Apollo’s head of investments Europe says private credit is going through a rite of passage

The current period is a “really important rite of passage” for retail access to private credit and direct lending, says Tristram Leach, head of investments Europe at Apollo Global Management, on the latest episode of Credit Exchange with Lisa Lee.

“The five percent number is there for a reason,” says Leach, speaking about recent outflows from semi-liquid private credit funds that have seen a pickup in redemption requests (some firms have given back more than the agreed 5%; some have limited at 5%).

“It’s important to protect remaining investors. It’s a level of liquidity that has been promised. And in general, we think the appropriate way to proceed is to do what you said you’d do.”

Direct lending, he believes, will continue to grow – but it needs to go through a period where there are elevated redemptions in the marlet.

“People want their money back. You have to see the products work as they were designed to work. And the way they’re designed to work is they give five percent. That, broadly speaking, is the appropriate design, and how it should function,” Leach contends.

He adds that we are still in a fairly early period in the development of wealth access to direct lending. Consequently, it’s understandable that results in a “slightly flightier” asset base compared to institutions.

Leach understands the argument that the central composition of the direct lending market does put it more in the crosshairs of this threat.

“The very high software concentration, certainly among some of our peers in private credit, does create some additional risk when you think about AI disruption,” says Leach, who is also the co-head of European credit at Apollo.

Across the firm, Apollo has around 2% software exposure. Even within direct lending, Apollo is “clearly at the bottom end of the range,” Leach says.

Nonetheless, he believes the market was relatively slow to wake up to the potential of AI. “What’s surprising to me is that when Claude Code came out, the market suddenly noticed,” he says. “We’ve been watching the incredible pace and development of large language models for several years now.”

On Europe, the Iran war probably represents more of a cyclical threat to Europe than the US because of the energy price dynamic and geographical proximity, Leach believes. “That is definitely a headwind to growth; it’s a headwind to cyclical industries.

“Especially for companies exposed to growth in Europe, that’s going to be a challenge, because of the inflation impacts to energy prices.”

Nonetheless, that doesn’t materially impact Leach’s expectations for greater infrastructure investment and defence investments on the continent.

“There’s been a huge change in the attitude of European policymakers towards the need to spend money, become more productive, become more competitive. All these things are clearly felt viscerally within Europe because of how fragile the continent’s position seems. I think you’re going to see changes, and I think you’re going to see Europe seek to take advantage of the opportunity,” Leach says.

Leach also shares why, in football, he is wholly committed to Atlético Madrid.