Allocation Insights: Asset-Backed Finance is the Engine Behind Private Credit’s Next Chapter

In this episode of The View From Apollo, we introduce allocation insights. A recurring series featuring Alex Wright and Diana Sans focused on how private markets are reshaping wealth portfolios. To kick off the series, they are joined by partner and global head of structured credit investing, Michael Panowozic, to discuss one of the fastest growing areas of private markets, asset-backed finance. And now, let's start the show. Hello and welcome to the inaugural episode of The View From Apollo, Allocation Insights Podcast. I'm one of your host, partner and global wealth strategist Alex Wright. I'm joined by my co-host Diana Sans, Managing Director and Senior Product Specialist. Thanks, Alex. For regular listeners of The View From Apollo, you'll know that for each episode, we tend to do a little bit of a deep dive on one particular topic. Alex and I and our roles day-to-day spend time meeting with clients globally thinking about market environment, impact to strategies, and ultimately talking about how private markets can fit into existing portfolios and allocations. So we wanted to bring a bit of that dialogue to you with this series. Again, commentary on capital markets, what we're hearing from clients. And we'll also introduce you to senior leaders across the firm specializing in the specific asset class or sector, which we hope is valuable to you. For those of you who have met on the road, hello again, and for those of you joining us for the first time, welcome. Spending a minute on 2025 before I hand it over to Alex to give us an update on how markets are evolving here in 2026. 2025, we opened the year with a decent amount of volatility. There was deep seek, there was liberation day, equity markets fell. But ultimately really turned around, and I think many of us, frankly, were surprised by the extent of the gains. And if you didn't adjust that 60/40 portfolio that you had, your portfolio actually looks more like a 70/30 at this point in time. Well, Diana, thanks for that. It really seems if I could summarize it a bit of a roller coaster ride last year, and we'll likely continue to see volatility. What do we add so far? We've had Venezuelo, we've had Greenland, we've had Davos. That's definitely going to be a constant. If we look at the markets though through that lens, and we say, you mentioned something I thought was very important, which is a 60/40 untouched really is moving towards 70/30. So let's unpack that just a moment. As we've been talking about allocations with our investors out in the community, we've seen some clear observations. One is, as we think about forward forecasts, if we look at the banks up to about 20 of them estimates for the S&P 500, they're coalescing around a gain of 7.5% forecasted for this coming year. One would just have to ask, is that an appropriate equity risk premium given the concentrations that we see in the Mag 7? Certainly the valuations appear to be stretched out of historic basis, regardless of what one you look at. When we think about, as Diana was talking about the 60/40 and maybe trying to rebalance, because you're probably having some investors overextended to public equities at this point, given the run up in the last couple of years. If we then dial in and take a look at on the run, public fixed income, we just saw investment grade hit an all-time type. So that seems rather tight from our perspective. You look at high yield, very similar ITs, maybe we take the word high out of high yield, in describing that return stream at this point. So it's really tough. Last year, certainly great total return in investment grade and high yield. That was spread impression. That was a rally in asset prices. It appears as though this could be more of a coupon clipping year and at pretty modest levels on a historic basis. So then that gets what else can we do? Some have gone international. We understand why some would want to diversify in that fashion. But ultimately we come back to private markets. And we can look at it through the prism of replacing some of that on the run, fixed income with things like private credit, asset back. We'll talk about that a little more deeply today. On the equity side, maybe it's time for some private equity, some secondaries, diversified private markets, and then there's always real assets. But I think that's something that people should be seriously considering when they're looking at a minimum rebalance and a reallocation, a little bit more broadly based upon what we're seeing fundamentally. And sticking with the rebalance theme, we're very excited today to bring to you Mike Panowozek. He's the partner who leads our asset back to activities. This is one of the replacement strategies or rebalancing strategies that we've been running as a firm for upwards to about 15 years now. Mike is here with us. Welcome Mike. It's great for you to be joining us today and particularly on the first ever allocation insights call. Happy to have you. So let's just jump right in with the questions. If you don't mind and we'll go back and forth here. Mike, why don't you tell us how long you've been with Apollo and what you do on a day to day basis for us here. Sure. And first and foremost, Alex, kind of pleasure and an honor to be part of the first podcast here. And so I'm going on my 11th here here at Apollo and my job day to day is operating running the asset back investing business at Apollo. So what does that mean? It means all of our teams that are out hunting for transactions, structuring transactions and making suggestions as to how we should deploy the balance sheet. My primary job is to critique them and ultimately get them to a place where we feel aligned on the risk that we would be investing our balance sheet and the balance sheet of our clients. And at this point, it's less of the player coach and more of the coach for asset back business. That's great. And again, we said asset back to a couple of times here. So pull the thread on that. What is asset back finance? How does it actually work? Yeah, it's a great question and one that I've I spend a lot of time thinking about what's the right way to contextualize the description of asset back. And this is what I've come up with most recently. Well, you know if that's good. Yeah, I was going to say you can critique you can take my seat now and critique