2023 ECONOMIC AND CAPITAL MARKETS OUTLOOK financing, and low financing costs—are reversing. Market sourcing approach will be able to pounce when market growth and multiple expansion-based investing strategies opportunities present themselves. won’t work as well in coming years. What will? We believe strategies with a “purchase price matters” discipline that • The pipeline of corporate carve-outs should grow as CEO focus on operational improvement and free cash-flow confidence continues to wane and corporates look to put generation in order to generate value. cash on their balance sheets and simplify their businesses during market volatility. • Volatility in the public markets has driven significant demand for public-to-private (P2P) transactions. • Prices of real estate and infrastructure should retain As valuations fall, demand for P2P market should support as investors continue seeking inflation hedges. pick up. Capital providers with a relationship-based Conclusion As we head into 2023, it is increasingly clear that the wisdom that it takes 12 to 18 months before Fed hikes have Fed’s rate hikes are starting to cool the economy via three their biggest effect on the economy. transmission channels: interest rate-sensitive components of GDP are slowing down (housing, autos, capex); the tech From an inflation perspective, higher rates are cooling sector is in turmoil because of higher risk-free rates, and layoff housing and car prices, which can push down overall inflation announcements are rising; and high-yield primary markets over the coming months. As a result, the Fed might soon be are essentially closed, which is having a negative impact on done with raising rates. issuing firms in both the goods and service sectors. All that said, we expect it will still take some time for the The bottom line is that monetary policy is working as capital markets to normalize. In the meantime, we believe the intended. The Fed started raising rates in March 2022, and window of opportunity in the private markets should remain these three transmission channels confirm the conventional open for well-positioned capital providers. The information herein is provided for educational purposes only and should not be construed as financial or investment advice, nor should any information in this document be relied on when making an investment decision. Opinions and views expressed reflect the current opinions and views of the author(s) and Apollo Analysts as of the date hereof and are subject to change. Please see the end of this document for important disclosure information. 22