Q: Private credit has been the subject of many conversations over the last year, but most of the discussion focuses on the sub-investment-grade direct lending part of the market. Can you start with definitions and explain the distinction between private credit and direct lending?

Jim Vanek, Apollo Partner and Co-Head of Global Performing Credit: We describe private credit as anything that historically would have been retained on a bank balance sheet and would not have existed in a liquid publicly traded market. That means the opportunity set is much broader than direct lending. It includes a substantial amount that is asset-backed and where most of it is investment grade. Direct lending is a very important part of private credit, and it is the area that investors have historically been able to access first.

Q: Direct lending started as a middle market business, but today private lenders are financing companies and transactions that historically would have gone to the syndicated loan or high yield markets. How large is the market today, and how did we get here?

Jim Vanek: The direct lending market is measured in excess of $2 trillion in AUM. The area that has grown the most over the last four to five years is transactions for very large companies. There are compelling reasons why companies and management teams are pursuing capital formation solutions in private credit, and there are equally compelling reasons why investors seeking sub-investment-grade returns are allocating to private credit rather than traditional public credit products. There is a symbiotic relationship between the need for private credit solutions and the demand for returns that are achievable within private credit relative to public products. The fact that it benefits institutions and investors on both sides of the ledger is really why you have seen this growth. If you are a borrower who needs a capital structure that fits your business model and provides reliable access to capital as long as fundamental performance is strong, the private credit markets work. If you need capital quickly and want to deal directly with one or a small set of lenders that will be a relationship source of capital going forward, the private credit markets are probably the optimal and most efficient place to capitalize your business.

Q: We have seen signs that every time there is stress in public markets, private credit usage increases. But is that the whole story?

Jim Vanek: We do see increased usage of private credit solutions during periods of stress, but it is important to note that most of the growth over the last three years has happened during a period that was generally relatively benign. There have been brief episodes of elevated volatility, including in April 2025 around the announcement of new trade policies, and we are now in a period where interest rates continue to rise. But despite those episodes, the market has grown substantially even when conditions were calm and public credit spreads were relatively tight. The fact that growth has been so significant during benign conditions is itself an indication that you do not need volatility to drive it.

Q: Over the past year we have seen signs of credit stress and dispersion across the direct lending market, mostly related to AI disruption around software companies. Where do you think we are in the credit cycle today?

Jim Vanek: There are two things going on. The dispersion we are seeing in performance across sectors is partly a function of how investors are thinking about future results and the competitive advantages that certain business models may not have. But we are also talking about fundamental performance, which continues to be very strong across the broader leveraged finance market, both public and private. There are near-term concerns about what higher rates and higher commodity prices mean for certain business models and cash flows, and medium to longer-term concerns about what AI and technological evolution means for certain business models, which is causing the dispersion and spread widening in the technology sector. That sector is not necessarily underperforming fundamentally, but we are seeing underperformance in terms of returns.

We think it is important regardless of the environment to always think through what the downside can be for the companies you are lending to, across every industry. That means not just considering how AI will impact software or technology-enabling businesses, but how every input from the macro economy might impact a company's cash flows in different environments. If you look at fundamental performance broadly, it continues to be very strong. Second quarter revenue growth across the public loan market was up about 11%, EBITDA growth was up about 7%. These were some of the strongest numbers we have seen in roughly three years, and default rates across public and private credit remain very low by almost any definition. The dispersion in returns is really a reflection of how investors are thinking about future performance, not a reflection of current fundamental credit performance.

Q: How have Apollo's funds navigated this environment?

Jim Vanek: We have always tried to apply the same portfolio management approach: achieve attractive returns that outperform broader market benchmarks, but do so by taking less risk and thinking like a principal investor rather than just an agent. That meant we started reviewing all of our exposure and trying to understand how it would be impacted by AI and technological evolution much earlier than was reflected in how public markets, both credit and equity, were trading. For that reason, we were underweight the sectors that have underperformed the most. We also manage our funds from a top-down perspective in ways we think are inherently prudent. Diversification is a very important element of that, which meant we were formally looking to avoid overemphasizing any individual sector. We also think about market exposure as a function of where spreads are, increasing exposure in funds that use leverage as spreads are widening. We are now in a period where not only are rates rising, but spreads are widening off levels that were for a long time close to post-GFC tights. When you are seeing both of those things happen simultaneously, that is when you are supposed to be taking up your exposure to the market.

