Apollo Global Management stated that the private equity (PE) industry needs to return to traditional value creation through profit enhancement, cost restructuring, and finding new growth sources, as the era of continuously expanding business valuations begins to fade amid high interest rates. Scott Kleinman, co-president of Apollo, told Bloomberg TV during the IPEM Private Equity Conference in Paris that a major turning point occurred in 2022 when interest rates rose by approximately 400-500 basis points, putting pressure on portfolio company valuations, especially for assets purchased between 2017 and 2022, whose purchase prices were much higher than current levels. He admitted that the industry has been slow to adjust valuations, leaving some older assets as obstacles to business sales. Meanwhile, economic trends continue to be supported by strong consumer spending and investments in AI, but if interest rates rise by another 200 basis points, business valuations would need to decline further. However, Kleinman believes that buyout deals can still occur if valuations and structures are appropriate for the financial environment, and the bustling deal activity reflects the strength of the underlying economy rather than political motivations.
Apollo Global Management LLC Class AApollo's co-president states PE must shift from valuation growth to profit creation as high rates pressure portfolio valuations, implying challenges for Apollo's investment model.
