In December 2023, when markets were pricing in as many as six rate cuts, Scott Kleinman, co-president of Apollo Asset Management, took a more contrarian view. He said he wouldn’t bet on a rate cut in 2024.
So far, that call has worked, but a sustained period of high interest rates hasn’t necessarily been good for the private equity industry, as it keeps funding costs high.
According to a Bain & Company report, global deal volume in the 12 months to May 15 is down 4% annually, compared with an already weak 2023 trend. And a lack of investment has left a pile of $1.1 trillion sitting in buyout funds that eventually needs to be allocated.
But Apollo’s Kleinman said he’s “very comfortable” with current rates.
“We’re probably the only private equity firm that has been expecting rising interest rates for years,” Kleinman told the Delivering Alpha newsletter in an interview at the SuperReturns conference in Berlin. “As value-oriented investors, rising interest rates force more value discipline on company valuations. That means buying more attractive companies and getting more reasonable valuations.”
What’s Kleinman’s take on interest rates right now? “There could be one rate cut for political reasons, but the data we’re looking at certainly doesn’t call for a rate cut,” he said.
