Funds

Details of Apollo’s hybrid debt-equity fund revealed

The fund would invest in senior and subordinated debt along with structured equity and non-control positions in financially troubled companies.

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The strategy and terms of Apollo Global Management’s debt-and-equity hybrid vehicle were revealed in US pension fund documents.

The New York-based alternatives giant’s Apollo Hybrid Value Fund will mainly target companies in North America and Europe with enterprise values of $750 million-$2.5 billion, meeting materials from the Teachers’ Retirement System of Louisiana showed. The retirement plan pledged $75 million to the vehicle.

Apollo did not respond to request for comment.

The fund, which has a $3 billion target, will focus on “capital solutions”, or senior and subordinated loans that often will have equity upside via warrants or participation rights; non-control investments in financially stressed or distressed businesses and structured equity, either control or non-control positions that would fund myriad transaction types, including growth capital and deleveraging deals.

The fund will target 30-40 investments with an expected hold period of three to five years. Its expected portfolio makeup, as of 31 December, will be 40 percent each for structured equity and capital solutions and 20 percent for the stressed and distressed investments.

The bulk of deal possibilities in Apollo’s pipeline fall into the structured equity bucket, making up 49 percent of transactions the firm sees for the strategy, an Apollo investor presentation disclosed. Capital solutions and non-control stressed and distressed comprise 34 percent and 17 percent, respectively, a separate TRSL investment memo showed.

The investment committee for the fund will include co-presidents Scott Kleinman and Jim Zelter, senior partner Sanjay Patel, and partners Rob Ruberton and Matthew Michelini. Kleinman will chair the committee. The rest of the investment staff consists of nine managing directors and 13 associates and analysts.

Apollo first disclosed the intention to launch a hybrid vehicle at the Goldman Sachs US Financial Services conference in December, during which co-founder and chief executive Leon Black noted the fund would look to post returns in the mid-teens.