Apollo set to return with next flagship PE mega-fund

The alternatives giant expects to have a 'fully ramped up retail distribution business' in place for the launch of its next private equity flagship, it disclosed on Wednesday.

Apollo Global Management expects to hit the fundraising trail in the first half of next year for its 10th flagship private equity vehicle, according to its co-president and chief investment officer.

“Fund IX is now 72 percent committed or invested. Given the current deployment outlook… we expect to be fundraising for Fund X in the first half of next year,” James Zelter said on the firm’s second-quarter earnings call on Wednesday.

Chief executive Marc Rowan added that firm will seek to raise a fund of a similar size as its predecessor. He also said that the firm expects to have “a fully ramped up retail distribution business in place for the launch of Fund X as well as certain credit products toward the end of the year”.

Apollo raised $24.7 billion for Fund IX in 2017, the second-largest PE fund ever raised, according to PEI data.

Fund IX generated a 49 percent gross internal rate of return, a 28 percent net IRR and a gross MOIC of 1.5x as of end-June, according to earnings materials.

Apollo’s private equity portfolio had total assets of $88 billion as of end-June, down 1 percent quarter-on-quarter, due to realisations partially offset by market activity and inflows, according to a statement accompanying the results.

The firm’s PE funds appreciated 9.5 percent during the quarter.

The firm made $5.3 billion of PE investments during the quarter and $10.6 billion during the past 12 months ended June. A further $6 billion of investment are expected to be completed as of quarter-end. One of its biggest transactions this year was a $7.5 billion carve-out this month with US telco business Lumen Technologies.

Realisations in PE reached $7.3 billion, with more than 60 percent or $4.6 billion of that figure coming via realised proceeds from Fund VIII.

Overall, deployment across the platform reached $28 billion, a quarterly record, and $9 billion of capital was returned to investors.

Assets stood at $471.8 billion as of end-June, up 14 percent from the same period last year.

Innovation, governance and culture

Rowan noted that the firm is preparing for the innovation and change that is taking place across the financial services landscape. During the quarter, Apollo acquired a stake in fintech specialist Motive Partners and teamed up with blockchain-enabled Figure Technologies, which focuses on asset securitisation.

He also said that the key-man change and the governance structure of the firm are “not an issue”.

“I do not believe that we really ever thought this was an issue and it simply reflects the evolution and maturation of the franchise where those people who are most important to the franchise are now key-persons… and those who are less important to the franchise or are moving on – as in Josh’s [Harris] case – are no longer key-people.” Rowan was responding to an analyst’s question on how Apollo is improving its governance structure.

He added that governance at the firm is also “a transition”.

“Our entire industry is going through an evolution. We all pretty much started as private limited partnerships, those firms that were successful in those activities and institutionalised their business got trusted with more capital… a number of the firms were more successful in going public,” Rowan said.

“That generation of founders will turn over. We are the first of the large firms to go through that wholesale transition. I believe others will do it less noisily than we have, but it does feel good to be on the other side of that.”

Culture is a big area of focus, Rowan added, noting that the firm plans to add between 300 and 400 people in the next year.

“Increasingly our business by population is comprised of FRE-generation businesses around yield. That requires a different set of compensation tools, a different culture and a different approach,” he said.