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Apollo Global Management reported a record $559mn in quarterly fee-related earnings in the first quarter of the year, but its sprawling Athene insurance operations crimped profits more than analysts had expected.
The US private capital giant, which has $785bn in assets, generated its best returns from a strategy designed to refinance stretched buyout deals or help public companies in need of cash to shore up their finances.
Apollo’s so-called “hybrid value” funds, launched six years ago, gained 3.8 per cent in the first quarter and 19.3 per cent over the past 12 months, making them the highest returning strategy inside of Apollo.
The returns are nearly triple what Apollo has earned from its flagship buyout funds, which gained just 6.6 per cent over the past 12 months. Apollo’s credit funds, which account for the vast majority of its assets, earned between 7.7 per cent and 11.8 per cent over the past year.
Buyout fund performance has plunged across the industry due to higher interest rates and moribund dealmaking activity that has led to a logjam of unsold private equity-owned assets.
But returns Apollo earned from its hybrid funds show that some shrewd investors are beginning to earn large windfalls weeding through the carnage.
Apollo has used its “hybrid” funds to invest billions into companies like grocer Albertsons and waste management group GFL Environmental that wanted to pay down debts and repair stretched balance sheets.
The funds have also been used to finance large so-called continuation funds and make non-controlling investments in companies that rival private equity groups do not want to fully sell while they await a recovery in prices.
However, the same challenges that caused Apollo’s rivals to turn to the New York-based investment group for financing also hit its earnings.
In the first quarter, Apollo earned just $14mn in performance-based profits — otherwise known as principal investment income — significantly below analyst forecasts, as it was unable to sell many investments for a profit.
