(Reuters) – Citigroup Inc and Apollo Global have teamed up for a $25 billion private credit and direct lending program, illustrating a growing alliance of banks and non-banks looking to grab a share of the lucrative $2 trillion market.
Abu Dhabi’s sovereign wealth fund Mubadala Investment Company and Apollo’s retirement and pension services unit, Athena, will also participate in the program, the companies said on Thursday.
Private credit refers to loans made by non-bank lenders like Apollo, which are not subject to the same degree of regulation as banks. Such loans are typically made to risky borrowers or companies seeking to make large acquisitions using debt.
These loans can be processed faster and are an important source of financing for borrowers who are considered risky by traditional banks.
Although private credit companies were initially seen as a threat to banks, they have been quick to partner with traditional lenders in recent months. Banks can help find customers more easily and collect fees without risking their own capital.
In January, Citi launched another private lending vehicle in partnership with alternative investment management firm LuminArx Capital.
“Combining Citi’s banking and capital markets strength with Apollo’s deep capital resources will provide clients with a range of options to meet their evolving financing needs,” said Viswas Raghavan, Citi’s head of banking, in a statement.
The companies said the program will initially focus on North America, but could expand to more geographies later and exceed the $25 billion target.
In a report published in April, the International Monetary Fund said the private credit market should be subject to closer scrutiny, because its opaque and highly interconnected nature could lead to systemic risks for the broader financial system.