Alternative asset management giant Apollo: The private equity industry will have "less liquidity, lower returns"
The private equity industry will see a situation of "less realization, lower returns". Scott Kleinman, Co-President of Apollo Global Management, stated that the private equity industry must face the reality of lower valuations. Private equity firms have not significantly reduced prices during a recent period of rapid rate hikes, which means that various investors will have to swallow a part of the entire system. By the end of 2023, a record $3.2 trillion will be tied up in aging, minority-held companies, posing a problem for the private equity industry. Nevertheless, Kleinman believes that there are bright prospects for new acquisitions in the next decade, and he also expects Apollo to engage in more deals similar to the $11 billion joint venture agreement reached with Intel this week
According to Zhitong Finance, Scott Kleinman, Co-President of Apollo Global Management, stated that the private equity industry must face the reality of lower valuations. Kleinman said, "I'm here to tell you, things are not going to get better." He mentioned that private equity firms did not significantly lower prices during the recent period of rapid rate hikes, which means "various investors will have to swallow a part of the entire system," referring to the assets purchased by private equity firms before 2022. Funds now hold these companies and will eventually have to refinance at higher rates. Kleinman indicated that this will lead to a situation of "less liquidity, lower returns" in the industry.
According to Preqin's data, by the end of 2023, a record $3.2 trillion will be tied up in aging, closely held companies. This poses a problem for private equity, as the industry relies on a cycle: raise funds for acquisitions, exit through sales or IPOs, and then return the funds to investors. Some are even considering alternative exit strategies.
Nevertheless, Kleinman believes that the outlook for new acquisitions in the next decade is bright, especially in the United States, where he still sees "great value." He also expects Apollo to engage in more deals similar to the $11 billion joint venture agreement reached with Intel (INTC.US) this week.
Intel agreed to sell a stake in a joint venture that controls a factory in Ireland to Apollo Global Management for $11 billion, helping to bring in more external funding for the large-scale expansion of its factory network. Intel stated on Tuesday that Apollo Global Management will hold a 49% stake in the joint venture operating Intel's Fab 34 factory. This is Intel's second such investment plan announced to alleviate its already tight financial burden.
Prior to his remarks, other participants in the industry's activities also indicated that with buyout funds and private credit funds facing pressure to return funds to investors, deal-making this year is expected to accelerate.
Apollo is one of the world's largest alternative asset management companies, with investments in credit, equities, and real estate. The company managed assets worth $651 billion at the end of last year, with a target of reaching $1 trillion by 2026
