Apollo enters the asset accumulation cycle

The firm has $28.7 billion in dry powder ready for investing including $19 billion allocated to private equity.

Apollo Global Management has moved out of the “excess distribution cycle” and has now entered the “asset accumulation cycle”, Apollo chief executive Leon Black said.

“I’m actually very proud of what we’ve been able to do in private equity and real estate in terms of accumulating assets at very low multiples in an otherwise overvalued environment,” Black said in a third-quarter earnings call.

Black said Apollo has been preparing for imminent US interest rate rise. “Rising rates might create a mark-to-market rake out for us.”

In a policy meeting today, the US Federal Reserve is widely expected to decide not to increase interest rates although a change in rates is long anticipated.

“Even the perception of rates going up creates volatility,” Black said.

Apollo’s third-quarter private equity economic loss of -$6.79 million, compared with a gain of $63.03 million in the previous quarter, was driven by negative unrealised mark-to-market performance amid a “challenging market backdrop,” according to the firm’s earnings presentation.

The private equity incentive business economic loss was $31.88 million, compared with a $31.1 million gain in the previous quarter.

Any changes in carried interest in the future will not affect the financial statements or dividend payments at Apollo, Black said.

“Could you lose an employee or two over change in carried interest? Maybe. But I don’t see it having significant effect other than the obvious effect that people will make less money.”

The firm's investments in conventional private equity depreciated in value by 3.7 percent, fueled by a drop in its public portfolio companies. Trailing the last 12 months, the firm’s private equity investments appreciated 0.5 percent.

As of 30 September, Apollo’s assets under management totaled $161.8 billion, of which $38 billion is in private equity.

The firm has $28.7 billion in dry powder ready for investing, of which $19 billion is allocated to private equity and $14.3 billion from its Fund VIII.

Apollo Investment Fund VIII is a 2013-vintage vehicle that closed on $18.4 billion.

During the third quarter, Apollo deployed $1.4 billion in three private equity investments with an additional $3.2 billion in commitments that have yet to be deployed. The total capital deployed was $3.9 billion.

Apollo posted a Generally Accepted Accounting Principles net income of $41.1 million, or 20 cents a share, down 27 percent from the previous quarter’s GAAP net income of $56.4 million, or 30 cents a share.

At press time Apollo’s shares were listed on the New York Stock Exchange at $18.48 per share, up 3 cents or 0.16 percent from the previous close, giving the firm a $3.21 billion market capitalisation.