Fireside Chat, Conference Presentation
A Conversation with Leon Black
- Apollo Global Management anticipates its unique operational model, forged following the 30th anniversary of Drexel's collapse and the early 1990s recession, will continue to differentiate it from traditional private equity firms that avoid distressed strategies; the firm plans to maintain a "fund for all seasons" approach, allocating half its capital to purchase debt at discounts and the other half to restructure or gain control.
- The firm expects to deploy capital during down periods independently of capital markets to acquire companies with weak balance sheets, targeting value investments at approximately six times EBITDA (roughly half the current market average of 11.5 times) and aiming to exit at seven or eight times to create an error cushion.
- Apollo intends to capitalize on public market volatility and the anticipated growth of high-yield and leveraged loan markets to a combined size of $2.5 trillion to $3 trillion, driven by banks reducing syndication risk, while specifically targeting public-to-private transactions and complex corporate carve-outs where market misunderstandings or extended negotiation periods offer better pricing.
- The firm expects significant buying opportunities totaling approximately $1.5 trillion within the insurance platform sector over the next five years due to low-interest rates, while also seeking value in infrastructure sectors like transportation, communications, and power, with a specific plan to deploy capital into 14 previous public companies that absorbed 80% of the firm's $18 billion private equity capital over the last three years.
- Predictions include the industry's continued lack of specific credit skills required for distressed debt, a rise in the number of private equity firms from 300 to 4,500 since Apollo's inception, and increased LP willingness to facilitate asset transfers between funds; however, the firm expects to avoid first-mover positions in foreign markets like Japan or India until rule of law and bankruptcy frameworks are more established.
- Risk factors and strategic boundaries involve the expectation that permanent capital growth will not practically change the sector despite allowing longer asset holding periods, with the firm currently maintaining 80% of its capital as permanent or extending over seven years; additionally, Apollo plans to avoid combining distressed investing with operating turnarounds as "too overpowering," while acknowledging ESG and climate initiatives are becoming obligatory.
- Financial outlooks project that Apollo will continue generating 8% to 10% returns in credit platforms provided interest rates remain low and growth is muted, even as public markets remain punitive on a quarterly basis, making long-term planning difficult for public company management.