Back in December 2023, when the market was pricing in about six rate cuts, Scott Kleinman, co-president of Apollo Asset Management, took a more contrarian view: He said he would bet against rate cuts in 2024.
That call has paid off so far. However, longer-term higher interest rates have not necessarily been a tailwind for the private equity industry as they keep funding costs higher.
According to a report from Bain & Co., the number of buyout deals worldwide fell 4% on an annual basis in the year ended May 15, compared to already subdued activity in 2023. And the lack of investment is worth a mountain of $1.1 leaves trillions of dry powder in buyout funds that will eventually need to be deployed.
However, Apollo’s Kleinman said he was “very happy” with current interest rates.
“We are probably the only private equity firm that has been hoping for higher interest rates for many, many years,” Kleinman said in an interview for the Delivering Alpha newsletter at the SuperReturn conference in Berlin. “As a value investor, higher. Interest rates force more value discipline in company valuation, which just means there are more interesting companies to buy and more reasonable valuations.”
As for Kleinman’s current view on interest rates? He said: “It’s possible there will be a rate cut there, perhaps for political reasons, perhaps, but the data we’re looking at certainly wouldn’t require a rate cut.”
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2024-06-07 16:14:18
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