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Apollo to start investing $25bn mega fund in Q1

The alternative asset manager still has $1.5bn to commit from Fund VIII, which remains unrealised.

Apollo Global Management plans to start investing Apollo Investment Fund IX, the largest private equity fund ever raised, in the first quarter of 2018.

“As we finish up committing the capital in Fund VIII, there’s approximately $1.5 billion remaining for new investments that will be allocated to deals in the coming months,” Josh Harris, Apollo co-founder, said during the firm’s third-quarter earnings conference call on Wednesday. “Our current expectation is that Fund IX will enter its investment period at some time during the first quarter of 2018.”

When Fund IX, which held a final close in the third quarter on $24.7 billion, begins its investment period and begins generating management fees, Fund VIII will move into its post-investment period. The $18.4 billion Fund VIII is about 80 percent committed as of the end of the third quarter and still unrealised.

At the end of the third quarter, Fund VIII had gross and net internal rates of return of 29 percent and 19 percent respectively since inception according to Harris.

“We’re seeing continuing positive momentum for Fund VIII, which appreciated 11.5 percent during the quarter and is up 25 percent year to date,” he said.

Apollo expects additional value creation for the fund. The average life of the investments is under two years and many of the companies are still in the early to middle stages of their value-creation plan. However, the fund could start to see some exits in 2018.

“Some of the earlier investments now are approaching five years, that’s around when you start to harvest and there’s definitely a lot of things right now that we are looking at, so I would expect distributions will ramp up starting next year,” Harris said.

“Obviously it depends on the economy and the markets and what the specific companies do, but we feel there’s a lot of value creation left, even after we start to realise.”

The portfolio companies have meaningful upside, Harris noted, as the purchase multiple to EBITDA is around 5x on average as opposed to more than 10x on average for the rest of the industry.

About 32 percent of Fund VIII is invested in consumer services companies and 16 percent in business services companies, including ADT and Rackspace.

“The portfolio is less cyclical than it’s been in the past,” said Harris, adding that although distressed investments typically represent a third of investments in an average Apollo fund, they only represent 5 percent in Fund VIII. Fund VIII includes mainly take-private transactions as well as corporate build-ups.

Apollo had $241.6 billion in total assets under management as of the end of the third quarter, including $158 billion in credit and $70 billion in private equity.

In private equity, it deployed $1.1 billion and committed to invest an additional $1.1 billion during the quarter. The firm has $48.8 billion in dry powder available for investments across its business lines.