Zito Forecasts Recoveries as Low as 20 Cents
Apollo Global Management's co-president of asset management, John Zito, issued a severe warning on the private credit market, forecasting that recoveries on loans to certain software companies could be catastrophic. In a private discussion with UBS clients, Zito projected that a generic mid-sized "Joe Software Company" loan could see recoveries of just 20 to 40 cents on the dollar. He argued that many software businesses taken private by PE firms between 2018 and 2022 are of lower quality and were acquired at much higher valuations than their publicly traded counterparts, creating a risky credit environment.
Zito specifically highlighted Thoma Bravo’s 2021 take-private of software firm Medallia as a deal where credit issues will be "worse than people expect." His comments suggest that the recent downturn in public software stocks, driven by fears over AI disruption, will hit these smaller, highly-leveraged private companies even harder.
Joe Software Company, if he’s in the wrong place, I think is going to recover somewhere between 20 and 40 cents.
— John Zito, Co-President of Asset Management, Apollo
Private Equity Valuations "Are Wrong," Zito Claims
Broadening his critique, Zito directly challenged the integrity of private equity valuations across the industry. He stated bluntly that he believes the current marks are inaccurate, reflecting a potential disconnect from market realities. An Apollo spokeswoman later clarified his comments referred specifically to software companies, stating, "We believe software valuations do not yet reflect first-quarter market conditions."
I literally think all the marks are wrong.
— John Zito, Co-President of Asset Management, Apollo
Zito called out an "arrogance" in the private markets and argued that firms risk losing client trust if they fail to mark their portfolios realistically. He noted a contradiction in the market where investors show "unlimited demand for secondary private equity" but are simultaneously worried about the private credit that finances over 80% of those same portfolios. This skepticism arrives as some large institutional investors, such as the Ontario Teachers’ Pension Plan, have already reported significant write-downs on their private equity holdings.
Zito Positions Apollo For a Downturn
Beyond the sector-specific warnings, Zito expressed a bearish macroeconomic outlook, stating that a consumer confidence-led recession is "more likely than not." He sees deflationary pressures building, in part because the race to implement AI is forcing companies to cut costs before the technology is fully proven. He also made the blunt political assertion that Federal Reserve Chairman Jerome Powell is maintaining an inflationary narrative to antagonistically pressure the president.
Despite the grim forecast, Zito presented Apollo as well-prepared for the turmoil. He emphasized that the firm’s balance sheet is positioned defensively, with 95% of its holdings in investment-grade assets. This strategy, he explained, is built on the view that larger, higher-quality companies will outperform in a downturn, providing Apollo with the flexibility to acquire distressed assets at a significant discount.
