Apollo Asset Management Co-President Scott Kleinman made a contrarian call back in December 2023, betting against any rate cuts in 2024 while the market was expecting six rate cuts. This decision has paid off for Apollo as higher rates have not necessarily benefited the private equity industry due to higher financing costs. The buyout deal count globally is down 4% compared to 2023, leaving $1.1 trillion of dry powder within buyout funds that needs to be deployed.
Despite the challenging environment, Kleinman remains optimistic about the current interest rates. He stated that Apollo is the only private equity firm that has been hoping for higher rates for many years as it forces more value discipline on corporate valuations, making it easier to find interesting companies at reasonable valuations. He believes that higher rates lead to more reasonable valuations that benefit value-oriented investors like Apollo.
In an interview at the Delivering Alpha Newsletter from the SuperReturn Conference in Berlin, Kleinman expressed his view on rates for the future. He mentioned that while there may be a possibility of one rate cut for political reasons, the data they are looking at does not support the need for a rate cut. This strategic approach aligns with Apollo’s value-based investment philosophy, focusing on buying companies at attractive valuations in the current market environment.
Apollo’s stance on rates reflects their commitment to value investing and disciplined decision-making. Despite the challenges posed by higher rates, they see opportunities in the market for acquiring companies at reasonable valuations. This approach has allowed Apollo to navigate the uncertain economic environment and continue to pursue value-oriented investments that align with their long-term strategy.
As the private equity industry faces headwinds from higher rates and muted deal activity, Apollo remains confident in their investment approach. Their focus on value discipline and long-term investment horizon positions them well to capitalize on opportunities in the market. By sticking to their investment philosophy, Apollo continues to navigate the evolving economic landscape and deliver value to their investors.
Discussion about this post