Q&A: Apollo on lending in a world of shifting valuations

Q&A: Apollo on lending in a world of shifting valuations APOLLO Rod James Mon, July 6, 2026 at 10:16 PM GMT+2 5 min read GS SOPA Images/Getty The private equity market has struggled with exits since 2022, when a sharp increase in interest rates widened the gap between buyers' and sellers' expectations. Cash distributions to investors have been well below the norm since then, ranging from 9% to 13% per year, compared with a longer-term average of 20% to 25%, according to Goldman Sachs data. This drying up of liquidity has spurred the growth of alternative forms of financing, such as hybrid investing.

This combines elements of debt and equity to protect the lender while giving the borrower access to cash without selling shares in their business. Matt Nord Matt Nord These protections often come in the form of preferred or convertible securities. Lenders get first dibs on certain cash flows or can convert debt into an ownership stake if an investment performs well.

Proceeds can be used for various purposes, including funding acquisitions and helping businesses reduce their debt levels. Apollo Global Management has more than $100 billion of assets under management in its hybrid investing business. Recent such deals include the purchase of $1.

2 billion of newly issued convertible preferred stock in QXO , a listed distributor of roofing, waterproofing and building products. The Connecticut business will use the money to fund acquisitions. Apollo receives an annual dividend of 4.

75% on the shares, which could potentially be converted into common stock. Apollo's co-head of private equity and head of hybrid, Matt Nord, spoke to PitchBook about the strategy and its place in today's market. PitchBook: How do you define the Hybrid Value strategy?

Nord: We think of hybrid investing as an investment with equity-like returns and credit-like downside protection. When we're meeting with a company or an investor, the first question we ask is "What are your needs? And let us craft a solution.

" Our funds make an investment in a company and are willing to trade away some of the upside for even more downside protection. Our funds' equity may be structurally senior to the remaining equity. For the owner of the business, the hybrid capital may not be incremental debt but less dilutive than [issuing more] common equity.

How receptive are borrowers at this stage in the cycle? In 2026, we are seeing that the investing landscape just needs more of these solutions. I think the environment is getting harder, not easier.

For example, there's $4 trillion of unrealized NAV [in PE]. A lot of these DPI issues are not going away. On the investor side, I just think there's a lot of uncertainty: potential disruption from AI, geopolitical risk, macro uncertainty, rates, inflation.

... Yet the valuation environment hasn't really corrected. Normally, when there are a lot of risks, valuations are lower; that's how you get compensated for taking risk.

Hybrid is designed to seek attractive absolute returns while helping investors stay invested in a more defensive way. Why are valuations still full despite the heightened risk? Story Continues If you focus on AI [for example], even a lot of the companies that are supposed to be most exposed are still performing well.

So you can't really point to near-term financial performance as an indicator of disruption. It's really become a bet on "What is the longer-term growth rate? What is the longer-term multiple?

" There's a disconnect between what investors are seeing now and what they are anticipating, and a greater chance of two investors viewing the same situation in a very different way. How much of the disagreement over valuation is down to the market still not having digested the sharp rise in interest rates we saw in 2022? That has been an accelerant of the hybrid business.

On the origination side, in a low-rate environment, sponsors would lever up as much as possible, take advantage of the low cost of debt and try to maximize their equity returns as much as possible. In this environment, you don't want to lever your balance sheet as much. The overall direction of travel is towards more equitized balance sheets.

If you like the valuation of your business, you're going to issue common stock. If you don't want to issue common, but you also don't want to leverage your balance sheet, hybrid becomes this third tool to access capital. Do you see an opportunity to lend to mispriced software businesses?

Across our business, we have very little software exposure. When we think about making investments in the hybrid business, it starts with a very high-quality business. We avoid businesses where we see a heightened risk of disruption.

Are you making hybrid investments in the AI buildout? When we think about the amount of capital being spent on AI and digital transformation, we see tremendous opportunities for our business in credit—at the top of the capital structure—and in our hybrid business, where we are moving a little further down the risk spectrum. I think the questions around the AI investment is: What is the ultimate return to the equity?

And because that is still unknown, we've been more cautious about making equity investments in the space. When is hybrid equity a more appropriate solution, and when is hybrid credit? In a market where financing is not available, and we're looking to generate double-digit rates of return, we can make more hybrid credit investments.

More of that return is fixed through a coupon, and there will be some equity participation. In a market where financing is readily available, I may pivot more toward structured equity. Typically, there's still a contracted component to it; hybrid is really underpinned by recurring cash flows.

But we can pivot toward more equity upside. Correction: This article has been corrected to show that Apollo's investment in QXO was a hybrid investment.