Apollo’s private equity funds stung by public market volatility

It largely attributed the drop to publicly-traded portfolio company holdings in Fund VIII, an $18.4bn 2014-vintage.

Apollo Global Management’s private equity portfolio was hit by volatility in the public markets during the fourth quarter of 2018.

The New York-headquartered firm’s private equity funds depreciated 10.9 percent last quarter – compared with a 2.3 percent gain in Q3 – and were down 9.8 percent for the year, according to a Q4 statement.

It largely attributed the drop to publicly-traded portfolio company holdings in Fund VIII, an $18.4 billion 2014-vintage. Public investments account for 21 percent of Fund VIII and 20 percent of the $69 billion private equity portfolio.

“The names that have probably caused more of the volatility in the portfolio, some of the bigger public marks, are actually performing quite well,” co-president Scott Kleinman said Thursday on an earnings call.

“The one or two instances not, it’s more of an idiosyncratic company-specific issue, rather than seeing the signs of some broader macro issue there,” he added. “It’s really a matter of working through and getting the market to appreciate the value being created in those companies.”

The S&P 500 plummeted to a two-year low in December. Fund VIII’s public holdings include IT service management company Presidio and ADT Security Services, both of which suffered sharp drops in share price in December.

“Clearly what we’ve seen in our portfolio is a microcosm of what’s been going on between the markets and the underlying economy in the US, where the fundamentals actually have been pretty attractive,” founder and chief executive Leon Black noted. “But the market got very skittish obviously in the fourth quarter in terms of stock volatility.”

The firm has raised $2.8 billion for its Hybrid Value Fund, a debt-equity vehicle, as of 31 December, after holding a first close on $2.2 billion in Q2.

Apollo deployed $5.5 billion of private equity capital last year, $2.3 billion of which came in the fourth quarter. It had put to work more than 83 percent of Fund VIII as of 31 December. The fund is running at an 11 percent net internal rate of return.

The firm has $35.7 billion of private equity dry powder, having raised $24.7 billion for Fund IX in 2017. Its firm-wide assets under management grew $60 billion to $280 billion in Q4.

Apollo is focusing on take-privates as it searches for value-oriented opportunities in a competitive market, co-founder Josh Harris said on the firm’s third-quarter earnings call in October. It completed eight such deals in the US over the past three years and committed to a further two in Q3.