Apollo’s Black sees next fund ‘on the horizon’

  • $18.4 bln Fund VIII now about 60 pct committed
  • PE funds typically launch fundraising at 70 pct
  • Apollo launches new business unit in Europe

Apollo Global Management’s $18.4 billion Apollo Investment Fund VIII is 60 percent deployed, setting up a possible move into fundraising for its next flagship fund.

Fund IX is “looming somewhere on the horizon,” CEO Leon Black told Wall Street analysts on the firm’s second-quarter conference call. “We can’t predict with any exactitude when that will be.”

Black said LPs have been giving more cash to top-performing GPs, but he didn’t specify a dollar size for Fund IX. “When you go out [fundraising], you never know what the outcome is going to be,” he said. “We’re already a very large fund. It’s hard to predict how much more that will scale.”

The Fund VIII deployment includes the not-yet-closed take-private of Outerwall, a provider of retail kiosks, Apollo said. A PE firm typically begins raising money once its flagship fund is about 70 percent deployed, the firm said. Apollo executives didn’t estimate when Fund VIII would reach that level.

Fund VIII wrapped up fundraising in 2013 as one of the largest pools after the global financial crisis.

Apollo’s private equity business deployed $4.6 billion during the quarter, including $2.5 billion in co-investments on deals such as ADT and Fresh Market. Along with the take-private of Outerwall, it also set plans to buy Diamond Resorts International, an operator of vacation destinations in 35 countries.

Return hurdle crossed

During the quarter, Fund VIII crossed its return hurdle and started accruing carried interest for the first time. The firm reported a net IRR of 10 percent for Fund VIII.

“We’ve put a lot of capital to work, and we also have a robust pipeline today of deals that we like,” Black said. “Right now we’re going at a very nice pace.”

Black said the firm has been sticking to an average purchase price multiple of about 6x EBITDA, compared with the average of about 10x, he said.

Apollo finds deals by embracing complexity, including corporate carve-outs, distressed situations and other opportunities, he said.

During the quarter, Apollo raised $2.5 billion for co-investments, as well as $253 million for Apollo Natural Resources Partners II, which now has about $2.2 billion in commitments.

The firm is also in the market with FCI III, its third-generation flagship structured credit fund. Fund II in that series raised $1.6 billion in commitments.

On the credit side, it’s planning a first closing this year on its third European Principal Finance Fund. Fund II in that series raised $3.4 billion in commitments.

Also on the credit front, Apollo booked $7.9 billion in inflows for Apollo Asset Management Europe, a business set up late last year to help manage balance- sheet assets of banking and insurance companies. Apollo named John Stratton  the unit’s chief investment officer last year. He previously was with Brit Insurance in London.

Action Item: Apollo’s Q2 results, http://bit.ly/2aNinWl

Leon Black, chairman and CEO of Apollo Global Management, speaks at the Milken Institute Global Conference in Beverly Hills, California, on May 2, 2016. Photo courtesy of Reuters/Lucy Nicholson