Apollo Global Management Inc. sees an increasing opportunity to make large corporate loans, a business long dominated by the biggest global banks.
The firm has raised $1.8 billion for Apollo Origination Partnership, a new direct-lending fund that’s seeking an internal rate of return of 8% to 10%, excluding leverage, and 12% to 14% with borrowed money, according to a letter sent to investors Tuesday.
The first investment will be a senior secured term loan facility to an insurance-broking platform based in the U.K., Apollo told investors. The alternative asset manager expects to raise $3 billion for the fund by the first quarter of next year, according to a person familiar with the matter. That adds to a $12 billion platform started last year and backed by Abu Dhabi state fund Mubadala Investment Co.
An spokeswoman for New York-based Apollo declined to comment.
Institutional investors have been pouring cash into private credit. Just a year or two ago, large deals were rare. Now lenders estimate that 10% of new U.S. leveraged corporate loans could end up happening in the private market over the next five years.
Apollo and some rivals, including Ares Management and Blackstone Group Inc.’s GSO Capital Partners, are moving into terrain traditionally controlled by the biggest banks, which arrange private deals exceeding $1 billion and sell them to institutional investors. Apollo has already made about $3 billion in giant corporate loans over the past two years.
“The shift in corporate finance from public to private markets is set to continue and accelerate,” John Zito, deputy chief investment officer of Apollo’s $320 billion credit business, said in a white paper that was sent to investors along with the letter.