Late last month, Citibank and Apollo Global Management announced their partnership to establish a US$25 billion private credit direct lending program.
Dubbed the largest collaboration between a bank and a private credit manager, the program aims to finance approximately US$25 billion in debt opportunities over the coming years, leveraging Citi’s banking expertise and Apollo’s extensive capital base, with strong client demand anticipated.
“This exciting project brings Citi together with Apollo and other best-in-class partners to offer a full suite of innovative, private financing solutions to our clients,” said Viswas Raghavan, head of banking and executive vice chair at Citi.
“Combining the strength of Citi’s banking and capital markets franchise with Apollo’s deep capital resources will provide clients with a range of options to meet their evolving financing needs and achieve their strategic goals.”
Commenting on the deal, Paul Miron, co-founder and managing director at 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 because Citibank, an international traditional bank, will leverage its extensive branch network to offer direct private credit solutions to clients, utilising Apollo’s capital and expertise from its private credit fund managing over US$696 billion in assets.
“From an Australian perspective, this joint venture seems counter-intuitive,” Miron said in a note shared with InvestorDaily.
This, he explained, 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 private credit funds.
“Banks’ primary business function is to raise capital and lend money to consumers and business clients. Through a capital-intensive monopolistic banking platform used by every business type and size, banks have access to the cheapest capital via deposit holders, reserve banks, and complex financial markets, whilst the benefit of having access to the entire spectrum of business clients using their bank accounts,” Miron said.
“One question is likely 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 lending space? This unexpected move marks a significant turning point and a permanent structural change in the industry.”
In the US, private credit funds now provide 70 per cent of all commercial loans, having grown significantly since the Global Financial Crisis as an alternative to traditional banking. Although private credit is not as established in Australia, Miron said the relevance to Australian investors is that private credit is catching up as the fastest-growing segment, expanding by over 23 per cent annually.
“We should therefore expect the same structural changes to start to emerge here in Australia,” he said.
Ultimately, Miron opined, 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 dominance, they need to be able to offer full business life cycle solutions such as lending, transactional, and investments. Rather than competing against private credit funds, Apollo can complement bank offerings and share income 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 a bright outlook for the industry and demonstrating a mutual benefit of co-existence between banks and private credit operators.”
