Lending in the Sponsor Age
Notes from the Grant's Private Credit Conference
We need to make private credit more like French fries.
John Zito, Apollo Global Management
Investment trends carry beliefs about the structure of markets. Grant's Private Credit Conference sought to have private credit participants elucidate the beliefs of their ascendant asset class.
Almost universally, speakers felt that private credit's raison d'être was to serve the growing needs of private equity sponsors. Private credit's chief competition, the broadly syndicated loan (BSL) market has structural deficiencies, the argument goes, and savvy borrowers are willing to pay up (in terms of spread) and accept more stringent loan documents to avoid them. Against the backdrop of a neutered banking system hamstrung by regulation and lumbering bureaucracy, all roads lead to private credit. Or so Grant's guests would like you to believe.
The less overtly commercial context of the conference afforded speakers the freedom to veer from tightly crafted PR pitches. While books were no doubt talked, content focused on market structure and the nuances of lending in the late stages of a seemingly never-ending credit cycle.
Below are my notes and quotes (best as I could transcribe them) that revealed the state of private credit, or rather, private credit as described by private creditors.
John Zito's French Fries
Private credit simultaneously rejects and appeals to its own vague definitions depending on the context. John Zito of Apollo Global Management, used French fries and Wikipedia to illustrate the point. French fries, he explained, take a variety of forms and can be prepared in a multitude of ways. He noted that the Wikipedia page for French fries has a word count of nearly 4,000 and has been edited over 1,400 times. Private credit, undoubtedly more complex and varied, has just 500 words and less than 100 edits. Zito's point, "We need to make private credit more like French fries,” meaning that the investment community should appreciate and segment the multiple expressions of private credit, which is after all, just lending.
At the same time private credit promoters like to take the broadest possible definition when discussing things like asset growth or credit metrics. For example, Zito said that less than 15% of private credit was below investment grade, no doubt relying on a more inclusive definition of the asset class.