Oregon: Apollo flagship fund could be largest of all time

  • Apollo yet to set hard cap on Fund IX
  • Previous fund closed on $18 bln
  • Co-founder: Apollo might use IX for aging credit assets

Apollo Global Management’s ninth flagship buyout fund is expected to be the largest private equity fund raised since the financial crisis and potentially the largest buyout fund of all time, a memo prepared by Oregon Investment Council staff shows.

The firm has yet to set a hard cap on Apollo Investment Fund IX, according to Oregon documents. The $70.4 billion retirement system on March 15 approved a $500 million commitment to the fund, subject to final legal negotiations.

Last October, media reports indicated Fund IX would have a target similar to that of Fund VIII, which closed on $18.4 billion. The pension documents did not list a target.

Oregon staff was “impressed” with Apollo’s ability to invest its previous $18.4 billion fund while maintaining discipline on its pricing of new portfolio companies, the memo says.

During a recent earnings call, Apollo Co-Founder Josh Harris was asked about how the firm would deploy Fund IX in a high-priced environment.

“Look, we are just getting better at our craft,” he said. “The team is getting more experience. We’re adding a lot of capability to allow us to source transactions in a much more proprietary way such as, energy would be an example. Or financial services in Europe.”

Harris also noted that Apollo expanded its ability to finance its deals by adding a broker-dealer capability. This enabled the firm to obtain financing from non-traditional sources in its $7 billion acquisition of ADT last year. According to The Wall Street Journal, Apollo obtained $750 million of financing for ADT by selling preferred shares to holding company Koch Industries Inc.

Apollo Investment Fund IX will compile a portfolio of 25 to 35 investments of $300 million to $1.5 billion, Oregon documents say. In the firm’s fourth-quarter earnings call, Harris said Fund IX could include aging credit assets, which might see reduced prices should the market cycle turn.

“We’re going to have some distressed opportunities. Those tend to be traditionally at lower multiples,” he said.

Apollo declined to comment.

Oregon committed $400 million to Apollo Investment Fund VIII in 2013, which has yet to generate meaningful returns. Fund VII, the firm’s $14.7 billion 2008 vintage fund, was netting a 2.06x multiple and 24.2 percent internal rate of return through June 30, according to Oregon documents.

Oregon valued its PE portfolio at $13.9 billion as of Jan. 31, 2017. The retirement system had a 19.8 percent allocation to the asset class against a 17.5 percent target.

Action Item: More about Apollo: www.agm.com/Home.aspx

Leon Black, chairman and CEO of Apollo Global Management LLC, takes part in the Private Equity: Rebalancing Risk session during the 2014 Milken Institute Global Conference in Beverly Hills, California, on April 29, 2014. Photo courtesy REUTERS/Kevork Djansezian