Apollo Global Management Inc. acquired a minority stake in Diameter Capital Partners as the $11 billion credit manager makes a foray into the private debt market.
Apollo purchased a 4.99 percent passive equity interest in the firm to back Diameter’s launch of a new direct-lending business and an expansion in Europe, according to a letter to Diameter investors. The transaction includes a commitment from Apollo to provide seed capital for Diameter’s direct-lending effort. The amount of the transaction wasn’t disclosed.
Rapid growth in the world of private credit has helped firms in the space muscle into bigger deals to compete with Wall Street banks. The rush to put capital to work during the bull market has fueled concerns that investors were too willing to enter deals without the protections they would need in a less liquid market.
Scott Goodwin and Jonathan Lewinsohn, who founded New York-based Diameter in 2017, said their fresh start during a perilous time will work in their favor.
“Diameter will have an advantage by entering this market with a clean portfolio after many years of frothy lending activity,” they wrote to investors.
Apollo co-President Jim Zelter echoed that sentiment. “It’s a great time to be getting into private credit,” he said in an interview. “We think the world of these guys, and they are going through a logical expansion of their credit platform.”
For New York-based Apollo and its affiliates, the Diameter transaction is the latest in a growing list of third-party asset manager minority stakes and partnerships. Zelter previously worked with Goodwin at Citigroup Inc., where he oversaw the high-yield trading business. Goodwin got his start in finance on the trading floor of the New York-based bank. Lewinsohn clerked for Richard Posner at the U.S. Court of Appeals before the Diameter founders wound up together at Anchorage Capital Group. Lewinsohn then had a stint at Centerbridge Capital Partners.
Diameter was founded as a credit hedge fund by Goodwin and Lewinsohn, and has since expanded. It raised a $750 million long-only dislocation fund in 2020 that pounced on depressed prices in credit markets. It has been raising a second draw-down vehicle, Diameter Dislocation Fund II. Such a fund is similar to the offering from private-equity firms that lock up money for longer periods than traditional hedge funds. The firm has also made a foray into structured credit, including a collateralized loan obligation business. More than half its total assets are still tied to its hedge fund.
Apollo had also previously seeded their CLO management business. Funds managed by Apollo and its affiliate Redding Ridge have deployed more than $1 billion in debt and equity capital across Diameter’s structured-credit strategy, Zelter said.
Earlier this year, Diameter hired Dan Friedman from Goldman Sachs Group Inc. to head its Europe business. Friedman helped run the European credit-trading operation at the investment bank.