Apollo Global Management, which raised the largest private equity fund this year, has significantly lowered placement fees it pays to third-party agents over the past 10 years, according to data collected from several Apollo regulatory filings with the US Securities and Exchange Commission.
For the nine months ended 30 September, Apollo paid $12.7 million in placement fees, including $3.5 million in relation to Apollo Investment Fund IX, which closed on $24.7 billion earlier this year, according to the firm’s latest 10Q quarterly filing.
In particular, the cost associated with third-party placement agents to raise the firm’s flagship fund has gone down over the years.
In the past decade, placement fees would significantly increase in years when Apollo raised large funds, but it wasn’t the case this year with Fund IX.
In 2013, when Apollo raised its $18.3 billion Apollo Investment Fund VIII, it spent $42.4 million total in placement fees, including $15.4 million specifically related to Fund VIII.
In 2007 and 2008 – the years when Apollo marketed Apollo Investment Fund VII, which closed in 2008 on $14.7 billion – the firm spent $27.2 million and $51.3 million, respectively, in total placement fees. During those years, placement fees related to Fund VII were about $20 million each year.
The $3.5 million in placement fees paid this year in relation to Fund IX was split between an agent in South Korea and another in Chile, two countries that require fundraising through a placement agency, and Merrill Lynch Pierce Fenner & Smith Incorporated, a broker-dealer focused on retail investors, according to a Form D filing from July.
The decline in placement fees over the years is mainly due to Apollo building its own fundraising capabilities internally and to the strong performance of its funds, which has attracted limited partners and allowed the firm to raise Fund IX in only a few months.
Fund VIII had an unrealised net internal rate of return of 19 percent while Fund VII had a 26 percent net IRR as of 30 September, according to the firm’s most recent 10Q.
Under the terms of the funds’ partnership agreements, Apollo is typically required to bear placement costs in connection with the offering and sale of interests in its funds to investors, according to the filing.
Fund IX will invest in buyouts, corporate caveouts and distressed debt. Apollo plans to make its first investment in the first quarter.