Side Letter: Apollo’s Athene merger; Apax’s tech turnaround; Japanese GPs on tour

Apollo has sought to address shareholder concerns over its relationship with Athene. Plus: more Apax news and why managers looking to expand their LP bases have reasons to be cheerful. Here's today's brief, for our valued subscribers only.

They said it

“The SDGs don’t really show what impact is created by a manager or fund. A lot of people are using them because they’re easy to identify, but you need something to measure, and that’s with outputs.”

An impact investing executive tells delegates at Private Equity International‘s Responsible Investment Forum last week that industry-wide ESG data standards are the key challenge facing sustainability in PE.

Just happened

Apollo/Athene
Apollo Global Management’s incoming chief executive hopes its all-stock merger with insurer Athene, disclosed yesterday, will allay concerns about the longstanding relationship between the two. Speaking on a conference call about the move, Marc Rowan said the entities would become “fully aligned”. He was responding to longstanding shareholders concerns, including that Apollo and Athene are too dependent on each other for earnings and asset growth, and that their arrangement – under which Apollo manages 100 percent of Athene’s portfolio for a fee – creates unbalanced incentives.

The question, of course, is what does this mean for Apollo’s LPs and its funds? Rowan shed little light on this on the call but did disclose that the move gives Apollo a “bigger balance sheet to invest alongside clients in its various products” (a spokesman for the firm says this could be at levels “unique” for the industry). Some other things to note:

  • Apollo’s contract with Athene accounts for 40 percent of its AUM and 30 percent of is fee-related earnings, according to a presentation accompanying the call.
  • Alongside the merger, Apollo is replacing its three classes of stock with a single class and introducing a “one share/one vote” system. The aim is to remove the “private partnership remnants of governance” and to make the new entity eligible for inclusion in passive investing indexes.
  • Athene has had a strategic partnership with Apollo since its formation in 2009, over which time it has achieved compound annual growth of 16 percent, 3x its competitors.
  • Rowan will lead the combined entity, which will have a market capitalisation of around $29 billion.

How to make an impact
Speaking of Apollo, the firm has also shed more light on its nascent impact strategy. Speaking at PEI’s virtual Responsible Investment Forum: New York last week, Joanna Reiss, Apollo’s co-lead of impact, noted the firm will seek later-stage businesses as targets rather than “businesses that are impactful on day one”. The strategy is somewhat unusual for impact investing, which typically focuses on opportunities lower down the food chain. Find out more about the Apollo Impact Platform here.

Essentials

Ant greeter
Japan’s Ant Capital wants to increase its international LP base. The firm, which focuses on small and mid-cap buyouts, is seeking about ¥50 billion for its sixth fund, as we report today. Overseas LPs are expected to account for a larger proportion of this vehicle than its predecessors – an aspiration that is becoming more popular among domestic GPs. T Capital Partners, another buyout firm, accepted international capital for the first time in its sixth fund, which held its final close in February.

A tale of two fundraises
Yesterday we mentioned that Apax Partners had finally wrapped up fundraising on Apax X. Things seem to be moving quickly for the firm’s tech unit, which is back raising Digital Fund II, sister title Buyouts reports. Its 2017-vintage Fund I is only about 60 percent deployed and is expected to finish up by mid-year. Fund II is seeking $1.5 billion and is scheduled to hold a first close in June. Its speedy timeline is little surprise given that appetites for tech have soared during the pandemic, as PEI explored last year.

Relationship therapy
Good news for managers struggling to expand their LP bases: a report from Adams Street Partners found that 70 percent of investors intend to add new manager relationships this year. Such decisions were fewer and further between in 2020 as LPs acclimatised to virtual due diligence processes. Also worth noting: almost half (45 percent) plan to sell assets in the secondaries market this year – a sign that last year’s freeze on LP stake sales could be set to thaw, as reported by sister title Secondaries Investor (registration or subscription required).


Today’s letter was prepared by Alex Lynn with Rod James and Carmela Mendoza.

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