Private Credit Trading in the News

Apollo is working with three of the big four US banks to build a marketplace for private credit deals (loans, but “private credit deals” sounds more sexy). Here’s a link to the Bloomberg story about it: if you can’t access it, reach out to me and I’ll gift a copy to you.

I’ve always been fascinated by the concept of trading loans in a more transparent space. If anyone is setting up a trading desk for trading in the secondary loans market, please reach out! Anyway, back to the news. Adding transparency to the market should in theory lead to better pricing, greater velocity and volume of trades, and therefore a healthier, more resilient market. On the flip side, narrow spreads and less opacity will cut into profits that loan sellers can make, and gives borrowers more ammunition in their negotiations. And the big trip wire is that market prices will lead to more frequent, and more accurate valuations: the dreaded mark to market that private lenders try to avoid. The marking of portfolios can be the unmasking of lenders that have poorly performing loans, leading to investor flight, forced sales, and a cycle with a downward arc.

So I’m not sure why Apollo, one of the biggest private lenders out there, is making this push. Furthermore, the banks themselves are big lenders to private credit, as outlined in my earlier post, so if adding transparency can lead to writedowns and the cycle described above, the banks themselves might be setting themselves up for poor performance.

My theory, for which I have no evidence, is that Apollo is trying to get there first, because someone else is trying to do the same thing, and if they can become the locus for trading in what will become a new credit class, then they can control the game. ICE, LSEG and newer behemoths like Jane Street, Virtu and Jump Trading all are likely trying to build enough critical mass and data to support a market. Avoiding further competition with more nimble companies such as Jane Street etc. could explain the banks’ willingness to participate with Apollo.

If you’ve read this far, and would like to discuss this topic some more, please reach out via email, or you can find me on LinkedIn.