Private Assets Need Daily Pricing to Win Fixed Income Money

What's New

Private asset managers have to package their products like public securities to capture fixed income and retirement money. Scott Kleinman, Co-President of Asset Management at Apollo Global Management, argues this in a fireside chat at the Barclays 24th Annual Global Financial Services Conference. He says the industry has long asked buyers to come to private markets. Apollo now plans to meet them with daily pricing, more transparency, and a CUSIP-like identifier through ICE. Allocators building a total portfolio approach should expect private credit in formats they can compare line by line with bonds.

Why It Matters

Kleinman says fixed income replacement is in the first inning. Capturing 10% to 15% of the fixed income market would create a very large opportunity for private assets. His approach challenges peers who, in his account, are waiting to see how the market develops. Apollo originates at scale and needs more buyers for what it makes, so wider distribution serves its business directly.

What To Watch

• The share of Apollo's book priced daily, and whether any category moves from daily pricing to daily liquidity.

• Third-party demand for AMAPS. Apollo has issued about $25 billion. Its own balance sheet took about half.

• Wealth flows once the redemption queue clears. Kleinman expects the backlog to work through over the next couple of quarters.

The Other Side

Much of the industry is taking a wait-and-see approach, by Kleinman's own account. The standard view holds that illiquidity is part of what investors are paid for in private credit. Daily marks can also expose volatility that holders of illiquid assets were meant to avoid.

Memorable Quotes

• "We are just pulling out of New York Harbor, heading into the Atlantic Ocean." Kleinman places fixed income replacement at the very start.

• "Every time you see another pension fund or institution talk about TPA or Total Portfolio Approach, that's another way of thinking about fixed income replacement." He ties the product push to how asset owners now build portfolios.

• "We have seen spread compression just over the last couple of years, given the markets in general." The concession explains why Apollo needs new buyers and new structures.

• "It's ultimately incumbent upon us to meet some of those buyers closer to where they are." This is the thesis in his words.

The Wrap

The thesis holds if daily pricing and standard identifiers bring 401(k), mutual fund, and fixed income buyers in at scale. Regulators and plan administrators also need to accept the formats. Buyers who insist on daily liquidity would test whether private assets can follow them that far. The next year of expanded daily pricing across Apollo's book will show whether buyers follow.