Inside Q3 2025: What the Biggest Alternative Managers Are Talking About
Key Takeaways from 400 Pages of Earnings Transcripts
👋 Hey, Nick here. A big welcome to the new subscribers from Brookfield, Oaktree, and Aperture Investors. This is the 140th edition of my weekly newsletter. You can read my previous articles here and subscribe here
Every quarter, I summarise the 400+ pages of earnings transcripts from the largest managers. I do this for two main reasons:
It helps me understand the consensus views.
It brings to light unfiltered and occasionally provocative opinions.
Only 1% of you will read the whole thing, but if you want to feel insufferably smug, I’d recommend printing this out, blocking 15 minutes in your diary, and giving it a proper read.
I’ve included a breakdown of key topics with links for the rest of you. Skim, skip, or dive in. Your capital, your choice.
📚 Quotes of the Quarter
The Rotation Into Private Credit Is a Rotation Out of Equity
Take a Pause and Think About What That Means for Your Equity Books
All the links to the transcripts can be found here
Provocative Opinions
The rotation into private credit is a rotation out of equity
Apollo: “This is fundamentally what people fail to understand. The rotation into private credit is a rotation out of equity. That is what investors are doing. That is what we observe. They are making a decision to take risk off because they perceive the ability to earn long-run equity returns in first lien debt, top of the capital structure, as an attractive opportunity.”
Take a pause and think about what that means for your equity books.
Blue Owl: "If you’re actually concerned about the broad credit industry, banks, private lenders included, take a pause and think about what that means for your equity books.
We are the senior parts of hundreds and hundreds and hundreds of companies. So if you really are watching this problem, we ought to all collectively turn our attention to, in that case, wildly overvalued equity markets, and we ought to have people moving into credit, not out of credit.”
Why Ares has the highest amount of credit dry powder
Ares: “When a credit cycle does occur, investors understand that it often provides a superior vintage for returns as capital is scarce.
For Ares, in every vintage year that was originated during the last two recessions, from 2008 to 2009 and 2020 to 2022, we generated returns that exceeded our 20-year averages for both our U.S. senior and junior debt loans, and nearly all were 100-500 basis points better.
In order to outperform, a firm must have capital to invest when others retrench.
On that point, Ares possesses among the highest, if not the highest, amount of credit dry powder among our peers.
Marc Rowan Pushes Back on UBS Chairman's Fears
If you missed it, ahead of earnings, UBS's chairman warned against looming risks in the US insurance industry, citing weak and complex regulations amid an unprecedented boom in private financing. Link
Below is Marc Rowan’s Response
Apollo: “Colm is just wrong.
First, Athene does not use Egan-Jones, let’s start with that. Less than 8% of our assets have a rating from Kroll or DBRS. 70% of our assets have two-plus ratings.
But Colm, I compare the insurance industry to the banking industry. 100% of what is on a bank balance sheet is private credit. Almost nothing has a rating. And so, when we talk about private letter ratings, at least it has a rating.
I do not believe that private letter ratings are where the focus should be. I continue to believe, as I’ve said previously, that we have offshore jurisdictions of significant size that have not produced the kind of regime that is consistent with US ratings and US state-based regulatory reform.
If you look at the recent blow-ups, and we all know the various names. Almost all those blobs have taken place in credits underwritten by the banking system.
There are good banks, there are bad banks, there are good asset managers, there are bad asset managers, there are good insurance companies, there are bad insurance companies.
I don’t think we’re talking about systemic risk. I think we’re talking about late-cycle behavior, and bad actors, I believe, are going to get called out.
The Mandela Effect
Blue Owl: "Blue Owl has no exposure to TriColor or First Brand. We do not view the events that have unfolded for those companies as canaries in the coal mine for the health of the private credit markets. However, we do believe that these two situations are reminders that vigilance is required in credit investing.
A handful of problems that appear to be rooted in fraud, which is the least relevant indicative issue when it comes to credit quality or systemic problems, and yet has garnered extraordinary amounts of attention.
I don’t know if you’re all familiar with the Mandela effect. This is like the Mandela effect of finance, which is a common collective misimpression of what’s going on. And for those who don’t know the Mandela effect
People imagine that the Monopoly guy had a monocle. He didn’t.
Or that Pikachu’s tail has a black tip. It doesn’t.
There are these common misunderstandings and misimaginations.
