Despite the market’s expectation for rate cuts in 2024, Scott Kleinman of Apollo Asset Management had a contrary belief that there would be no rate cuts. This prediction has proven to be correct, as rates have remained steady. However, the higher rates have presented challenges for the private equity industry as financing costs have increased. Deal count in buyouts has decreased by 4% globally compared to the previous year, leading to a substantial amount of dry powder worth $1.1 trillion waiting to be deployed. Despite these challenges, Kleinman expressed comfort with the current interest rates and believes they will lead to more attractive investment opportunities due to more reasonable valuations.
As a value-oriented investor, Kleinman sees higher rates as a positive aspect for his firm, as it enforces more discipline on corporate valuations. This, in turn, leads to the possibility of acquiring more interesting companies at more reasonable prices. He highlighted that Apollo is one of the few private equity firms that have been hoping for higher rates for a long time, as it aligns with their investment strategy. While he acknowledged the potential for a single rate cut for political reasons, he stated that based on the data they have been analyzing, there is no indication for a rate cut.
Kleinman’s perspective on interest rates was shared during an interview at the SuperReturn Conference in Berlin, where he expressed his contentment with the current rate environment. He emphasized that higher rates could provide more value-oriented opportunities for investors, leading to the acquisition of companies with more attractive valuations. Despite the challenges presented by the higher rates, Kleinman remains optimistic about the potential investment opportunities that may arise from the current economic conditions.
The private equity industry has been experiencing a decline in deal count due to the higher interest rates, leading to a surplus of dry powder waiting to be invested. This trend indicates that investors are cautious about deploying funds in a market with higher financing costs. However, as experienced by Apollo Asset Management, the firm’s value-oriented approach positions them well to take advantage of the opportunities presented by the current rate environment. Kleinman’s belief in the value discipline enforced by higher rates aligns with their investment strategy and may result in more attractive acquisitions in the future.
In conclusion, Scott Kleinman’s contrarian view on interest rates has proven to be beneficial for Apollo Asset Management, as they have been able to navigate the challenges posed by higher rates and identify potential investment opportunities. Despite the decline in buyout activity and the substantial dry powder awaiting deployment, Kleinman remains optimistic about the value-oriented investment opportunities that may arise. By leveraging their investment philosophy and remaining disciplined in their approach, Apollo is well-positioned to capitalize on the current economic conditions and acquire companies at more reasonable valuations. This approach aligns with Kleinman’s long-standing belief in the benefits of higher rates for value-oriented investors.
