Apollo's Black says debt markets give good returns

MUNICH, Feb 26 (Reuters) - Debt markets offer private equity attractive returns as a global credit crisis dries up financing for equity investments, Leon Black, founding partner of U.S. buyout firm Apollo Management said on Tuesday.

"It's all about value creation. You can get equity-type returns from debt instruments that may be a better play than pure equity right now, where you can't get leverage," he told the 11th Super Return private equity and venture capital summit in Munich.

Black said it was uncertain how severe an economic slowdown would be and that stock markets had not suffered the kind of declines seen during the last downturn at the start of the decade.

"It sure feels and smells like we're heading towards recession but there are still some questions as to how that resolves itself," he said, adding distressed investments may become more interesting later in the year.

"For this to be an attractive private equity market again, with tougher financing we are going to have to have a parallel of lower prices and on that basis we're happy to over-equitise deals and, hopefully, in a few years refinance them," he said.

But if equity prices fail to decline and tougher financing conditions remain, private equity returns will weaken, he added.

In terms of challenges posed by slower economic growth to companies in Apollo's portfolio, Black said U.S. real estate brokerage Realogy Corp, which it bought last year for $6.65 billion, was already affected.

Consumer and retail companies were also suffering but businesses operating in the packaging, chemicals, gambling and transport industries were doing quite well, he said.

(Reporting by Eleanor Wason in Munich; Editing by David Hulmes)

(eleanor.wason@reuters.com; Reuters Messaging: eleanor.wason.reuters.com@reuters.net; +4420 7542 8058)