what I've done, which is let's start with corporate, right in defined asset back in the context of corporate. If corporate is capital structure around a balance sheet in that balance sheet in simplest form from a corporate is just a series of cash flow streams of revenues. Take it, make it really basic. It's just a series of customers and each one of those customers has a revenue stream attached to it and we're lending against that in the corporate space. Asset back is incredibly similar. It's just capital structure around a pool of assets. So instead of having customers take something like consumer finance. I may have a pool of a thousand 10,000 consumer loans and those consumer loans are to prime consumers. It could be to non prime consumers. They could be secured. They could be unsecured, but they generate a stream of cash flows. Those cash flows are diversified. They provide both principle and interest. And what we're doing is we're lending against those cash flows just like in the corporate space. You're lending against cash flows. I have equity. I have capital structure. My underlying cash flow instead of being derived by a singular business and a set of customers is derived from a diverse portfolio of underlying credits. You mentioned consumer. Obviously there's a K economy. So you have the upper and the lower leg to the K. So when you say consumer, I'm assuming you're talking about it could be mortgages, it could be credit cards, it could be other forms of consumer loans. Maybe you'll find on that and then maybe take us a little bit of a zoom out as to what other categories there would be that you'd like to highlight. I understand that we have access through our origination functions here. What is it? Maybe 40, 50 different asset classes if we really get into it. So maybe highlight that for folks. Absolutely. And if anyone falls to Austin, clearly the K shape economy is something that's very real. It's something that we're tracking. It's something that is part of our risk decisioning. We have for quite some time in our business, prefer the upper leg of that K performance has been what you would expect to be a consumer getting stronger as time moves forward. There are a lot of economic tailwinds for that consumer on the lower leg. There are a lot of economic headwinds, right. There's inflation. There's the employment picture. And there's the overextension of credit through things like by now pay later. And so we have concerns on the lower leg of that K but consumer as a whole is generally viewed as an area that provides diversified exposure. As you said, you can do consumer and look at it as student loan debt is consumer. Your credit card is consumer debt, right. Your loan to buy a car or a boat, etc. is considered as diversified. So part of the analysis for us is determining what type of asset do we feel comfortable lending against. What's the consumer profile we feel comfortable and then the last component, which is really important, is are you actually getting paid for the risk. What we're starting to see as part of this K shape narrative is that although that upper leg of the K is incredibly attractive from a wrist standpoint, the market is aware and so the market price for risk at some point becomes so tight that you have to ask yourself, are you actually being paid despite the fact that it's lower risk. And that's what we're doing as part of our business every day. And what we may say and what we have said with our balance sheet is that we like the risk profile. We don't love the value. Where else can we access risk and you mentioned that and that's the beauty of the diversity of our businesses. We don't love consumer right now. What can we do in equipment finance. What can we do in aircraft. What can we do in the rezzy space. And so we have various options. And what's interesting about asset back is all of that is being continuously created versus corporate corporate you're waiting for a sponsor to have a need or refinancing consumer debt. For example, you swipe your credit card every day. People take out car loans every day. People rent a car every day. Those are all cash flows that are constantly occurring, which allows us to continuously assess that risk adjusted value in our balance sheet. In example, though, right, those are all where people center their heads when they think about traditional asset packets in that rezzy space, consumer space commercial real estate. One of the big themes at Apollo 2025 into 2026 is corporate with assets. So large corporates that would traditionally finance themselves through corporate borrowings who have some sort of asset that lends itself as a security package in that capital structure in that capital structure is a big deal. And that capital structure is an asset back capital structure. So an example and it was in the press. It was in the FT. I believe the journal was a transaction we did for Virgin Atlantic where we provided approximately 800 million of asset back financing that was secured by the majority of their landing slots at Heathrow airport. We've all been to Heathrow. We all know what it's like that route that you're on when you decide to book that Virgin flight from LHR from London Heathrow into JFK. That's an asset that slot. It is a unique slot that's given to that airline at that time. And so what we've done is Virgin wanted to upgrade their planes. They wanted to add star link into their fleet. They were looking at cost efficient ways to make upgrades. And the most efficient way was to post some form of hard collateral. Let us put asset back which allows us to transform what is a non investment grade issuer into investment grade rated dead and provide what is attractive cost of funds, which for us given how mission critical these assets are for that airline are highly secured. But what we have comfort in away from that is that if we had to foreclose on those assets, Delta, American British Airways, there is demand for the value of those slots. And so we've put ourself in a very protected package. So when I'm sitting on the tarmac, I'm sitting there like you to get snack, putting in headphones and you're just sitting there like counting up slots and thinking about here, it's not. What are you touched on this a number of times already just in describing some of the differences between the asset backed relative to the corporate market. But again, private credit for many of our