In December 2023, during a time when the market was anticipating several rate cuts, Apollo Asset Management Co-President Scott Kleinman shared a different perspective. He mentioned that he was against any rate cuts in 2024. This decision has proven to be beneficial for him. However, the prolonged period of higher interest rates has not been advantageous for the private equity sector as it results in increased financing costs.
According to a report from Bain & Co., the number of buyout deals globally has decreased by 4% on an annualized basis compared to the already low levels seen in 2023. This decline in investment activity has led to a significant amount of uninvested capital, known as dry powder, amounting to $1.1 trillion within buyout funds that needs to be utilized.
Despite these challenges, Scott Kleinman expressed his confidence in the current interest rates. He mentioned that Apollo is unique among private equity firms in welcoming higher rates for many years. Kleinman explained that as a value-driven investor, higher interest rates impose more discipline on the valuation of companies, making it possible to acquire more intriguing businesses at reasonable prices.
When asked about his stance on future interest rates, Kleinman suggested that there might be a single rate cut due to political considerations. However, based on the available data, he does not see a strong justification for a rate reduction.
In conclusion, Scott Kleinman’s support for higher interest rates reflects Apollo’s strategic approach as a value-oriented investor. Despite the challenges posed by elevated financing costs, Kleinman remains optimistic about the opportunities created by a more disciplined valuation environment. The private equity industry will need to adapt to the changing interest rate landscape to navigate the current market conditions successfully.