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Apollo fee revenue to spike with Fund IX launch

  • Apollo closed Fund IX on $24.7 bln in Q3
  • The firm will begin investing Fund IX next year
  • Fee-related earnings to jump by $200 mln

Apollo Global Management is about to turn on the spigot for hundreds of millions of dollars in management fees.

Apollo will likely activate its latest private equity fund, the $24.7 billion Apollo Investment Fund IX, in the first quarter. When that happens, the firm expects its fee-related earnings to increase by $200 million.

“We expect that the net effect of these movements will add approximately $200 million or 50 cents per share pretax of annualized accretion to our fee-related earnings,” Senior Managing Director and Co-Founder Joshua Harris said during a third-quarter earnings call.

Apollo earned $162.2 million in fee-related earnings in Q3. At the end of the quarter, the firm had $241.6 billion of assets under management, $166.3 billion of which was generating fees.

Apollo closed Fund IX in July, but it won’t activate the fund — i.e., start investing and begin charging limited partners management fees — until its $18.4 billion predecessor concludes its investment period. Fund VIII had roughly $1.5 billion left to deploy, which the firm expects to allocate to new deals in the coming months, Harris said.

That’s also around the same time Fund VIII investors can expect distributions to ramp up, Harris said. Apollo marked Fund VIII as netting a 19 percent internal rate of return through the end of Q3.

“The average life [of an Apollo PE investment] is three years, but certainly some of the early investments now are approaching five years, and so that’s around when you start to harvest,” he said. “I would expect that distributions will ramp up starting next year.”

With M&A prices still at or near post-crisis peaks, Apollo also stands to benefit from the buy-low strategy it used for Fund VIII. The firm paid an average of roughly 5.5x EBITDA for its assets in the fund, Harris said, while the market average currently stands at around 10.5x.

Apollo’s private equity portfolio delivered $3.4 billion in realizations over the past 12 months, compared with $4.8 billion in new investments. During a Q1 earnings call, Harris said the firm was shifting its efforts toward realizing older investments in its portfolio.

Apollo was founded in 1990. The firm is led by Co-Founder, Chairman and CEO Leon Black, Harris and Co-Founder and Senior Managing Director Marc Rowan.

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Joshua Harris speaks to the media while he attends an NHL hockey news conference announcing the new owners of the New Jersey Devils at Prudential center in Newark on Aug. 15, 2013. Photo courtesy Reuters/Eduardo Munoz