In any case, by just talking about this enough, people have worked themselves into this imaginary world where there’s some big or potential credit problem.
And from where we sit now, I’m going to be a little more parochial, there’s definitely not. When I now look at our book, performance remains extremely strong. You know we’ve originated over $150 billion in credit over the last decade, and we’re still running at a 13 basis point loss rate. And it will be higher than that over time, like that’s too low. That’s not the right rate. We don’t suggest it is or should be. And in any given quarter, we have a company that has its challenges. But the key is to have very few. And when you have them, get a good recovery.
We are not seeing anything in our portfolio that is thematically problematic. We’re not seeing anything that suggests a shift in overall credit quality or yellow lights or anything like it. We’re still seeing growth.
There are going to be companies that get in trouble. We’ve had them and so will our peers, and so will the banks; that’s the nature of being a lender. But the key is, is it thematic, does it suggest anything greater, or does it even really matter much to the net result when you talk about such small numbers of defaults with any reasonable recovery?
And the answer is it doesn’t.
I’m not by any measure, trying to be dismissive, but I do think a little bit of a step back, because now it’s like this daily rhythm of everyone saying, what about this thing? What about that thing?
Consensus Opinions
The Private Credit Bubble
Ares
From a fundamental standpoint, we continue to see healthy year-over-year double-digit EBITDA growth across our US direct lending strategies, and interest coverage ratios are improving. Loan-to-value ratios remain conservative and near historic lows at roughly 42% in the US and 48% in Europe.
This means that our corporate borrowers would have to lose, on average, more than 50% of their enterprise value, resulting in a total loss for the private equity sponsor before we lose a dollar of our principal.
KKR
It is true the industry has grown a lot, in particular, direct lending. But let’s put direct lending in context. Direct lending is $1.7 trillion compared to $145 trillion for the global fixed income market, a very small percentage.
Any suggestion of systemic risk seems ill-informed. And that’s before you get to the duration of capital and lack of deposit funding, low leverage, and senior secured status in the capital structure.
Blue Owl:
The market loves simple sound bites and a really tidy story. And candidly, when we read some of these headlines, it’s clear many of us have PTSD from the financial crisis and are looking for what will trigger the next one.
But from our standpoint, this market and economy don’t provide a simple narrative like that. You just can’t generalize. And as I said, it’s dispersion and bifurcation.
What we don’t see talked about much is the fact that we’ve had this rolling recession dynamic in the U.S., where some industries are already experiencing or have experienced their cycle.
We’ve seen it in manufacturing. We’re now seeing in building products, maybe parts of chemicals, parts of leisure. And the public markets are also obviously seeing dispersion, very different performance if you look by sector.
And so, that part of the narrative is not included when we look at what’s coming out in the media.
That’s not to say there isn’t risk of excess and bad actors. But what we’re taking comfort in is that air is periodically being let out of the balloon.
We’re not seeing that uniform excess we saw before the GFC.
Ares
To be honest with you, it’s a little bit of a head scratcher because everything that we’re seeing tells an opposite story. When you look at bank earnings, when you look at the top five banks in the country, they showed no meaningful increase in loan loss reserves. When you look at the card companies, you’re not seeing any meaningful pickups or spikes in delinquencies and charge-offs.
There is this kind of growing narrative about credit concern, but when you look at all of the data from the largest pools of capital, you’re just not seeing it.
The other thing, and it is possible that as the cycle progresses and deal flow is picking up, you have a lot of people who want to participate in the growth in private credit. It is altogether possible that some of the smaller players or new entrants, or the banks, are taking risks or distributing risks that otherwise wouldn’t be taken by some of the incumbents.
Trade finance is kind of at the very top of the list of things that we just categorically avoid for some of these reasons, just in terms of collateral monitoring and the opportunities for fraud.
Apollo’s Three Pillars of Growth
We are fortunate to be driven by three incredible, strong fundamentals.
Our business is financing the global industrial renaissance, whether it’s infrastructure, energy transition, data centers, defense, new manufacturing, or robotics. The demand for capital has never been stronger, and it is not a US phenomenon; it is a worldwide phenomenon. These investments are long-duration in nature and are perfectly appropriate for what we do.
We are facing a retirement crisis. A gap in retirement income almost everywhere in the Western world. This is among the fastest-growing sectors of our business
We provide an alternative to increasingly concentrated, correlated, and indexed public markets. If you want to escape the MAG 7 but still want to be invested, it is very difficult to do efficiently in public markets.