Q: We touched on interest rates. Direct lending is predominantly floating rate, so higher rates can mean higher yields for investors but also a higher cost of capital for borrowers. How are you thinking about that tension?

Jim Vanek: Three-month SOFR, the base rate on essentially all of the loans we are making, is a little above 4% today. Forward rates suggest it will be 75 to 80 basis points higher than that over the next three to four years, which is elevated. It means the all-in yield on a spot basis on the assets we are making is at or around 9%, which is why there is so much demand for credit. But at the same time, a higher cost of debt capital is going to be detrimental to a company's cash flows, and that is something you need to monitor carefully.

When I think about this period of elevated interest rates, even today's SOFR of 4% is well below its peak in 2023 and 2024 when it was above 5%, and forwards are suggesting it will be below that level on average going forward. When we were at peak base rates, the bigger problem companies were experiencing was not actually that debt was too expensive, though more levered and more poorly performing businesses did suffer from higher interest costs. The real problem was that inflation in other areas was hurting profitability and compounding the effect of higher rates. The primary issue in 2023 and 2024 was what the labor market looked like. Labor was very expensive, it was very difficult to keep labor-intensive companies fully staffed, and that compressed margins considerably. That was the biggest problem, not just higher rates in isolation. I think we have a ways to go before interest rates on their own become the central issue. The bigger risk, if we continue to see rate increases, is inflation in other areas, particularly in the labor market.

Q: When you talk to investors today, how are they thinking about allocating to direct lending in this environment?

Jim Vanek: The conversations have evolved to be considerably more nuanced than they were at the beginning of the year. We are discussing in much greater depth what these portfolios actually invest in, what the assets look like, and the value of private credit relative to historically available options in public credit. We are also spending more time on fund structures, why they are appropriate for investors, and how they are arranged to most efficiently access the private credit marketplace. That has been extremely valuable, not just for us but for investors in these products. And across all of those conversations, the reason investors are seeking exposure to the space remains the same: to achieve a spread premium and return premium that is not historically available in public credit markets. This has been an opportunity for investors who recognize that to increase their deployment at a point in time that is probably more compelling than it was during certain periods of 2025.

Q: You have a real vantage point because you are looking across the leveraged finance market, both public and private. What are you seeing in credit performance today, and what is it telling you about the health of the companies you are lending to?

Jim Vanek: Trailing fundamental performance by almost any metric has been very strong: revenue growth, EBITDA growth, default rates, and even the migration of companies toward higher rating categories, which is as healthy as it has been in some time. But if you look under the surface at how the market is anticipating certain macroeconomic conditions impacting companies, it is clear that the environment we have been in for roughly two months, where rates have extended their move higher, is expected to impact certain business models. The market is clearly suggesting through spreads, equity multiples, and levels that higher rates are going to negatively impact the consumer and certain sub-sectors that depend on a lower cost of debt capital. Housing and building products are good examples. It is not yet showing up in trailing fundamental performance, but it will begin to show up for certain types of business models, and you can see market metrics already reflecting that. We have been in a high-rate environment for an extended period now, and we have experienced it long enough that you are going to start to see negative implications for certain types of consumer behavior. That is one of the reasons why we talk about the value of working with very large companies that have liquidity levers and diversification across products and geographies. Those are the characteristics that benefit you in a more difficult macroeconomic period.

Q: We touched on AI disruption earlier, but let’s address the bigger picture. From a lender's perspective, there seem to be two very different sides of the story: an enormous amount of capital needed to finance AI infrastructure on one hand, and the potential disruption of software and service businesses that have historically been big direct lending borrowers on the other. How are you thinking about both sides of that equation?

