Private Investment Grade

Not what the word usually means

Marc Rowan corrects the mental image of private credit with a list of issuers: "it's Intel, it's Air France, it's EDF, it's AT&T, it's Meta, it's BP Energy, and you're hearing lots of public companies."¹ The asset class exists because public debt markets only price standard structures, part of the taxonomy in Three Markets for Financing. Banks are the best short-term lender, and public and private capital both work as long-term lenders, but a public bond market only does plain vanilla, so anything else has to go to a private negotiation. The projects being financed now are rarely plain vanilla: "when we're building a data center that is marrying energy and chips and offtake, it is anything but simple. It can be creditworthy, but it is not simple." Creditworthiness and simplicity are independent variables, and a public bond market can only price the combination where both are high, which is why the category sits close to the demand described in AI Infrastructure Bottleneck.

Why the economics work on thin spreads

Rowan concedes that investment grade alone is not a great asset management business, since fee rates are low and spreads are thin, and gives three reasons it works anyway. The insurance balance sheet needs the asset to match low-cost retirement liabilities against safe, not risky, long-term yield. Origination capacity is scarce because private investment grade is not a defined bucket at most institutions, so it stays undercompeted, the dynamic behind Origination Capacity as the Constraint. And one origination sells many times over, since the same underwriting that serves an insurer's own book also serves pension funds, endowments, and other insurers who need the identical asset, the mechanism Rebuilding GE Capital describes at industrial scale, built on roughly four thousand people across owned lending platforms in fleet, aircraft, and securitization.²

Why nobody else was already there

The Bloomberg account adds a labor explanation for why the gap persisted: Drexel Burnham Lambert created the high-yield bond market, banks responded with leveraged lending, and "all of the brainpower in the financial marketplace left the investment grade market and everyone wanted to do levered lending and high yield bonds because that's where the money was, that's where the excitement was. And it didn't come back."³ Apollo's own entry is dated to roughly 2009, driven by the need to create investment-grade assets for its captive insurance carrier rather than by a market view arrived at independently, and the firm now originates a little over three hundred billion dollars a year, eighty percent of it investment grade.

The size of the confusion

Rowan sizes the private market at forty trillion dollars against roughly a trillion and a half in the leveraged lending segment that gets nearly all the press coverage: "the vast majority of the private market is investment grade... 99% of the headlines are focused on a little slice of a trillion and a half called levered lending."³ By his account, most private capital reaching private companies is financing a broad industrial buildout rather than funding deals, and the popular meaning of private credit, distressed or direct lending, is a small fraction of what the term should actually cover.

Open question

The forty trillion and trillion and a half figures are unsourced and come from the same interested party, and a separate outside estimate for the industry under stress lands closer to one point eight trillion, a gap that is almost certainly definitional rather than a genuine disagreement, which is itself the terminology problem Rowan is complaining about. The ratings assigned to these bespoke structures also rest on agency models with limited precedent, exposed to the same Collateral Decay Cycle Rowan warns about elsewhere, so the durability of the excess return this segment earns, and how much of it survives once competitors return to a market the last generation abandoned, remains untested.