Apollo’s John Zito delivered a stark warning about the valuation practices of private equity firms regarding their software holdings, stating, “I literally think all the marks are wrong.” Speaking to UBS clients, Zito highlighted that the plummeting shares of public tech companies have not been reflected in private equity valuations, raising concerns about the stability of private credit loans tied to these firms. The fallout has already seen retail investors withdraw approximately $10 billion from private credit funds in Q1, as fears mount over potential losses.
This situation is particularly critical as major players like JPMorgan Chase begin to adjust their lending practices, marking down software loans amid a broader market downturn. Zito emphasized that many software companies acquired during a period of inflated valuations are now at risk, with recovery rates on loans potentially dropping to between 20 and 40 cents on the dollar for lower-quality firms.
For financial professionals, Zito’s insights underscore the importance of rigorous valuation practices in private equity and the potential ripple effects on market stability. This is a must-read for anyone navigating the complexities of private credit and software investments—explore the full article for deeper insights.
Source: cnbc.com