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Citigroup on Thursday announced it had partnered with Apollo in a $25bn push to lend to private equity groups and low-rated US companies, as the fourth-largest US bank by assets looks to establish itself in the rapidly growing private credit industry.
The decision to partner with Apollo will give Citi one tool to help win back business from asset managers, which over the past five years have targeted many of its and its rivals’ most lucrative clients as traditional banks pulled away from riskier corners of the market.
The two groups have agreed to finance at least $25bn of private equity and corporate loans over the coming years, hoping to hit $5bn in the first year. The loans will be sourced by Citi’s investment banking workforce and funded by Apollo, drawing on capital from its direct lending funds as well as its insurance subsidiary Athene and Abu Dhabi’s sovereign wealth fund Mubadala.
The deal will help supercharge Apollo’s efforts to expand its credit business, which now accounts for more than 70 per cent of the firm’s almost $700bn in assets. Apollo has focused much of its energy on investment-grade bonds and loans, debt that can be placed with insurers — including Athene — that are required to own lower-risk investments.
The tie-up with Citi will give Apollo direct access to higher-yielding, but riskier, investments, including loans to fund buyouts.
Apollo co-president Jim Zelter said in a statement that the collaboration would enable Apollo “to increase origination flow and tap into Citi’s extensive client relationships”.
Rival Wells Fargo has targeted a $5bn fund to invest in private loans in a joint venture with the asset manager Centerbridge, while JPMorgan Chase has dedicated at least $10bn of its capital to hold these loans. Barclays in April partnered with investment group AGL to provide private loans to its clients.
Banks have largely avoided originating the kinds of loans private credit investment shops have hoovered up in the years since the financial crisis, given many of the loans fail to meet the standards required by US financial regulators.
For Citi, the hope is that the deal will help to further reinvigorate its investment bank, which has seen some wins recently, but generally struggled to keep up with rivals and often failed to turn a profit in the past few years. The bank was recently picked by confectionery company Mars to advise it on its $36bn acquisition of snack company Kellanova.
The move to partner with Apollo is the first big initiative of Vis Raghavan, the former JPMorgan investment banker who joined Citi to head its corporate and investment bank. In the past, Citi’s chief executive Jane Fraser has said building more relationships with private equity firms was vital to winning more business for Citi’s investment and corporate bank.
Raghavan said in a statement it was “exciting” that the bank would be partnering with Apollo on the venture.
