According to Business Insider, UBS Chairman Colm Kelleher issued a stark warning about “systemic risk” in the US insurance industry due to private credit’s explosive growth. Speaking at a Hong Kong Monetary Authority conference, he pointed to “massive growth in small rating agencies ticking the box for compliance” and compared the situation to 2007 subprime’s “rating agency arbitrage.” Apollo CEO Marc Rowan immediately fired back on his earnings call, stating bluntly “Colm is just wrong” and revealing that 70% of Apollo’s insurance arm Athene’s assets carry ratings from S&P, Moody’s, and Fitch. Rowan did acknowledge systemic risks exist but argued the focus should be on regulatory arbitrage to places like Cayman Islands, not private ratings. Meanwhile, Ares CEO Michael Arougheti backed the big player advantage, noting 65% of private credit assets are controlled by large platforms with proper risk standards.
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The Real Battle Lines
Here’s what’s really going on. This isn’t just about ratings – it’s a turf war between traditional banking and the private credit giants that have been eating their lunch. Private equity firms like Apollo and Ares have built massive insurance operations that now compete directly with banks for lending business. And they’re winning. The insurance industry has piled into private credit because it offers better yields than traditional fixed income. So when the UBS chair warns about systemic risk, he’s also defending his own business model against disruption.
But Rowan makes a compelling counterpoint. He’s basically saying “Look, we’re actually more conservative than the banks.” His claim that Athene’s balance sheet is over 90% investment grade while banks sit at 60% is a direct challenge to the narrative that private credit is the wild west. It’s a clever rhetorical move – turning the “risky” label back on the traditional players.
The Ratings Reality Check
So who’s right about the ratings? Both are, in their own way. Kelleher isn’t wrong to be concerned about rating shopping – we saw how that movie ended in 2008. When smaller agencies proliferate, there’s always the temptation for issuers to find the most generous grader. But Rowan’s defense actually highlights an interesting shift. He praises smaller agencies like Kroll and DBRS for having “most of the expertise right now in structured products.” That’s probably true – the big three rating agencies have been slow to adapt to complex private credit structures.
The real issue might be transparency. Private credit deals don’t trade on public markets, so there’s less visibility into pricing and performance. When something goes wrong in public markets, everyone sees it immediately. In private credit? It can stay hidden until it’s too late. That’s the systemic risk nobody’s really talking about.
The Big Get Bigger
What’s fascinating is how both Rowan and Arougheti are making the same argument about size mattering. Arougheti’s comment that 65% of assets are with large platforms – and growing – suggests the industry is consolidating around players who can’t afford to take crazy risks. Their reputations and scale depend on maintaining standards. The implication? The problem isn’t Apollo or Ares – it’s the smaller players who might be cutting corners to compete.
But here’s the thing about systemic risk – it rarely comes from where we’re looking. Everyone was watching subprime mortgages in 2007. The real contagion came through complex derivatives nobody understood. Could private credit be today’s equivalent? Maybe. Or maybe the real risk is in plain sight – the massive growth of private debt during a period of rising rates and economic uncertainty.
What Comes Next
This public spat signals that private credit has officially become too big to ignore. When the chair of a global systemically important bank calls you out by name, you’ve arrived. Regulators are definitely paying attention now. The irony? Both sides might get what they want – more scrutiny on smaller players and potentially more barriers to entry that benefit the giants.
Rowan’s comment about “late-cycle behavior” is particularly telling. He’s admitting that after years of easy money, some bad deals are getting done. The question isn’t whether there will be blowups – we’re already seeing them with First Brands and Tricolor. The real question is whether the system can absorb them without domino effects. Given that private credit has ballooned to $1.7 trillion, that’s not a small concern.
One thing’s clear – the gloves are off between traditional finance and the private credit upstarts. And with more insurance capital flowing into alternative assets, this fight is just getting started.
