Wall Street agrees a more volatile market is coming. Apollo just told everyone where to hide.
The pick is not stocks, gold, or cash. It is credit, the same corner of the market that has been getting hammered in headlines for weeks.
John Zito, co-president of Apollo (APO %) Asset Management, told Bloomberg TV from the Milken Conference in Beverly Hills that everyone is now pricing in a higher-volatility regime, what he called "swings up and down" caused by AI and shifts in the wider economy.
What investors are missing, he said, is that credit holds up better than stocks during those swings. Credit means bonds and loans, which pay regular interest.
The argument is simple. When stock prices bounce around, the value of a loan with a steady payment usually does not move as much.
In a year where AI is reshaping which companies win and lose, that steady income line starts to look more valuable.
The pitch came on the same day a wave of negative private credit headlines hit Bloomberg from the same conference, with major firms warning about rising defaults.
Defaults in some corners of private credit have been climbing, and much of the pain is showing up in software loans tied to companies losing ground to AI startups.
Zito has called for 12 to 18 more months of pain in the riskier parts of the private credit market.
He has split the world in two: investment grade credit, which is loans to large, financially stable companies like Intel and BP, and the riskier middle market loans driving the bad headlines.
His case is that everyday investors are treating both as the same thing when they are not. The first looks like a steady bond. The second looks more like a venture bet.
Apollo, Blackstone, and Blue Owl have all been pushing private credit funds to everyday investors, often through ETFs and retirement accounts.
That push has run into a wall this year, with redemption gates locking some retail investors out of their funds and headlines warning about the next leg down.
Zito's bet is that the better quality slice of private credit is being lumped in with the bad slice, and that the panic is creating a buying window for investors who can tell the difference.
The next few quarters will show whether default rates stay contained to specific sectors. Or whether they spread further into the rest of the credit market.
Apollo and other big private credit firms report results over the next several weeks, with default rates and redemption flows the two numbers to track.
Also watch the spread between yields on investment grade private credit and high-yield public bonds. If the gap stays wide, Zito's pitch holds up. If it narrows, the market is saying his split is smaller than he thinks.
If Zito is right, the recent panic is a buying window. If he is wrong, retail investors are about to learn the hard way what credit risk really means.