Equity | Investment Insight
May 05, 2023
Private Equity Investing in a New Paradigm: Dislocation Creates Opportunity
A paradigm shift happened in 2022. Massive dislocation has created opportunities for PE investors. But we believe these opportunities will now be more difficult to exploit. We discuss a framework that can generate sustainable potential alpha in the long run.
Matt Nord | Partner, Co-Head of Apollo Private Equity
David Sambur | Partner, Co-Head of Apollo Private Equity
A paradigm shift happened in 2022, as the Fed ended years of loose money. Massive asset-price dislocation has created distressed, buyout, and carve-out opportunities for PE investors. But we believe these opportunities will now be more difficult to exploit. We discuss a framework that can generate sustainable potential alpha in the long run.
Key Takeaways
- A paradigm shift happened in 2022, as the Fed ended almost 15 years of loose monetary policy. Private equity has weathered the ensuing financial storm well on a relative basis. But we see both short- and long-term implications of this paradigm change on PE investing.
- In the short- and medium-run, the extensive dislocation in asset prices has rendered capital structures of many corporations inadequate for the new economic environment. We expect many will be forced to de-lever.
- As a result, we see opportunities in distressed situations as well as strong potential for take-private and carve-outs, as companies will be compelled to seek a buyer or divest non-core assets to shore up their balance sheets.
- Relative to other asset classes, PE tends to outperform in times of volatility, and some of the best private equity vintages have emerged during economic and market downturns. Selectivity, however, is paramount.
- The consequences of the paradigm shift for the long run are also key. With tailwinds of steadily rising multiples removed, opportunities in PE will likely become more difficult to exploit. We discuss a framework that can generate sustainable potential alpha in PE investments.
Tags
Private-equity secondaries have developed into a core alternatives allocation for many investors. Led by the expanding opportunity in GP-led secondaries and heightened liquidity needs, we believe the secondaries market for PE will double or triple in size in the next five years.
Real Assets | Investment Insight
Mind the (Funding) Gap: Finding Opportunities in Real Estate Debt Amid Dislocation
Higher interest rates have pressured real estate prices, but fundamentals remain stable across most property types. In this class, Scott Weiner, Global Head of RE Credit, examines the state of the real estate market and discusses the opportunity in RE debt in light of wider spreads, more lender-friendly terms, and significant refinancing needs.
Apollo Chief Economist Torsten Sløk and co-head of Sponsor and Secondary Solutions (S3) Steve Lessar discuss how private equity secondary markets can create opportunities for investors seeking diversification in an environment where rates are seen higher for longer and public equity valuations remain lofty.