According to Business Insider, UBS chair Colm Kelleher issued a stark warning about private credit creating “systemic risk” in the insurance industry, specifically pointing to “massive growth in small rating agencies ticking the box for compliance” and comparing it to 2007 subprime rating arbitrage. Apollo CEO Marc Rowan immediately fired back during his earnings call, stating “Colm is just wrong” and revealing that 70% of Apollo’s insurance arm Athene’s assets carry ratings from major agencies like S&P, Moody’s, and Fitch. Rowan did acknowledge Kelleher was “not wrong to think about systemic risk” but argued the real issue involves assets moving to jurisdictions like Cayman Islands without proper regulatory regimes. Meanwhile, Ares CEO Michael Arougheti backed the big players, noting that 65% of private credit assets are controlled by large platforms with proper risk standards. The clash occurred as insurance companies have piled into private credit assets, with private equity firms either buying insurers or partnering directly with them.
The Real Battle Lines
Here’s what’s really going on: this isn’t just about ratings agencies. It’s about who controls the credit markets. Traditional banks like UBS are watching private credit firms eat their lunch, and they’re fighting back with regulatory concerns. But Rowan makes a compelling point – the issue isn’t whether a loan is public or private, but the quality of the underwriting.
And honestly? Both sides have valid points. Kelleher isn’t wrong to worry about rating shopping – we saw how that movie ended in 2008. But Rowan’s not wrong either when he says the big players like Apollo and Ares have mostly kept their houses in order. The problem might be what happens when the cycle turns and those “smaller players or new entrants” that Arougheti mentioned start feeling the heat.
Insurance: The New Battleground
What’s fascinating here is how insurance has become the central battlefield. Insurance companies love private credit because they need steady returns to match their long-term liabilities. Private equity firms love insurance because it gives them permanent capital. It’s a match made in heaven – or maybe something else.
Rowan dropped this bombshell: Athene’s balance sheet is more than 90% investment grade, while banks are merely 60% investment grade. That’s a pretty strong counterpunch to the “systemic risk” argument. If the private credit guys actually have higher quality books than the traditional banks, what does that say about where the real risk lies?
Where This Is Headed
Look, this fight isn’t going away. We’re seeing the early stages of what will likely be a long regulatory and market share battle. The private credit guys have grown enormously while operating in regulatory gray areas. Now the traditional players are pushing back hard.
Rowan’s comment about “late-cycle behavior and bad actors” is telling. He’s basically admitting there are problems in the system, but he’s arguing they’re isolated rather than systemic. The question is whether regulators will buy that argument – or whether we’re seeing the warning signs of something bigger brewing.
One thing’s for sure: when CEOs start calling each other out by name in earnings calls and conferences, this isn’t academic anymore. It’s personal, and it’s about billions in fees and market dominance. Buckle up.
