Cycle, Structure, Selection: Private Equity Portfolios for Today’s Market

Diana Sands (0:04)

Hello, and welcome to another episode of The Allocation. I'm Diana Sands with Apollo Global Management. And today, I am very pleased to be joined by Bryn Gostin. Bryn and I are here to chat all things private equity. So Bryn's going to give us a bit of a state of the world so far in 2026 Bryn, this is great to see you here. You and I actually do not often get to sit down together. Both of us are in meetings with our clients across the globe. You more focused on the institutional side of our client franchise, yours truly on the global wealth market. So really excited to have you here to talk about what we're hearing from our clients. Kick us off with what you're thinking about in private equity. How has the market looked here in 2026?

Bryn Gostin (0:48)

Glad to be back, Diana. Activity here to date has rebounded in terms of deals executed and exited. It's certainly not an exuberant market, but even when we look at the numbers and unpack them a little bit more, it's probably more of a story of volume vs. count, meaning that the marketplace is favoring larger transactions today. And that's probably a reflection of the fact that private equity is a maturing asset class, which requires deeper resourcing today.

And this incremental resourcing requirement, to me, exists across all three phases of the private equity ownership cycle. If you think about it on the buy, when you're purchasing or requiring a business, if you look at the data in 2026, the deal cost index is relatively high. So if the deal cost index is high, teams are going to require much more insight and industry knowledge to develop a differentiated viewpoint and avoid simply overpaying for an asset. And then on the build, so when you're working to create value during the ownership phase, we've gone from a world where multiple expansion made up almost two-thirds of the returns for private equity as an industry to less than 10% in 2026

So in that environment, you need the resourcing for deeper value creation to drive private equity like returns. And then on the exit, it's just a more structurally involved exit environment today. And I don't think that you can expect to just show up to market with an asset and expect it's going to get sold. You need a team to help you focus on how to do this. During even the underwrite phase, I think you need to be working with a team to pressure test the likely exit channels for the asset. Is it a sale to a strategic, a sponsor or an IPO?

During the ownership phase, you've got to be spending time with the universe of likely buyers to make sure that you're positioning the asset in a way that's potentially attractive to a buyer down the road. And then when it comes time to actually exit, you need discipline and rigor to pull the trigger and not just wait for the last dollar of incremental value. So it really does go beyond the idiosyncratic capabilities of any one deal team to sell an asset today. I'd stress, Diane, to me, this is still a great asset class, but some of the themes that we're seeing evolve and emerge here in 2026, here to date, suggest it's also a more resource-intensive asset class.

Diana Sands (3:16)

So Bryn feels like we're in a healthier place, but it still is a challenging market, whether that's deal cost, whether that's how to drive at growth in the particular business, how to drive at exits. What are you hearing from your LPs today?

Bryn Gostin (3:31)

It's a healthier market today, but let's not forget, there's also a very big backlog that we've got to work through. From an LP perspective, look, I spend most of my time with institutional allocators and the private equity allocators, they absolutely know that there is a massive use case for private equity, and there has been for a very long period of time.

But interestingly, the conversations that I'm having with a lot of them these days is, how do I make the case to my board in particular, that maybe has less experience with the asset class, that private equity makes sense when the S&P 500, as we know, has had three rolling years of really strong returns? And I imagine, I'm curious for your perspective here, Diana, but I kind of think it's a similar debate for the individual.

Diana Sands (4:19)

Right?

Bryn Gostin (4:20)

How do I think about the opportunity cost between the S&P 500 and frankly, any other risk asset?

Diana Sands (4:27)

Exactly. Yeah, I don't disagree with you. High level, the value proposition has not changed. Ultimately, what are clients looking for when they allocate to private equity?