Scott Kleinman, co-president of Apollo Global Management, emphasized that the private equity industry needs to focus on creating value through “old-fashioned” methods. Speaking at the IPEM Private Equity Conference in Paris, Kleinman highlighted that in the current market environment, the key to managing portfolios involves boosting earnings, improving cost structures, and identifying new avenues for growth. This shift comes as the era of easy expansion and low borrowing costs has faded.
Kleinman previously noted that the private equity sector “lost its way a little bit” during the period of cheap money and that firms will likely need to “start capitulating for sure on valuations.” This sentiment underscores the impact of normalized borrowing costs, which have made high valuations difficult to sustain. He indicated that while capital is available for exits, firms might not be pleased with the resulting valuations, especially if they initially paid a high price for assets.
The Apollo co-president also discussed the valuation issues facing legacy portfolio companies, particularly those acquired between 2017 and 2022, which are under pressure due to high entry valuations and weaker-than-expected performance. He pointed out that the structural shift in interest rates has transformed the private equity model, moving away from a reliance on multiple expansion towards more disciplined asset selection and operational value creation. Despite challenges in exits, Kleinman stated that market conditions for new deployments remain generally constructive, supported by economic resilience and more realistic pricing in certain segments. He affirmed that Apollo itself has remained active in realizations, completing multiple IPOs and disposals, demonstrating that quality assets can still attract capital in a more selective exit environment.