BDC Valuations
Blue Owl Capital Corporation
Public market sentiment with respect to BDCs seems to be disconnected from the realities on the ground, and we encourage investors to look beyond the headlines and focus on the fundamentals that drive our strong risk-adjusted results over time
Blue Owl – Valuation Discount & Strategy
Question: If you look at direct lending, gross returns that you reported today, it should be another strong quarter for your BDCs. So your fundamentals remain really strong, but you look at all the stocks and they’re trading at a pretty meaningful discount to peers. So what do you think is still misunderstood about your businesses within the market today?
It’s probably hard for us to give you a comprehensive answer, We can offer some theories. I can certainly tell you what we’re doing.
We’re doing two things that I think at the end of the day, will solve this problem.
One, we are executing, executing, executing. Business is good. And we’re focused on continuing to deliver. We haven’t seen an opportunity as good for investors, and by extension for Blue Owl, as the digital infrastructure investment cycle that we’re in…
And then communication. We are out on the road talking to shareholders all the time. Everyone on the senior team here is, by the way, happy to do it. We like spending time with shareholders, and we’re out on the road, and we’ll answer any question anybody has,
I mean, the reality is, every one of these vehicles are incredible value. So rather than complain about it, which I know is a natural tendency we can have, that seems kind of pointless, rather, we’re just going to continue to deliver spectacular results.
Origination, Volumes & Deployment
Apollo
Origination for this quarter was very strong. $75 billion of origination led by platforms. It’s our second strongest quarter following a record Q2. Average spread on our origination, 350 basis points over treasuries, which was stable quarter-over-quarter. Average rating of BBB. The reward for good origination is that people want to invest with us.
Record AUM at the end of the quarter, $908 billion, up 24% year-over-year. In short, the growth flywheel is spinning.
Ares
Our gross deployment was even stronger, totaling over $41 billion invested in the quarter, 55% higher than the second quarter 30% above our previous high in the fourth quarter of last year.”nd 3
Brookfield
Growth was driven by a record $106 billion raise over the last 12 months and record deployments of nearly $70 billion.
Blackstone
Notably, our infrastructure and asset-based credit business grew 29% year over year to $107 billion – one of the fastest growing areas at the firm. Our scale gives us access to what we believe is the broadest set of opportunities across the risk spectrum, which we can offer holistically to clients. As a result, we’re seeing robust demand for multi-asset credit solutions across our three “I’s” – institutions, insurance companies and individual investors.
Spreads
Ares
Investor appetite for private credit exposures is not an expression of a desire for absolute return. It’s about the relative return relative to the traded alternatives.
If you look at private credit spreads today, they’re probably 225 basis points in excess of the traded alternative, and that’s kind of right in line with what we’ve seen historically.
Our historical experience has been that when rates are coming down, two things happen. One, credit spreads typically widen, and we’ve actually seen a modest widening already taking place within the private market. And then two, transaction activity tends to pick up dramatically, and deployment increases and fees go up. So when you look at the impact of lower rates generally on the business, it tends to be a net tailwind, not a net headwind.
ARCC
We put out $3.9 billion of gross originations in the third quarter at an average spread of SOFR plus 560, and that went into borrowers at an average leverage of 4.8 times
Blue Owl Capital Corporation
We’ve been deploying right around that 500 over spread level basically for the last year, plus or minus. And so our deployments have been consistent, while public markets continue to tighten. So the relative spread environment still feels reasonably good.
Blackstone
In our IG-focused area overall, we generated over 170 basis points of incremental spread year-to-date versus comparably rated liquid credit. Our “farm to table” model is designed to produce a structural premium to liquid markets – particularly vital in an environment where spreads and interest rates are tightening.
Oaktree Specialty Lending
Pricing for large-cap sponsor loans is in the SOFR plus 425- to 475-basis-points range, and spreads are 25 to 50 basis points higher in the core to upper middle market.
Traditional Asset Managers and Wealth Partnerships
Apollo
Traditional asset managers have the potential to be among the largest sleeves of investors in private assets…
We will see significant private asset exposure inside of mutual funds, inside of ETFs, and inside of products of all types offered by traditional asset managers.
You watched what we’ve done with State Street, what we’re doing with Lord Abbett, and what others in our industry have done.
It’s going to come in billions at a time rather than by fundraising quarter-over-quarter.
