(Bloomberg) -- Apollo Global Management Inc.’s Co-President Scott Kleinman said private equity firms need to return to old-fashioned bargain hunting as they can no longer rely on debt to juice returns. 

Speaking to Bloomberg TV at the SuperReturn International conference in Berlin on Wednesday, Kleinman said markets had to prepare for interest rates holding “higher for longer” as the Federal Reserve battles to get inflation under control. 

This will mean a change of tack is needed at the many private equity firms that Kleinman said had spent the boom years “taking advantage of levered beta” instead of driving returns through skill at managing portfolio companies.

“We’re no longer in a free money environment,” Kleinman said. “Our industry is going to have to go back to good old-fashioned creating value through good old-fashioned operational improvement, buying well, finding good underloved companies.”

New York-based Apollo manages about $600 billion in assets and is one of the world’s largest buyout firms. While it has been on the acquisition trail, it’s known for a reluctance to risk overpaying for assets. In recent weeks, it’s walked away from a months-long pursuit of Scottish engineering group John Wood Group Plc and ended takeover talks with struggling online retailer THG Plc.

One deal it has agreed is the acquisition of United Living, a UK provider of maintenance and construction services focused on the affordable housing sector.

Higher interest rates have raised the cost of financing for private equity firms, making it harder to get deals over the line. The value of private equity acquisitions has fallen 60% this year to $204 billion this year, according to data compiled by Bloomberg.

Speaking in a separate interview at SuperReturn, Carlyle Group Inc.’s co-head of European private equity Marco De Benedetti said he saw signs of deals returning as banks begin to lend on buyouts again and buyers and sellers get more realistic on pricing. 

“The financing market is getting back to a more functional level,” De Benedetti said in a Bloomberg TV interview. He said the resilience of the economy in Europe had given comfort to buyers, and that periods of uncertainty often created the best private equity vintages.

Apollo has dialed back expectations for its fundraising efforts. On an earnings call last month, Kleinman said the firm expects commitments for its 10th flagship buyout fund to reach the “low $20 billion range,” falling short of the buyout giant’s earlier $25 billion target.

Read More: Apollo Swells Ranks in UK and Europe as Private Credit Booms

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