NextFin News - Private equity firms must abandon their resistance to lower asset valuations if they hope to restart the industry’s stalled dealmaking engine. Scott Kleinman, Co-President of Apollo Global Management, stated Wednesday that the industry is facing a "value capitulation" moment where fund managers can no longer justify holding onto peak-era pricing expectations. Speaking at the SuperReturn International conference in Berlin, Kleinman noted that the gap between what sellers want and what buyers can afford in a higher-for-longer interest rate environment has become unsustainable.
Kleinman, who joined Apollo in 1996 as its 13th employee, has long been a proponent of a "value-oriented" investment philosophy. Unlike peers who rode the wave of cheap debt and multiple expansion during the last decade, Kleinman’s tenure at Apollo has been defined by a focus on complex, distressed, or operationally intensive deals where entry price is the primary driver of returns. His current stance reflects a career-long skepticism of "growth-at-any-price" models, positioning him as a leading voice among those calling for a return to fundamental discipline.
The stagnation in the private equity market is visible in the data. Global exit activity remains sluggish, with many firms opting to hold assets longer rather than sell at a discount. This has created a liquidity crunch for limited partners, who are increasingly pressuring managers to return capital. Kleinman’s assessment suggests that the "wait-and-see" approach adopted by many firms since the Federal Reserve began raising rates in 2022 is reaching its limit. He argued that for the market to clear, managers must accept that the 2021 valuation benchmarks are historical outliers rather than the new normal.
This perspective is not yet a universal consensus on Wall Street. While some large-cap managers agree that pricing must adjust, others argue that high-quality assets in sectors like software and healthcare still command premium multiples. Critics of the "capitulation" thesis suggest that as inflation cools and the potential for rate cuts emerges, valuations could stabilize without a painful reset. However, Kleinman’s view is rooted in the reality of the cost of capital; with benchmark rates significantly higher than they were three years ago, the leverage that once fueled high purchase prices is now a drag on performance.
The consequences of this valuation reset will likely be uneven. Firms that over-leveraged assets at the top of the market face the prospect of "down rounds" or equity wipes, while those with dry powder—like Apollo, which has been aggressively positioning itself as a provider of private credit and structured solutions—stand to benefit from a more realistic pricing environment. Kleinman’s warning is a signal that the industry’s period of denial is ending, and the firms that recognize this first will be the ones best positioned to navigate the next cycle.
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