Key takeaways
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- Apollo’s John Zito delivered an unusually blunt warning on private markets, criticizing what he called “arrogance” in valuation and risk assumptions.
- Software is the main fault line, with Zito suggesting weaker private software borrowers could recover only 20 to 40 cents on the dollar in bad cases.
- He argued private-equity marks are too high, implying valuation adjustments may still be ahead.
- Apollo is positioning defensively, emphasizing larger companies, investment-grade exposure, and stricter valuation discipline.
What Happened?
In previously unreported remarks to UBS clients, Apollo executive John Zito spoke far more candidly than most private-credit leaders have in public. He said many smaller and lower-quality software companies taken private between 2018 and 2022 may face more serious stress than investors appreciate, especially as AI pressures business models and forces spending before returns are proven.
He also questioned broader private-market valuation practices, saying he believes many private-equity marks are wrong and warning that elevated redemptions in private-credit funds could persist for several quarters.
At the same time, he argued Apollo’s own portfolio is better positioned because of lower exposure to software and heavier focus on investment-grade assets.
Why It Matters
For investors, this is important because the warning is coming from inside one of the largest private-credit firms, not from an outside critic.
The message is that the problem may not be private credit alone, but the broader private-markets ecosystem, particularly software deals financed at high valuations and leverage during the easy-money years.
If those valuations prove optimistic, the next phase of the cycle could involve credit losses, private-equity markdowns, and investor redemption pressure across private funds.
What’s Next?
The key question is whether private-market managers begin marking assets down more aggressively in the coming quarters.
Investors should watch:
- Software-heavy portfolios financed during the 2018–2022 boom
- Redemption trends in semi-liquid private-credit funds
- The gap between public market signals and private valuations
Zito suggested the next market cycle could become a defining moment for private markets, as managers who mark portfolios realistically may gain trust while others face credibility challenges if valuations prove too optimistic.
