Key Takeaways
- • Scott Kleinman, co-president of Apollo Asset Management, warns the private equity industry will face a "price to pay" for aggressive dealmaking between 2017 and 2022, when low interest rates and cheap debt fueled elevated valuations and a dealmaking frenzy.
- • PE firms have struggled to exit investments from the 2017-22 vintage as higher interest rates have made debt financing more expensive, forcing deal values below purchase prices and creating significant performance headwinds for fund investors.
- • Alternative exit strategies—including continuation vehicles, asset-backed borrowing, and self-sales—provide temporary relief but do not solve underlying valuation problems; Kleinman characterized these tactics as "ameliorating" issues rather than resolving them fundamentally.
- • Apollo maintained disciplined valuation practices during the boom period, but Kleinman predicts a gradual industry shake-out as institutional investors reallocate capital away from underperforming PE funds from that vintage period.
Summary
Scott Kleinman, co-president of Apollo Asset Management, delivered a stark assessment of the private equity industry's recent trajectory at the SuperReturn conference in Berlin on June 10, 2026. Kleinman warned that PE firms—particularly those that participated aggressively in dealmaking between 2017 and 2022—face significant performance consequences stemming from what he characterized as market exuberance during that period.
The core issue centers on valuation disconnect. During the 2017-22 period, abundant cheap debt and low interest rates enabled private equity sponsors to execute acquisitions at elevated prices, often using significant leverage to finance these deals. The subsequent rise in interest rates has fundamentally altered the economics: the debt required to fund similar buyouts has become substantially more expensive, making previously justified valuations untenable. PE firms now hold portfolio companies purchased at prices that cannot be supported in the current higher-rate environment, creating a drag on fund performance for 2017-22 vintage investors.
Kleinman noted that fund investors have reached a "collective assessment" that "the market got a little out of whack," and acknowledged there is "no getting around it, it's just simply math." This blunt framing underscores that the performance shortfall is not temporary or cyclical but rather structural and unavoidable given the mathematical relationship between purchase prices and current discount rates.
PE sponsors have increasingly turned to creative capital solutions to manage this challenge, including borrowing against asset values to fund investor distributions and utilizing continuation-vehicle structures to extend hold periods and defer exits. However, Kleinman emphasized these strategies do not resolve the underlying problem but rather "kick the can for a later date." Such approaches provide breathing room but ultimately fail to eliminate the gap between entry valuations and current market realities.
Despite these industry headwinds, Kleinman stated Apollo maintained "very disciplined on valuation" throughout the dealmaking boom, positioning the firm to weather the performance adjustment better than competitors. He predicted a gradual reallocation of capital as institutional investors respond to disappointing returns from 2017-22 vintage funds, suggesting a measured but meaningful shake-out across the PE landscape as LPs recalibrate their exposure to the asset class.
The core issue centers on valuation disconnect. During the 2017-22 period, abundant cheap debt and low interest rates enabled private equity sponsors to execute acquisitions at elevated prices, often using significant leverage to finance these deals. The subsequent rise in interest rates has fundamentally altered the economics: the debt required to fund similar buyouts has become substantially more expensive, making previously justified valuations untenable. PE firms now hold portfolio companies purchased at prices that cannot be supported in the current higher-rate environment, creating a drag on fund performance for 2017-22 vintage investors.
Kleinman noted that fund investors have reached a "collective assessment" that "the market got a little out of whack," and acknowledged there is "no getting around it, it's just simply math." This blunt framing underscores that the performance shortfall is not temporary or cyclical but rather structural and unavoidable given the mathematical relationship between purchase prices and current discount rates.
PE sponsors have increasingly turned to creative capital solutions to manage this challenge, including borrowing against asset values to fund investor distributions and utilizing continuation-vehicle structures to extend hold periods and defer exits. However, Kleinman emphasized these strategies do not resolve the underlying problem but rather "kick the can for a later date." Such approaches provide breathing room but ultimately fail to eliminate the gap between entry valuations and current market realities.
Despite these industry headwinds, Kleinman stated Apollo maintained "very disciplined on valuation" throughout the dealmaking boom, positioning the firm to weather the performance adjustment better than competitors. He predicted a gradual reallocation of capital as institutional investors respond to disappointing returns from 2017-22 vintage funds, suggesting a measured but meaningful shake-out across the PE landscape as LPs recalibrate their exposure to the asset class.
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