investors has really been synonymous with the word direct lending or private corporate debt. And again, private credit is really just the umbrella term and there's a lot underneath that and again asset back is really probably the biggest component of that opportunity set which you're describing now. But again, broad strokes, what are some of the main differences you've talked about underlying risk being different, but broad strokes, main differences, benefits, asset back relative to corporate. Absolutely. So we're out talking to investors what we focus on. One is my security package, namely as an asset back investor, it's the diversity first and foremost of that security package. And again, going back, it could be stand the theme of consumer. It could be 10,000 distinct consumer loans. Those are my collateral package. They're distinct cash flows, each one of them generating principle and interest. It could be a car loan where my underlying portfolio is again, thousands of individual car loans where I have principle plus interest and an asset because I can always foreclose on that auto with the proceeds belonging to me. So it's the diversity of that underlying moving from what is is a corporate which will have clients and sources of cash flow. But if you were to line those up versus the number that you've seen an underlying asset back portfolio, it pales in comparison. The second is these assets in asset back, one of the fundamental tenants of that is they're contributed to what's called a bankruptcy remote SPV. That should mean nothing to anyone who's listening to this podcast. But for the fact what it means is that I always have clean claim over my asset. Meaning if there's a bankruptcy or restructuring of a corporate who's an originator of assets. If you're in a corporate capital structure, junior lenders can frustrate your claim. We've heard of lender on lender violence in a number of transactions in the asset back space. There's no ability to do that. No lender at the corporate level has any right to my asset. And within the capital structure of an asset back transaction, there are strict rules guiding the distribution of principal and interest generated from those assets. And so it is a stronger form of collateral package than what you can find in the corporate space. And then the other is the cash flow nature of the lend. And so generally speaking in the corporate space, you're a five or seven year kind of bullet type maturity where we're investing is in what our cash flowing self amortizing structure. And so the duration tends to be shorter in our lend and we tend to defuse ourselves so that we're eliminating cliff risk or that final payment risk in asset back. And so when you start to take all of those and you add them up, one of the key components and why we've dedicated so many resources add Apollo to the spaces, it results in moving from what's traditionally or by definition a non investment grade lend in private corporate credit to what is an investment grade lend in private asset back credit. And given the primary consumer of what we're creating is our own balance sheet by way of our retirement services business, which is a theme that element of investment grade is incredibly important as I think about one other broader question is maybe bring out for the listeners. How have we built this business at Apollo? What makes us different from the origination standpoint? What's the lens in which we underwrite to provide downside protection and what have been the results over a longer period of time for the business into reality. Sure. And so a number of things unpack there. I'll try to make sure I hit each one of them and certainly remind me if I've not. But what really differentiates us starts with this fundamental premise of our asset back business. The mandate is to deliver safe yield onto our own balance sheet again by means of that retirement services business, which is the theme so everything we've done the 11 years that I've spent here is really driven in purpose built around how do we get to safe risk for that balance sheet. And so what starts to distinguish our business right in the setup for our business at the front end is this concept of alignment that everything we've built is around consuming the production of that investment on our own balance sheet so this element of alignment in the element of risk management and the element of value and extracting value when it's your own capital. I think just create something much stronger very different what that allowed us to do or what that directed us to do was to take greater control of the flow of origination onto our balance sheet. What does that mean? And so most people who operate in the asset back space are buyers of either flow meaning underlying assets that are being created consumer loans residential loans commercial real estate or buying it in purely securitized form buying asset back 144A or what our QCIP deals from the market. We took a very different tact which is stop waiting for the market to create risk bring it on balance sheet so that you can have control in control in several important aspects you can control the credit box the exact credit box at the point of origination for any asset if you're simply a buyer of the market. You're a buyer of the credit box that is created by whatever firm you're buying for so let's start with controlling the credit elements of what underlies the securitization or asset back at the most granular level the second is you're able to get to an asset at the point of origination you're able to capture the maximum yield associated with that asset in our market like any other market it's like a cake. The more hands it touches before the plate gets to you the less cakes remaining for you that's the same with yield in this market and so if what we can do is touch an asset at the point of origination I've got better credit pen and I'm capturing more yield and the third is it's this concept of value and we discussed this in one of the earlier points which is I may agree that the top end of the K is really strong but I'm not getting paid. And so the ability of pivot if we can control origination and control the originators we can turn up return down production based on where we actually see valuings what we want to do is create this envelope of control and we've done this by establishing these 16 platforms and 20 plus partnerships that allow us to