Late last month, Citibank and Apollo Global Management announced their partnership to establish a $25 billion private credit direct lending program.
Billed as the largest collaboration between a bank and a private credit manager, the program aims to fund approximately $25 billion in debt opportunities over the coming years, leveraging the banking expertise of Citi and Apollo’s large capital base, with strong customer demand expected.
“This exciting project brings together Citi, Apollo and other leading partners to deliver a comprehensive suite of private and innovative financing solutions to our customers,” said Viswas Raghavan, Head of Banking and Executive Vice President at Citi.
“Combining the strength of Citi’s banking franchise and capital markets with Apollo’s extensive capital resources will provide clients with a range of options to meet their evolving financing needs and achieve their strategic objectives.”
Commenting on the deal, Paul Miron, co-founder and chief executive of Sydney-based private credit provider Msquared Capital, said the joint venture marks “a unique chapter in the evolution of private credit markets”.
He said the deal marks a significant departure from the norm as Citibank, an international traditional bank, will leverage its extensive branch network to offer direct private credit solutions to its customers, using capital from Apollo and the expertise of its private credit fund managing more than US$696 billion in assets.
This, he explains, is because banks typically focus on raising capital and lending to consumers and businesses, raising questions about a traditional bank’s entry into a space dominated by by private credit funds.
“The primary function of banks is to raise capital and lend money to consumers and businesses. Through a capital-intensive monopolistic banking platform used by all types and sizes of businesses, banks have access to the cheapest capital through deposit holders, reserve banks and complex capital markets , while benefiting from access to all professional customers using their bank accounts,” said Miron.
“One question is probably on everyone’s mind: why would a bank, traditionally focused on raising capital and lending money, enter into a joint venture with a private credit fund, a direct competitor in the field of ready? This unexpected decision marks an important turning point and permanent structural change in the industry.
In the United States, private credit funds now provide 70 percent of all commercial loans, a figure that has grown significantly since the global financial crisis as an alternative to traditional banking services. Although private credit is not as well established in Australia, Miron said the importance for Australian investors is that private credit is catching up as the fastest growing segment, with growth of more than 23 percent per year.
“So we should expect the same structural changes to start to emerge here in Australia,” he said.
Ultimately, Miron believed, this joint venture not only demonstrates the rapid evolution of the banking and investment markets, but also presents a promising future.
“For banks to continue to be relevant and protect their dominant position, they must be able to offer comprehensive solutions across the business lifecycle, such as lending, transactions and investments. Rather than competing with private credit funds, Apollo can complement bank offerings and share revenue that would otherwise be lost without the headache of regulatory burden, treasury function and human resources,” he said .
“For Apollo, this alternative distribution network could increase margins, offering great prospects for the industry and demonstrating a mutual benefit of coexistence between banks and private credit operators.”