BlackRock
We have over 20 conversations going on now with the largest leading insurers about building private ABF and building private high-grade exposures.
Apollo
If you’re watching what BlackRock is doing and you’re in a traditional asset management mode, you’re looking to figure out how you get private market exposure.
Data Centers, AI & Nuclear
Apollo
Our business is financing the global industrial renaissance, whether it’s infrastructure, energy transition, data centers, defense, new manufacturing or robotics. The demand for capital has never been stronger, and it is not a US only phenomenon, it is a worldwide phenomenon. These facilities, these investments are long-duration in nature and are perfectly appropriate for what we do.
Brookfield
We estimate that AI-related infrastructure investments will exceed $7 trillion over the next decade.
On the back of this generational investment opportunity, we are launching our AI infrastructure fund. A first-of-its-kind strategy that pulls together our global relationships with hyperscalers, our expertise in real estate, and our leading position in infrastructure and energy into one strategy.
With the goal of being the partner of choice to leading corporates, governments and other stakeholders looking for integrated solutions that combine development capability, operating expertise and large-scale capital
Blue Owl
We have continued to execute across a record pipeline of capital demand in the data center space, specifically, with over $50 billion of investment announced over the past two months across two transactions, including $30 billion of capital investment with Meta in Louisiana and over $20 billion of capital investment with Oracle in New Mexico.
If you look at the three largest data center financings done. No surprise, all three are ours. Each one is a different structure. This is really an important point to understand. In the hundreds and hundreds of billions
The reason that we are prevailing in this market is that we can serve as that one-stop shop, depending on what kind of solution you want.
Brookfield
We partnered with the U.S. government to deliver $80 billion of nuclear reactors. For context, that is the equivalent of eight large-scale nuclear plants, enough, for example, to power the entire state of Utah. These projects will help rebuild critical supply chains in the U.S., revitalize the domestic nuclear industry, and mark an inflection point for the growth of nuclear energy in North America.
M&A
ARCC
About half of our originations supported M&A-driven transactions.
Carlyle
Capital markets activity has meaningfully accelerated. Announced M&A volume was up more than 40% year-over-year in the third quarter. IPO volumes are up 60% year-to-date with increased activity during the quarter.
ARCC
In the third quarter, we generated an IRR in excess of 20% on the exit of three preferred PIK investments. These PIK securities are invested in large established companies with an average EBITDA of roughly $480 million. Our PIK preferred investments have a low double-digit fixed rate yield and implied loan-to-value ratios in the 50% to 60% range.
Portfolio Quality, LTVs, EBITDA Growth & Non-Accruals
Blue Owl
Weighted average LTVs remained in the high 30s across Direct Lending and in the low 30s in our software lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios were in the high single digits.
ARCC
The last 12 months’ organic EBITDA growth for our portfolio companies remains in the low double digits, which is well in excess of market growth rates. Our interest coverage increased further to over two times, and weighted average loan-to-values continue to be in the low 40% range.
Our non-accruals at cost ended the quarter at 1.8%, down 20 basis points from the prior quarter. This remains well below our 2.8% historical average since the Great Financial Crisis and the BDC industry historical average of 3.8% over the same timeframe
The weighted average organic LTM EBITDA growth of our portfolio companies was again over 10%. Importantly, this EBITDA growth rate was more than double that of the broadly syndicated market based on a second quarter analysis done by JPMorgan.
AI vs. Software
ARCC
The headlines recently is software and the potential risks posed by AI.
Our software loans are financed at what we believe are conservative leverage levels with an average loan-to-value ratio of only 36%, and none of our software loans are currently on non-accrual.
Our focus is on financing large, market-leading, and well-capitalized software companies with strong growth prospects.
Our software portfolio companies have a weighted average EBITDA of over $350 million, and they continue to demonstrate strong double-digit EBITDA growth over the last 12 months. Our borrowers are generally backed by leading sponsors in the software industry who not only have substantial capital resources but are also proactively investing in their platforms to embrace the changes and potential prompted by AI.
While we believe AI excels at analyzing data and generating high-quality content, it typically does not provide the foundational infrastructure required for critical business operations or systems of record.
Thanks again for reading. Let me know if you find these posts useful or how I can improve it for next quarter.
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This newsletter is for education or entertainment purposes only. It should not be taken as investment advice.
Thank you - both educational and entertaining.
On a scale of 10, how promotional do you think their words are?
Can try using LLMs