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The big banks’ pain is private equity’s gain.
Regulators have forced banks to cut back on lending in the wake of the financial crisis – a bid to stop the biggest lenders from inflating another credit bubble.
The banks have to face more frequent reviews on leveraged lending and could be fined or face other sanctions if their activity is considered risky.
That’s creating an opportunity for alternative lenders, like private-equity firm Apollo Global Management, to fill that vacuum. The firm’s credit business has $124 billion in assets under management, and was a major driver of its 23% compound annual growth rate from 2005 to 2016.
Apollo cofounder Josh Harris said at a Deutsche Bank conference on Tuesday:
Most of the growth in the credit business today is just taking advantage of – in essence – forced sellers, banks that are depressing market prices, and creating an arbitrage for us and our investors. That is going to go on for a while. I do think we benefit from regulation, and we are going to keep on filling the role of banks to provide capital.
To be sure, even as they beef up their credit arms to help midsize companies fund deals, the alternative lenders are still a relatively tiny group, with just $500 billion in assets, compared with nearly $120 trillion in global banking assets.
But to Apollo, that’s just an opportunity to grow the business.