Apollo to raise new LBO fund

Bloomberg

Apollo Global Management LLC is starting to raise money for a new buyout fund that could reach almost $20 billion in size, as the private equity firm tears ahead on an unprecedented buying spree.
“We are currently on pace to deploy more capital in 2016 than in any other year in our history,” Josh Harris, who co-founded Apollo in 1990, said on a conference call with analysts and
investors.
Apollo has stood out among private equity firms this year, spending $8.2 billion of equity in buyouts while peers have largely waited on the sidelines. The New York-based firm has already deployed two-thirds of its current buyout fund, which finished collecting $18.4 billion two years ago.
Fundraising for the new fund will start this quarter, Harris said, and Apollo expects to complete the process in 2017. The billionaire implied that the firm may target roughly the amount it raised last time, saying that “if we assume it will be similar in size” to the $18.4 billion pool then management fees will increase meaningfully starting in 2018.
Apollo’s largest peers have put out less money than in previous years as valuations for private equity deals are at record highs. Apollo is able to invest so much, Harris said, because it’s willing to tackle complex situations that other firms “may shy away from,” it can finance its own deals with its capital markets and broker-dealer units, and it can lean on big clients for co-investments to strike buyouts larger than other funds can swallow.
The firm struck this year’s largest private equity deal so far when it acquired home-security company ADT Corp. in a $12 billion transaction, completed in May. Apollo closed a $1.4 billion buyout of Fresh Market Inc. the previous month. In July, it agreed to buy kiosk-maker Outerwall Inc. for $1.6 billion, and the next month struck a deal to buy risk-management company Constellis Holdings.
Apollo then agreed to a $4.3 billion buyout of cloud company Rackspace Hosting Inc., also in August. Last month it closed a $2.2 billion buyout of timeshare-properties operator Diamond Resorts International Inc.
LBO, Credit Gains
Harris made the comments while discussing Apollo’s third-quarter profit, which more than doubled from a year earlier as its private equity and credit holdings gained and its stake in annuity-seller Athene Holding Ltd. appreciated. Economic net income, a measure of earnings that reflects both realized and unrealized investment gains, increased to $230.8 million, or 58 cents a share, from $104 million a year earlier, the asset manager said in a statement Friday. Analysts on average had expected earnings of 45 cents a share, according to 13 estimates compiled by Bloomberg.
Apollo, led by Chief Executive Officer Leon Black, marked up the value of its nearly 10 percent stake in Athene to $630 million from $566 million a year ago. The company, which Apollo created in 2009, has helped drive Apollo’s economic net income in recent quarters and plans to go public this year.
The firm’s private equity holdings, including companies it’s taken public and still owns, appreciated 2.6 percent in the quarter, compared with a 3.7 decline in the same period a year ago. Apollo said its credit holdings had gross returns of 3.9 percent in the recent quarter.

Carlyle, KKR
The private equity portfolio’s gains were stemmed by declines in some of its largest public company holdings. Shares of Norwegian Cruise Line Holdings Ltd. declined 5.4 percent in the three months through Sept. 30, and EP Energy Corp.’s stock dropped 15 percent. Alternative asset managers Carlyle Group LP and Blackstone Group LP each said their private equity portfolios rose 3 percent in the third quarter. KKR & Co. said its gained 5.8 percent. That compares with a 3.3 percent advance in the Standard & Poor’s 500 Index of large U.S. companies during the period.
Apollo’s distributable earnings, which reflect cash profits on asset sales and fund management fees, were $148.5 million, up from $142.6 million a year earlier. The firm said it will draw on that pool to pay stockholders a dividend of 35 cents a share on Nov. 30.
Assets under Apollo’s management increased to $188.6 billion from $186.3 billion the previous quarter. In June, the firm became the second-largest U.S.-based manager of alternative investments after Blackstone, which managed $361 billion as of Sept. 30.