‘Everything Is Not Going to Be OK’ in Private Equity, Apollo’s Co-President Says

(Bloomberg) — The private equity industry must face up to the reality of lower valuations, according to Apollo Global Management Inc.’s Scott Kleinman.

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“I’m here to tell you everything is not going to be ok,” the Apollo co-president said in a session at the SuperReturn International conference in Berlin on Wednesday.

Private equity firms didn’t take significant markdowns during the recent period of rapid rate hikes which means that “investors of all sorts are going to have swallow the lump moving through the system,” he said, referring to assets that private equity firms bought up until 2022. Funds are now holding on to these companies and will eventually have to refinance at higher rates.

That means “fewer realizations and lower returns” are on the horizon in the industry, Kleinman said. His comments are among the strongest so far from a leading figure inside the industry about the challenges it faces navigating higher borrowing costs, volatile markets and economic uncertainty.

A record $3.2 trillion was tied up in aging, closely held companies at the end of 2023, according to Preqin data. That’s a problem for private equity — which relies on the cycle of raising money to make acquisitions, exiting via a sale or IPO and then returning money to investors. Some are even looking at alternative exit strategies.

Still, Kleinman sees a bright decade ahead for new buyouts, particularly in the US, where he still sees “a lot of value.” He also expects Apollo to participate in more deals similar to the $11 billion joint venture it inked with Intel Corp. this week.

His comments follow those of other participants at the industry event, who said that dealmaking is poised to accelerate this year as buyout and private credit funds face pressure to return money to their investors.

New York-based Apollo is one of the world’s largest alternative asset managers, investing across credit, equity and real estate. The firm, which ended last year with $651 billion of assets under management, is targeting $1 trillion by 2026.

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