In December 2023, Apollo Asset Management Co-President Scott Kleinman took a contrarian stance amidst the market’s anticipation of rate cuts. While many were bracing for monetary policy changes, Kleinman boldly declared his bet against any rate cuts in 2024. Fast forward to the present, and it seems that his unconventional call has indeed paid off. Despite this, the implications of higher rates have not necessarily been a boon for the private equity sector, as they result in elevated financing costs.
As of May 15, the global buyout deal count for the year is tracking down by 4% on an annualized basis compared to the subdued activity witnessed in 2023. This data, as reported by Bain & Co., underscores a trend of restrained investment within the industry. Consequently, buyout funds now find themselves sitting on a staggering $1.1 trillion of dry powder, waiting to be deployed into promising opportunities. However, Kleinman remains unfazed by the current rate environment, expressing his contentment with the status quo.
Contrary to popular belief, Apollo Asset Management stands out as a private equity firm that welcomes higher rates. Kleinman’s perspective sheds light on the advantages that elevated rates can offer to value-oriented investors. According to him, higher rates instill a sense of value discipline when evaluating corporate valuations. This, in turn, presents a plethora of intriguing investment prospects and more reasonable valuations for discerning investors like Apollo.
Looking Ahead
In a recent interview at the Delivering Alpha Newsletter from the SuperReturn Conference in Berlin, Kleinman reiterated his confidence in the current rate environment. He emphasized Apollo’s unique position as a firm that actively seeks out higher rates in the market. From his vantage point, higher rates serve as a catalyst for injecting more discipline into the investment process, leading to the discovery of undervalued assets and sustainable returns for investors.
Overall, Kleinman’s contrarian view on higher rates challenges conventional wisdom within the private equity landscape. Instead of viewing rising rates as a hindrance, he sees them as an opportunity to enhance value discipline and uncover hidden gems in the market. By embracing this alternative perspective, Apollo Asset Management sets itself apart as a pioneer in navigating the complexities of the ever-evolving financial markets.