Back in December 2023, when the market was pricing in about six rate cuts, Apollo Asset Management co-president Scott Kleinman had more predictions. Reverse Thinking Viewpoint: He said he doesn’t expect any rate cuts in 2024.
So far, the call has paid off. But higher long-term interest rates are not necessarily good for the private equity industry because they drive up financing costs.
The number of global acquisition deals fell 4% on an annual basis in the year to May 15, compared with already subdued activity since 2023, according to one firm. Report A lack of investment has left buyout funds with $1.1 trillion worth of dry powder that will eventually need to be deployed.
However, Apollo’s Kleiman said he was “very happy” with current rates.
“We’re probably the only private equity firm that has been wanting higher rates for years,” Kleiman told the Delivering Alpha Newsletter at the Super Return Conference in Berlin. Higher interest rates force more value discipline on business valuations, which means there are more interesting companies to buy at more reasonable valuations.
As for Klayman’s current view on interest rates? “There may be a rate cut for political reasons, but certainly the data we’re looking at won’t call for a rate cut,” he said.
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