Apollo: Is It Time to Return to Private Equity?Apollo Global Management IncBATS:APOSwissquotePrivate equity involves investing in companies that are not publicly listed, with the objective of developing them, improving profitability, and then selling them several years later at a capital gain. The private equity business model relies heavily on financial leverage, meaning the use of debt. When a private equity fund acquires a company, it generally finances only part of the purchase price with its own capital. A significant portion of the acquisition is financed through bank loans or bond issuance. This is known as a Leveraged Buyout (LBO). Let's take a simple example. A fund wants to acquire a company valued at €1 billion. It may invest €300 million of equity capital and borrow €700 million. If, a few years later, the company is worth €1.5 billion and part of the debt has been repaid through the profits generated, the return on the initial €300 million investment can be substantial. This is precisely why interest rates play such a central role in private equity. When interest rates are low, debt is inexpensive. Funds can borrow heavily, finance more transactions, and offer higher prices to sellers. This supports valuations and encourages a greater number of deals. The chart below displays Apollo's monthly candlestick chart together with the Ichimoku system. The long-term trend remains clearly bullish. Conversely, when central banks aggressively raise interest rates, as occurred between 2022 and 2024, financing costs increase sharply. Interest expenses become more burdensome, potential returns decline, and many transactions become less attractive. Funds therefore slow down acquisitions, while pressured company valuations tend to decline. Higher interest rates also create a second challenge: they make exits more difficult. Initial public offerings (IPOs) and mergers and acquisitions become less frequent, reducing opportunities to sell portfolio companies. Given that Kevin Warsh's Federal Reserve appears inclined to maintain the federal funds rate at its current level, I believe private equity is currently in a lower phase of its cycle. If interest rates continue to decline gradually over the coming years, credit conditions should improve, transaction activity could recover, and major industry players such as Blackstone, KKR, and Apollo Global Management could benefit from a new growth cycle. The chart below displays Apollo's weekly candlestick chart, highlighting the long-term support provided by the 200-week moving average. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. 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