Fresh off the closing of its Fund VIII at $18.4 billion, Apollo Global Management’s largest ever fund, the Leon Black-led firm spent the first quarter of 2014 continuing to divest assets in its private equity portfolio and expand its credit arm.
Apollo has grown its assets under management from $68 billion at the time of its initial public offering in 2011 to $159 billion at the end of the Q1, “largely driven by robust growth in our evolving credit business, which stands today at over $100 billion,” Black said during an earnings call Thursday.
“While private equity has always been core to Apollo’s franchise and will continue to be, deep credit analysis has been fundamental to our investment strategy and we have oriented the firm this way since day one,” Black said. ”Today, credit is our fastest growing business segment.”
Black also announced two new separately managed accounts for the firm, a $500 million mandate from a “large state pension fund” and the other a $400 million account from a “large sovereign wealth fund”.
On the exit front, Apollo has returned about $38 billion to investors during the past two years, including more than $22 billion in private equity over the last 18 months. The firm’s private equity funds appreciated by 2 percent during the first quarter of the year, while its Fund VII has generated an annual gross and net IRR of 39 percent and 30 percent, respectively. The combined fair value of Apollo’s private equity funds stood at 55 percent above cost as of 31 March 2013.
Apollo’s private equity investments have generated a 39 percent gross return and a 26 percent net IRR since inception in 1990.
However, during the first quarter of 2014, Apollo generated economic net income – a measure that includes realised and unrealised gains – of $219 million, down from $764 million during Q1 2013. The firm attributed the year-over-year decrease largely to lower carried interest income of $103 million, compared to $991 million during the same period last year.
In a separate statement released Thursday, Apollo announced that Robert Kraft has been appointed to the firm’s board of directors. Kraft is chairman and chief executive officer of The Kraft Group, which includes the New England Patriots, the New England Revolution, Gillette Stadium, Rand-Whitney Group and International Forest Products Corporation.
In March, Apollo president Marc Spilker stepped down and will no longer sit on the firm’s executive committee. A source familiar with the situation told Private Equity International there is no search underway for his replacement. Spilker will remain a senior advisor to the firm for the rest of 2014.
Despite Spilker’s departure and media reports that two senior partners, Stan Parker and Jordan Zaken, are expected to leave the firm soon, Black expressed significant optimism for the firm’s performance and investment opportunities looking forward.
“Since we announced the close of Fund VIII there have been some questions in the marketplace around our ability to invest this fund in the current market environment,” he said. “Our view is that just as we have done throughout all market cycles since Apollo’s founding in 1990, we are remaining disciplined and patient as we pursue more idiosyncratic off the beaten path opportunities.”
Apollo’s shares were trading at $26.68 per share as of mid-day Thursday, down slightly from $26.95 a year ago.