Apollo exec John Zito questions private equity software valuations

Private equity firms are facing challenges in valuing their software holdings as shares of comparable public tech companies have plummeted. John Zito, co-president of Apollo’s asset management division and head of credit, expressed skepticism about the accuracy of current valuations in the private equity market. He believes that all the marks are wrong and that private equity marks are inaccurate.

The recent downturn in public software company stocks has raised concerns about the valuation of software loans held by private credit lenders. Investors have withdrawn about $10 billion from private credit funds in the first quarter, leading to redemptions and market volatility. Industry leaders have reassured investors that the underlying companies are still performing well, but some players like JPMorgan Chase have started to mark down the value of software loans.

Zito’s candid assessment of the market reflects a growing recognition of potential risks in private credit. While Apollo has emphasized its focus on larger, stable companies with minimal exposure to software assets, Zito warned that companies taken private between 2018 and 2022 could face significant challenges. He highlighted the lower quality of these companies compared to their larger public competitors and the potential for deep losses in the coming years.

Despite the challenges facing private credit lenders, Zito believes that the asset class as a whole will weather the current upheaval. However, he cautioned against risky and concentrated investments that could lead to a “bad ending” for investors. As the industry grapples with changing market dynamics and evolving technologies, prudent risk management and diversification will be key to navigating the uncertain landscape.

In conclusion, Zito’s remarks underscore the need for careful evaluation and monitoring of investments in the private equity and credit markets. As the industry faces mounting challenges and uncertainties, investors and fund managers must stay vigilant and adaptable to mitigate risks and seize opportunities in a rapidly changing environment.