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After investing $10.6 bln in a year, Apollo PE shifts toward realizations

  • Apollo returns $1.1 bln to PE investors in Q1, invests $1.6 bln
  • “Cash-carry is on the horizon,” says Co-Founder Joshua Harris
  • Firm to activate Fund IX in late 2017, early 2018

Apollo Global Management may not be “selling everything that’s not nailed down” — as Co-Founder Leon Black famously put it — but it’s finally started to unload some of its PE holdings after distributing little cash to fund investors over the previous year.

“Our private equity team has been much more active investing capital, rather than exiting,” Senior Managing Director and Co-Founder Joshua Harris said during the first-quarter-earnings call.

The firm’s pace of investment, particularly through its $18.4 billion eighth flagship, pushed its PE platform’s assets under management to $45 billion as of March 31, up 18 percent from a year earlier. The platform invested $10.6 billion against the $2.2 billion it returned to its fund’s limited partners.

Apollo shifted its focus toward selling off or refinancing some its PE holdings in the quarter, the earnings report showed. Apollo returned $1.1 billion to its private equity investors and called $1.6 billion for new investments.

“We’re incredibly focused on monetizing the portfolio. Because to a large extent we feel like we’re heading into the ninth year of an economic recovery,” in which debt is cheap, prices are high and public markets are ebullient, Harris said. “We’re doing everything we can.”

Apollo VIII portfolio company Vectra, which produces technology for auto systems and other industries, sold a division to Jordan Co in January. Fund VIII LPs also received distributions from glass maker Verallia and home-security business ADT, the firm’s earnings presentation showed.

“We are encouraged by the early monetization opportunities and returns we’re seeing from Fund VIII,” Harris said. “Cash-carry is on the horizon.”

First-quarter PE-deal activity resulted in $11.8 million of transaction fees and $319.1 million of carried interest for Apollo, according to the report. Fund VIII was netting a 16 percent internal rate of return as of March 31.

Fund VIII was roughly 71 percent invested as of March 31 and the firm estimates it has $3 billion available for commitments to new deals, Harris said. The firm will likely activate its next buyout fund, which could raise as much as $23 billion, late this year or early in 2018.

Even as Apollo transitions into more of a seller, rather than a buyer, the close of Fund IX could pressure the firm to put new capital to work. Even as the ratio between deployed and distributed capital narrowed, Apollo had $2.3 billion of capital committed to new investments that have not yet closed as of March 31.

According to Harris, the firm’s managed to keep returns up by buying assets for cheaper than what they’re worth, then using Apollo’s ability to reacquaint the new portfolio company’s operations and balance sheets to make the asset more valuable.

“The ultimate exit requires some degree of seasoning,” he said. “Buying right is great, but then you’ve got to do the active management part of it.”

Apollo Global Management finished the first quarter with a little less than $200 billion under management across its private equity, credit, real estate and other platforms.

Action Item: For more information about Apollo, visit www.agm.com

Joshua Harris on August 15, 2013, speaks to the media at an NHL news conference announcing the new owners of the New Jersey Devils at Prudential Center in Newark. Photo courtesy/Eduardo Munoz