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Apollo to deploy $25bn fund with distressed debt focus

Apollo chairman and CEO Leon Black is confident his firm can take advantage of opportunities that would result from a recession in the next few years.

Apollo Global Management will start deploying its record-size private equity fund targeting distressed debt as early as this year, executives said on Wednesday's second-quarter earnings conference call. 

The New York-based asset manager's flagship Apollo Investment Fund IX exceeded its hard-cap with $24.7 billion in commitments by 30 June, and the firm expects to start deploying the fund by the end of 2017 or early next year, Leon Black, chairman and chief executive officer at the firm, said on the call. 

Black added that Fund IX, the firm's largest ever, was fully allocated six months after launching in December. The fund focuses on three strategies: distressed debt, corporate carveouts and opportunistic buyouts.

Apollo is anticipating an increase in distressed debt opportunities in the next few years as the economic cycle turns, and it expects to invest a much larger portion of the Fund IX toward distressed debt than with its previous fund.

The firm plans to invest 20 to 25 percent of Fund IX in distressed debt opportunities, up significantly from the 1 percent allocated to the strategy in Fund VIII's current portfolio, a State of Connecticut Retirement Plans and Trust Funds document showed.

This increase in the distressed portion comes at an expense of buyouts, which made up 67 percent of Fund VIII, while buyouts are expected to account for about 40 percent to 50 percent of Fund IX.

Black was optimistic about investing the fund amid a current environment of high equity pricings and anticipated low growth in the coming years, adding that even if a “recession happens in the next four years”, that would be “something we can take advantage of with Fund IX”.

Apollo has $231.8 billion in assets under management as of the end of the second quarter.