on business services? What's the pull-through on financial institutions or investments that I might have?
And then I think people are not necessarily concerned, but starting to watch private credit. We're long into a credit cycle. I think we've been talking for many, many years about what it’s going to take to break and whether there is going to be dispersion. Yes, and we're living through that right now. I think investors are underwriting what their portfolios look like and what they need to be set up for to be on the offense if dislocation does occur.
Diana: And on the back end of that, are you seeing shifts in allocation happening in real time or still a little bit early?
Akila: I think people are looking at their portfolios and saying, OK, I really want to make sure that I understand what my existing exposures are. What are the primary, secondary, tertiary effects of AI or geopolitics or software?
But also, how do I set myself up for success in the future? I haven't seen major shifts in terms of allocations. I think that investors, prior to some of the more recent volatility, were expecting rates to come down. But I think people are really just looking at how they can be very specific in terms of their forward-looking exposure to be on the offense while still being defensive in terms of not taking unknown risk.
We have a really large business that is aligned, durable and long duration. And I think for those reasons, we have a number of strategies that are built with enough liquidity and dry powder to be available to deploy should there be a dislocation or stress in the market.
Diana: We talked a little bit about this with some of the other members of our investment team. Obviously credit is an asymmetric asset class. It can be a hard one, as you said, to take advantage of markets and be on the offense—that has different implications in credit relative to the equity market. So how do you think about being on the offense and staying ready for that moment?
Akila: We have a really large business that is aligned, durable and long duration. And I think for those reasons, we have a number of strategies that are built with enough liquidity and dry powder to be available to deploy should there be a dislocation or stress in the market.
We've done this through many cycles that have occurred. I think it's really understanding where liquidity is. It's understanding what assets you have where you can rotate into more interesting opportunities should they arise.
The reality is, as much as the market is starting to have some volatility, spreads are still tight. So, we do expect there to be spread widening, but probably some slowing in the consumer. And that's going to allow for people who have dry powder and are focused on very specific secured underwriting of risk to be in a position of strength should that occur.
Alex: What a well-timed conference, given everything that's going on. I know you spearhead putting this together. What are the one-on-ones looking like? What kind of more difficult questions might you be getting at this stage?
Akila: It's a great question. The one-on-ones are really insightful in terms of what investors are focused on going forward. And today, a lot of investors are focused on existing portfolio management.
They're focused on how we think about a portfolio approach across private and public credit. We have been talking for a long time about the convergence of public and private credit. I think people are seeing that more and more every day. And so those markets, as they converge, will become more liquid and also have shared experiences. I think investors are now trying to figure out what that looks like from a total portfolio approach when they think about their overall exposure to the asset category.
Alex: With regard to convergence, and thinking about portfolio management, maybe comment on how the health of our portfolio looks.
Akila: We were very early to start talking about what we thought was going to be a disruption in software. So, when you look at our private equity portfolio, having zero exposure to software is an incredible fact pattern to point to.
As we said, we don't believe that software is going to zero. We think that there will be winners and losers and there will be dispersion.
When you think about our credit platform, we're always focused historically on first-lien, top of the capital structure, low leverage, high interest coverage ratios—really defensive sectors. We have minimal exposure to software in our credit business.
We're focusing on areas where we think there will be a lack of capital or not enough capital supporting growth areas, such as sports. We think that Europe is a massive opportunity set given what could be continued re-regulation that will be supportive of private capital markets. So really focusing on areas that have been underserved by credit and also have the right characteristics in terms of risk profile.
In terms of the overall health of our portfolio, given that 50% plus of what we do is our own balance sheet and Athene, which has to be very high quality from a risk perspective, we feel really good about the companies that we're investing in.
We've been very fortunate in not having software exposure—whether that was because of avoiding the sector or because purchase price matters.
Alex: Outside of what we just talked about, are there any other themes, thoughts or curveballs that some of the institutional investors have poked at us here at the conference, outside the guidelines of what we just went through with these select industries?
Akila: I would say a lot of our investors, particularly on the institutional side, are really focused on what is going to move the needle for Apollo.
So how do they become the best partner to us? We're fortunate that we've grown and have amazing partners that have helped build the business, but as we think about the future—what these markets look like, what innovation looks like, what new markets we are trying to enter—a lot of our investors ask where their dollar is going to go the furthest and have the highest impact.
Those are really interesting conversations that we are continuing to have.
Q&A is edited for clarity
This interview is part of the "Inside Apollo's Private Credit Platform" series, featuring perspectives from Apollo partners. View all interviews.
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