In December 2023, when the market was pricing in about six rate cuts, Scott Kleinman, co-president of Apollo Asset Management, took a more contrarian view: He said he would bet against any rate cuts in 2024.
This decision has paid off so far. However, higher interest rates in the long term have not necessarily been an advantage for the private equity industry, as they have caused financing costs to rise further.
Globally, the number of acquisition deals fell 4% on an annualized basis in the year to May 15, compared with already muted activity starting in 2023, according to a report by Bain & Co. And the lack of investment has left a mountain of $1.1 trillion worth of idle funds in the acquisition fund that will ultimately have to be deployed.
However, Apollo's Kleinman said he was “very happy” with current interest rates.
“We're probably the only private equity firm that's been hoping for higher rates for many, many years,” Kleinman said in an interview for the Delivering Alpha newsletter from the SuperReturn conference in Berlin. “As a value investor, higher rates force us to be more value-oriented in our valuation of companies, which simply means there are more interesting companies to buy and more reasonable valuations.”
And Kleinman's current view on interest rates? He said: “It's possible that there will be a rate cut, perhaps for political reasons, but the data we're looking at certainly wouldn't call for a rate cut.”