Jim Vanek: This has represented the biggest work stream at the firm for about a year and a half, because it is a debate that continues to evolve and a problem that is multifaceted and changing on a constant basis. The amount of capital being raised to fund CapEx by businesses engaged in different elements of AI needs to find revenue in order to be profitable. The scale of that capital means that the number of businesses, products, and functions that will be targeted for disintermediation is very large. The story is not simply about software. It is much more nuanced than that. When we ask our analysts to look at underlying exposures and scale them on a framework for how AI impacts them, it is not just the technology team doing that work, it is every team, because there should be ramifications across multiple sectors. We think about it holistically across all the sectors we lend into and across many funds focused on multiple opportunities within credit across the rating spectrum. Where we see areas that may experience dilution of their earnings capabilities going forward, we are reducing exposure and actively managing portfolios in real time. This is a conversation that will continue to evolve as we learn more from the businesses we capitalize and from the hyperscalers looking to expand their access to compute.

Q: AI is also completely changing how you underwrite these deals, raising new questions about the durability and terminal value of businesses across different sectors. How is it changing the approach?

Jim Vanek: You have to think about how AI can negatively impact a business model, but also how it can positively impact unit economics for companies that can produce what they have historically produced more efficiently or cheaply. You have to think about what it means for competitiveness in industries where businesses with greater cash flow and access to capital can invest in new products and gain competitive advantages over inherently smaller competitors that may not have the same ability to invest. In certain areas, and this is something we have discussed specifically in relation to software, even as a credit investor whose upside is traditionally capped, the downside from a business that may see impairment or obsolescence can be substantial. In some areas you need to be investing with a forward return profile that has equity-like upside, and you cannot just accept capped credit returns. That very much impacts how we think about pricing certain investments and the areas we are allocating to. But I also want to emphasize that so much of what we have the ability to finance today is very compelling. Investments in digital infrastructure, and also in real infrastructure particularly around power generation capacity, are driven not just by increased demand from hyperscalers and data centers but by a genuine global need, particularly in the US and Europe. There is a lot about what is occurring in and around AI that creates very attractive direct and indirect investment opportunities, and we think the current deployment environment is compelling for exactly those reasons.

Q: The US has historically been the center of gravity for direct lending, but we are seeing significant shifts in Europe that are creating real tailwinds for private credit. What is changing there, and how is it expanding the opportunity?

Jim Vanek: One of the biggest tailwinds for private credit demand is that it is customizable and can be used in ways that more closely fit a company's business model and capital structure needs relative to what is available in the public credit markets, where solutions are fairly standardized. In Europe, the public credit markets are smaller, shallower, and less diverse than they are in the US, which means private credit solutions are sometimes even more suitable for businesses there than they would be in the US. We are seeing an increase in demand for private credit from companies across the spectrum in Europe, and we think that will continue. It is not just about private credit relative to public markets. It also reflects the structure and constraints of the European banking system compared to the US, and regulations around how insurance companies can invest, which have limited the development of certain markets in Europe that are well-developed in the US. We are seeing an uptick in the use of private credit by businesses in that region that is relatively more rapid at this point in time compared to what we are seeing in the US.

Q: Final question. You have spent much of your career investing across leveraged credit markets and have lived through very different environments. Over the next five to 10 years, what do you think will separate the best investors from the rest of the market?

Jim Vanek: I started at Apollo in 2008, and when I think about the periods in which our business has really been able to move forward with velocity relative to the broader asset management landscape, they have been difficult periods. We started our credit business during the global financial crisis and grew it coming out of that. During the pandemic, we were able to do very positive things for our investors and our own balance sheet because of how we structure our access to capital and how we think about working with the banking community and businesses that need capital. Every time there has been a volatility event, we have historically been able to act on it. The focus of leadership at this firm on that is extraordinarily consistent. When I think about the next five years, let alone 10, we are heading into a period that should be one of the greatest examples of creative destruction we experience in the economy, given the expansion of new technology and the amount of investment currently going into it. That is going to create very different outcomes for certain investment strategies and sectors than we have historically anticipated. The benefit of this firm, beyond how it is organized and its people, is its scale and the fact that we look at opportunities to invest across credit and equity markets at literally every return profile. Having access to information across all of those places, and the ability to connect it all, is really what has always benefited us and what I believe will continue to going forward.

Note: This transcript has been edited for clarity. It does not represent a verbatim transcript of the podcast. Podcast recorded on October 14, 2026.