exert this level of control that I've described over the asset back business their job is to be asset producers to be in the field originating assets are just a little bit more. So our job in my team's job is to then decide what's the appropriate capital structure for those assets and so we operate our business very differently which is define the credit attributes of the underlying asset capture max yield capture flow bring it on balance sheet now take my asset back team in the infrastructure here and put the appropriate capital structure and so the way and hopefully that gets into the wrist lens because the wrist lens for us starts at the asset is. So that the asset itself the underlying asset we never jump to the asset back structure in parts of the capital structure start with the asset and then decide what's the appropriate capital structure around that set of assets is a very different way of approaching this business that sounds like a big barrier to entry to me 16 platforms 20 strategic joint ventures and I understand that thousands of employees that all they do every day is wake up and create assets for us through our underwriting processes. So some people will hear asset back then they harken back to gfc and obviously we both live through that and certainly what we're talking about is substantially different with a lot more downside protection whether that be mandated by regulators or the market has just completely shifted to protect investors in a much more pronounced way maybe just some high level comments on what it looks like today as compared to back in those days. Yeah and one of the important elements of assessing the financial crisis and where we are today is the financial crisis I think one of the misgivings is that it was created because of the capital structure because of asset back it was created because of bad asset and bad asset creation and that goes to what I do it starts at the origination and the credit attributes of what you're originating had there been proper underwriting of mortgages we would not have had a mortgage crisis. The issue was not the capital structure that was put onto the asset the issue were the assets themselves in good structure can't solve bad asset we say that all the time out of our business at Apollo and that's really important is where we find ourselves today in this market is there is an assessment at the asset level is it good underwrite and so what I don't see in our market today I do think people are aggressive on yield they're aggressive on spread what we haven't seen is a big deal. We haven't seen is aggressiveness on credit the provisioning of credit into hands that are using it in aggressive way for flipping homes right it which is what we saw during the financial crisis and so I think the focus on good asset and good asset origination is what's been most transformative in the market I think the market understands today that good structure can't solve for bad asset just reframing that quickly we're going to own that asset we're going to live with that asset that we create. that asset that we created as opposed to just facilitating a transaction. We created, it's passed on, it's going somewhere else. That's correct, that's correct. The focus is purely on generating investment banking fees associated with that what we call the moving business versus the storage business. So Mike, you give us a lot of background, just foundational information on the asset class itself, but like key themes right now, market conditions right now. What's top of mind? Yeah, absolutely. And it's part of my job. I spent a lot of time with our institutional investors, right? Our big LPs, your sovereigns, your state plans. And I spend a tremendous amount of time as president of our wealth vehicle with wealth clients. The consistent theme that we're hearing is people feel over allocated to private corporate credit. So how do I find diversification in my private credit exposure? And so asset back and this conversation around asset back is something that both from an institutional side and from a wealth side is constantly occurring. Asset back is such a large part of the market. And so we estimate five to six trillion of corporate credit opportunities and direct lending versus that asset back market is something like 20 trillion. And so the two big questions that we're having are around like over allocation, like where should I look and have a similar experience with a similar return profile? And why am I hearing so much about asset back? Those are the kind of two most topical conversations that we're having when we're out speaking to people. That's great. It feels like chapter one was direct lending and now we're on to chapter two. I don't call it 2.0. They can replace some of that exposure, but the reality is you can do both for different reasons and have different collateral pools. We've highlighted my before we let you go though, real quick question at the end here. We'd love to learn a little more about you personally. What do you like to do in your spare time? I knew this was coming and I feel somewhat unprepared. And I was like, what do I do? I drive my kids around to La Crosse, and then I realized they're old enough now that they drive themselves and that I had to find something to do. And so give it a winner time and certainly cold outside where we are here in New York. My favorite winter activity is I spend a lot of time uphilling, which is cross country, but up the mountain. And then the ski set up, it's based on the randonane, the ski touring setup of Europe, the bindings flip to a downhill binding, the boot slock into a downhill position. And I go down and I do it again until the puppy I tire myself and then I. You couldn't have just gone the normal way. Couldn't have just gone with easy win. Certainly, you like to do things the hard way and you're not afraid to put the work in again and for those that can't see Mike, he is an incredible shape. So I'm sure that actually helps quite a bit. But Mike has been great having you on the show. Diana, welcome. This is going to be a lot of fun together. We're really looking forward to bringing this to you on a normal cadence with good content and different topics. Thank you for your time and we'll look forward to talking with you all again soon. This podcast was recorded on January 29th, 2026. Thanks for listening. 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