Citigroup and Apollo Global Management have announced a landmark partnership to create a $25 billion private credit and direct lending programme, signalling a significant push into the burgeoning $2 trillion private credit market.

The exclusive agreement, unveiled on Thursday, will initially focus on North America with the potential to expand to other regions. Abu Dhabi's Mubadala Investment Company and Apollo's subsidiary Athene will also have the opportunity to participate in the programme.

This strategic alliance aims to enhance access for corporate and sponsor clients to the private lending capital pool, offering funding certainty for strategic transactions. The programme is expected to finance approximately $25 billion of debt opportunities over the next several years, encompassing both corporate and financial sponsor transactions.

Viswas Raghavan, head of banking and executive vice chair at Citigroup, expressed enthusiasm for the project, stating, "This exciting project brings Citi together with Apollo and other best-in-class partners to offer a full suite of innovative, private financing solutions to our clients."

Jim Zelter, co-president of Apollo, highlighted the mutual benefits of the collaboration, saying, "Our collaboration will allow Citi to enhance its client offerings and bring more private solutions to bear, while enabling Apollo to increase origination flow and tap into Citi's extensive client relationships."

The partnership underscores the growing trend of traditional banks aligning with non-bank lenders to capitalise on the lucrative private credit market. Private credit refers to loans provided by non-bank lenders like Apollo, which are typically processed quicker and offer an important source of funds for borrowers deemed too risky by conventional banks.

This move is part of a broader strategy by Citigroup to reinvigorate its investment banking division. The bank has recently seen some successes, including being selected to advise confectionery company Mars on its $36 billion acquisition of snack company Kellanova.

For Apollo, the deal will help accelerate the expansion of its credit business, which now accounts for more than 70 per cent of the firm's almost $700 billion in assets. The partnership with Citigroup will provide Apollo with direct access to higher-yielding, albeit riskier, investments, including loans to fund buyouts.

The announcement has been well-received by the market, with Citigroup shares rising 2.4 per cent and Apollo's stock up 0.6 per cent in afternoon trading.

However, the rapid growth of private credit has raised concerns among some financial experts. A report published in April by the International Monetary Fund cautioned that the private credit market should be scrutinised more closely due to its opaque and highly interconnected nature, which could potentially lead to systemic risks for the broader financial system.

As the private credit market continues to evolve, partnerships like the one between Citigroup and Apollo are likely to become more common, reshaping the landscape of corporate financing and challenging traditional banking models.

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