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

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

“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. “The types of PE returns it enjoyed for many years, you know, up to 2022, you’re not going to see that until the pig moves through the python. And that is just the reality of where we are.”

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 for much of the industry, said Kleinman, whose firm is known for its value-orientated strategy. 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.