In a significant development for the $4 trillion private equity industry, Marc Rowan, the CEO of Apollo Global Management, has cautioned that the era of soaring valuations driving lucrative buyouts has come to an end. With the current year witnessing a retreat from a decade of fiscal stimulus, low interest rates, and monetary easing, investors now face a period of lower growth and higher interest rates, impacting the cost of borrowing for private equity firms seeking to take companies private. Rowan emphasised that private equity groups would now have to return to traditional investment practices, becoming more adept at their investment strategies. Previously, the industry enjoyed remarkable profitability due to easy access to low-cost financing and buoyant financial markets, facilitating profitable investment exits.
Apollo Global Management recently reported its second-quarter results, revealing that the firm closed its latest flagship corporate buyout fund with approximately $20 billion in commitments, falling short of its predecessor fund raised in 2018, which secured over $24 billion. Despite this, Apollo’s adjusted profit for the quarter amounted to $1.1 billion, nearly 60 percent higher than the same period last year. The firm’s financial performance was bolstered by $35 billion of new investor inflows and the impact of higher interest rates, which enhanced yields in its $450 billion portfolio of debt investments. It’s worth noting that much of Apollo’s growth has been attributed to its credit investing operations, which include ownership of the insurance company Athene and various loan origination platforms acquired over the past decade. These loans vary from large deals for semiconductor company Wolfspeed to financing for well-known corporations like AT&T and Air France. According to Rowan, the shift towards this form of lending represents a secular change in how credit is provided to businesses, with the trend expected to gain momentum. As the private equity landscape undergoes a transformation with the end of an era, industry players like Apollo Global Management will need to adapt their investment strategies and navigate the new economic landscape to maintain profitability and growth. What do you think about the future of private equity? And do you agree with Rowan’s ideas?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.