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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
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?