Private Equity Leaders Warn of Valuation Adjustments Amid Longer Hold Periods
Apollo Global Management Co-President Scott Kleinman told Bloomberg that prolonged hold periods in private equity are pressuring internal rates of return (IRRs), with industry participants “going to have to start capitulating for sure” on valuations. The comment, made during a sideline conversation at the SuperReturn conference in Berlin, reflects growing concerns about the sector’s performance amid economic uncertainty.
IRRs Under Pressure From Extended Investment Horizons
Kleinman’s remarks align with broader trends in private equity, where firms are holding assets longer due to volatile markets and limited exit opportunities. According to a 2023 report by Preqin, the average hold period for private equity funds increased to 5.8 years in 2022, up from 4.9 years in 2019. Longer holds can reduce IRRs by delaying cash flow and increasing risk exposure, according to the firm’s analysis.
Valuation Adjustments Expected as Market Conditions Shift
Kleinman’s reference to “capitulating” on valuations suggests a potential shift in pricing strategies. A 2023 study by the National Bureau of Economic Research found that private equity firms often lower acquisition multiples during downturns to maintain deal flow. For example, leveraged buyout multiples for mid-market companies dropped by 12% in 2022, according to data from Morningstar.
Industry Responses and Strategic Implications
Other private equity executives have echoed similar concerns. Blackstone CEO Steve Schwarzman noted in a 2023 investor letter that “market conditions require more disciplined capital allocation,” while KKR’s Jeffrey Greene highlighted the need for “flexible valuation frameworks” in a recent interview with Financial Times. These statements indicate a sector-wide recalibration to navigate extended hold periods and evolving market dynamics.
What’s Next for the Private Equity Sector?
The pressure on IRRs could accelerate consolidation in the sector, with larger firms leveraging scale to absorb volatility. A 2022 report by McKinsey & Company found that top-performing private equity firms achieved 25% higher IRRs by focusing on operational improvements rather than rapid exits. As Kleinman’s comments suggest, the industry’s ability to adapt its valuation strategies will be critical to sustaining returns in the coming years.