(Bloomberg) — Apollo Global Management Inc. Chief Executive Officer Marc Rowan rejected the notion that adding private assets to retirement and insurance portfolios can pose a systemic risk, calling concerns about such holdings overblown.
Most private credit held by insurers and pension fund buyers is rated investment grade, the CEO told investors Monday, pushing back on the idea that the asset class is less transparent than traditional loans. Lenders can get direct access to borrowers’ management, he said.
And Apollo’s exchange-traded private credit fund with State Street Corp., for example, provides price updates daily. Elsewhere at Apollo, he said, the firm has traded $6 billion in its investment-grade private credit business.
“People have really just lost their minds, and the headlines get more and more hysterical and have almost nothing to do with the substance,” Rowan said as part of a presentation on Apollo’s retirement services business.
Alternative asset managers have been snapping up insurers in recent years, gaining access to a stable source of long-term capital to fuel their investments. Apollo pioneered the model, with its insurance arm, Athene, investing in financial products created by its asset-management division. Rowan pointed out Monday that Apollo has a first-mover advantage in this area.
Recently, though, the close ties between private equity and insurers have drawn scrutiny, as the latter had traditionally put their money in the most liquid parts of the market like high-grade bonds and stocks. The recent blow-ups of auto-parts firm First Brands Group and subprime auto lender Tricolor Holdings have exacerbated fears about credit losses across the financial industry.
Last month, economists at the Bank for International Settlements took a broad look at how practices have changed within the industry and estimated that publicly traded North American life insurers would face a capital shortfall of about $150 billion in the event of a severe economic downturn. That’s more than triple the figure two decades ago.
“If we look at the insurance business, to me, there is a looming systemic risk coming through,” UBS Group AG Chairman Colm Kelleher said at a global summit in Hong Kong earlier this month.
Rowan addressed those comments during Apollo’s third-quarter earnings call, telling analysts that Athene doesn’t use Egan-Jones Ratings Co., whose business practices are being scrutinized by the US Securities and Exchange Commission.
“Colm is just wrong,” he said earlier this month, referring to the UBS chair’s comments.
