Gentlemen, Start Your Markdowns

Apollo and KKR each filed amended S-1 docs this week, and revealed how the economic downturn has been affecting internal rates of return (IRRs). It ain’t pretty.

First take Apollo, which plans to go public via a traditional IPO. It previously reported that its sixth private equity fund had a net IRR of 42% through December 31, 2007. In its amended filing, that figure plummeted to just 21 percent. Its fifth fund experienced a much smaller drop from 54% to 52%, but Apollo takes pains to say that future returns will more resemble fund VI than Fund V. Overall, Apollo says that its net IRR since inception (1990) fell from 29% to 28 percent.

KKR also took some big hits. The firm reported that its Millennium Fund had a net IRR of 40.6% through March 31, 2007 – but that it stands at just 27.4% one year later. This is particularly troubling because Millennium Fund is of a 2002 vintage, or around the same time as Apollo’s fifth fund. It did not report any IRR for its 2006 fund – which should more closely correlate to Apollo’s sinking sixth fund.

This is only the beginning…