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Apollo’s co-president stated that the firm is one of the few private equity companies comfortable with higher interest rates.

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In December 2023, Apollo Asset Management Co-President Scott Kleinman made a bold prediction that there would be no rate cuts in 2024. Despite the market pricing in six or so rate cuts, Kleinman’s contrarian view has paid off so far. However, the higher-for-longer rates have not necessarily been advantageous for the private equity industry, as they have kept financing costs elevated.

According to a report from Bain & Co., the buyout deal count in the year through May 15 is tracking down 4% globally on an annualized basis compared to the already-muted activity from 2023. This lack of investing has resulted in a massive $1.1 trillion of dry powder within buyout funds that needs to be deployed. Despite the challenging environment, Kleinman expressed confidence in the current rates. He explained that Apollo has been hoping for higher rates for many years as a value-oriented investor. Higher rates force more value discipline on corporate valuations, creating opportunities to buy interesting companies at reasonable valuations.

During an interview for the Delivering Alpha Newsletter at the SuperReturn Conference in Berlin, Kleinman revealed that Apollo is comfortable with current rates. He highlighted that higher rates lead to more attractive investment opportunities for value-oriented investors like Apollo, as they force more discipline on corporate valuations. While Kleinman acknowledged that there may be a potential rate cut for political reasons, he emphasized that the data does not support a rate cut at this time.

Overall, while the private equity industry has faced challenges due to higher-for-longer rates, Apollo Asset Management remains optimistic about the opportunities in the market. By maintaining a focus on value-oriented investing, the firm believes that higher rates can lead to more attractive investment opportunities. Despite the potential for a rate cut for political reasons, Kleinman’s data-driven approach suggests that a rate cut may not be necessary at this time. Moving forward, Apollo will continue to monitor the market and adjust its investment strategy accordingly.

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