Apollo co-founder cautions against overpaying

The most important driver of returns is purchase price, co-founder Joshua Harris tells Harvard Business School students.

Apollo Global Management’s most important determinant of success when making an investment is the purchase price it pays, according to co-founder and senior managing director Joshua Harris.

The firm’s biggest failures have typically been the result of paying too much for a company, Harris told an audience at the Harvard Business School’s 22nd Annual Venture Capital and Private Equity Conference. “We manage to mess up one or two companies a fund,” he said.

Apollo is currently investing Apollo Investment Fund VIII, which closed about two years ago on nearly $19 billion. That fund is about half invested, according to Harris.

“We’re probably different than many firms. At Apollo, we believe that the biggest determinant of rate of return is purchase price,” Harris said.

One of Apollo’s latest bad bets was its investment in Caesars Entertainment. The firm took the gaming company private in 2008 for $28 billion and is now in legal battle against Caesars’ bondholders while the company’s operating unit is already in bankruptcy.

“One of the problems we have right now is Caesars,” Harris said, noting that he could not speak too much about it because of the legal woes related to the investment. “We bought the largest gaming company in the world in early 2008 just before the financial crisis and we paid a big price for it. We’ve done our best since then to make it better, but the reality is we probably paid too much.”

Harris, a graduate of Harvard Business School, told the audience of mostly business school students that investors can learn valuable lesson from failed investments.

“The most important lesson from our point of view is that buying well and selling up with the right investment thesis is very important,” he said.