Apollo’s AUM crosses $400bn as Rowan takes ‘semi-sabbatical’

The firm is back in market with a follow-up to its hybrid value fund and is on track to hit its $20bn fundraising goal for the year, co-founder Josh Harris said on its latest earnings call.

Apollo Global Management is confident it can meet or exceed its $20 billion fundraising goal across several strategies this year, according to co-founder Josh Harris.

Speaking on the firm’s second quarter earnings call on Thursday, Harris mentioned several vehicles Apollo is currently raising, including a follow-up to its $3.25 billion hybrid value fund, which is now 71 percent committed or invested.

After plummeting 21.6 percent in the first quarter, Apollo’s private equity portfolio appreciated 11.7 percent in Q2, primarily driven by public portfolio company holdings. The firm deployed $3.9 billion through its private equity funds in Q2 and committed to invest an additional $1.7 billion. Private equity AUM was up 8 percent quarter-on-quarter to $73 billion.

The $24.7 billion Apollo Fund IX finalised its $6 billion take-private of Tech Data, bringing that fund to 40 percent committed or invested.

“We think there will just be volatility as the market absorbs earnings that are coming in a little softer than maybe they would have expected, [and] obviously you have significant volatility around covid, around the political environment here in the US, and then the US-China relationship. Those four factors are going to lead to just volatility and so we expect we’re going to have opportunities across our platform,” Harris said.

“[The] private equity pipeline is actually picking up. Even though the markets look to be priced at a premium, when you bifurcate the markets, the bottom 25 percent of the S&P trades at a 10 PE, the top 25 percent trades above 30. And so there continues to be value-oriented opportunities in Apollo’s sweet spot.”

The $18.38 billion Fund VIII, a 2013-vintage vehicle, is now out of clawback, according to chief financial officer Martin Kelly, having appreciated by 17 percent during Q2. The firm had $386.8 million in clawback obligations across several funds as of 30 June, down from $965.4 million at the end of the first quarter.

Fund VIII is facing impairment charges of around $1 billion related to some energy assets and a few investments that were severely affected by the coronavirus pandemic. The firm is required to recoup those impairments before distributing future performance fees.

“We continue to expect that gross realised performance fees will be very modest over the course of  2020 as portfolio companies manage the impacts of covid on their operations and as we prioritise the return of LP capital as a consequence of the impairments,” Kelly said.

Rowan to take ‘semi-sabbatical’

On the call, Black also announced that fellow co-founder and senior managing director Marc Rowan would be taking a “semi sabbatical”, stepping back from the day-to-day running of the firm’s insurance platform.

“Marc will continue to work with Josh and I, driving the strategic direction of the firm, especially for our financial institutions and insurance-related businesses,” Black said.

Rowan will remain a member of the Apollo board and executive committee, continue to serve on the board and executive committee of Athene and remain on the board of Athora. Co-president Scott Kleinman will assume the day-to-day operational responsibility of leading Apollo’s financial institutions and insurance activities, while fellow co-president Jim Zelter will continue to focus on asset management and credit investment activities across insurance clients.

Black did not directly address a question from Goldman Sachs’s Alex Blostein as to whether Rowan would be stepping back into the role at a later date.

“It’s really that we’ve been in covid lockdown now for five months, Marc has just quarterbacked two transactions in the second quarter… and he wants to take a little time off from day-to-day operations,” Black said. “The reason we call it a ‘semi-sabbatical’ is Marc is still very, very engaged in the firm and on the strategic planning with Josh and myself.”

Black added: “I would really just take it at face of what we’ve said and not read more into it.”

As part of its ESG and diversity and inclusion initiatives, Apollo has also appointed a head of leadership development and diversity, Jonathan Simon, who is set to join the firm in August.

AUM boost

Two large transactions in the firm’s permanent capital arm have propelled Apollo Global Management’s assets under management to $414 billion, an almost $100 billion increase quarter-on-quarter.

Apollo added $45 billion through the closing of its acquisition of VIVAT from Anbang Group Holdings in April. Apollo made the acquisition through its permanent capital vehicle Athora. Also, the firm added a further $28 billion through separate permanent capital vehicle Athene closing its reinsurance transaction with Jackson National Life Insurance Co.

AUM was also boosted by organic growth at insurance clients and other capital raisings.

“We are well on our way towards the $600 billion goal that we provided at investor day this past November,” co-founder, chairman and chief executive Leon Black said on the call, referencing the firm’s goal to reach that AUM figure within five years.

Apollo made $45 billion in gross purchases across its platform in the second quarter, some of which was related to repositioning the insurance companies’ balance sheets, Black said.

The firm’s credit AUM increased $91 billion, which includes $6 billion of new commitments raised for Apollo Strategic Origination Partners, a new $12 billion direct-lending partnership with Abu Dhabi’s sovereign wealth fund Mubadala; and $1.75 billion for Accord Fund III B, the firm’s dislocation credit fund. Apollo is now in market with the next series of Accord strategies, Harris said.

Apollo posted a net income of $446 million for the quarter and distributable earnings of $0.46 per share, up from $0.37 per share in the first quarter.