Private Credit Exec Admits "All" Marks Are "Wrong"
Submitted by QTR's Fringe Finance
A top executive at one of the largest private credit lenders just delivered a remarkably blunt warning about valuations across the private markets.
John Zito, co-president of the asset-management arm at Apollo Global Management, warned clients in a private discussion that parts of the private-markets industry—especially private equity backed by private-credit loans—are likely overstating asset values and could face painful adjustments, according to a new report from the Wall Street Journal on Monday morning.
He said many software companies bought by private equity between 2018 and 2022 were smaller, lower-quality businesses purchased at far higher valuations than comparable public firms, leaving them vulnerable if the economy slows. Zito predicted that loans to a typical leveraged mid-size software company could recover only “20 to 40 cents” on the dollar if things go wrong.
His bluntest criticism targeted private-equity valuation practices. Asked where losses might appear, Zito said, “I literally think all the marks are wrong… I think private-equity marks are wrong,” arguing that firms have been slow to adjust reported values despite deteriorating market conditions. He said the next downturn could become “a big moment in time for the private markets” because investors may lose trust if firms refuse to write down assets.
“If you don’t mark your book, I think you actually lose trust with the clients,” he said, adding that Apollo intends to be “a market leader in actually marking our book.”As I wrote last week, the first real signs of strain in private credit were already beginning to surface—not through loan defaults, but through liquidity pressure.
A growing number of funds have started limiting investor withdrawals after redemption requests exceeded the quarterly limits built into their structures. In recent weeks alone, funds tied to Morgan Stanley, Cliffwater LLC, and BlackRock have all had to cap redemptions after investors asked to pull far more money than the funds were prepared to return.
These funds are typically structured as...(READ THIS FULL ARTICLE HERE).