Apollo completes latest flagship buyout fund at $20bn

Apollo Global Management wrapped up a 10th flagship buyout fund at about $20 billion, a few billion shy of the vehicle’s target.

The final close of Apollo Investment Fund X was held in mid-July, CEO Marc Rowan said in the firm’s second-quarter earnings call. Capital raising occurred “over a 12-month marketing period,” he said, “versus continuing to market over an extended timeline.”

Due to tough supply conditions caused by overstretched LPs, Apollo expected the flagship to come in below its $25 billion target. Earlier this year, co-president Scott Kleinman projected a final tally “in the low-$20 billion range.” Fund X also secured less than Fund IX, closed in 2017 at $24.7 billion.

Several of Apollo’s peers are having the same experience. In July, Blackstone said its ninth flagship buyout offering will finish “in the low-$20 billion range,” below its $26.2 billion predecessor.

In the earnings call, Rowan noted Fund X’s closing took place in the context of a greatly changed private equity landscape.

“In the equity business, this year has really marked the end of an era,” he said. “If I think about what happened over the prior decade – and perhaps longer than a decade – there were these incredible tailwinds. Tailwinds from money-printing, pulling forward of demand, fiscal stimulus and certainly from zero rates.”

“We now find ourselves in an absence of tailwinds,” Rowan said. “Rates are higher, growth is slower, globalization is in retreat.”

Because of this, he said, “People will have to go back to investing the old-fashioned way. They’ll actually have to be very good investors. They’ll need to produce alpha.”

This is what Apollo has been doing, Rowan added. He pointed to Apollo Investment Fund IX, which at a moment of cooled-off private equity performance was as of June earning a 36 percent gross IRR and a 24 percent net IRR.

Rowan’s comments recall those of Matt Nord and David Sambur, co-heads of private equity, in a May interview with Buyouts. They said Apollo’s strategy, which specializes in carve-outs, distressed investing and public-to-privates, is suited to today’s market, especially at the large end of the deal spectrum.

By sticking close to the strategy, they said, and financing deals at relatively lower multiples, Apollo is positioned to take advantage of opportunities emerging from complexity and dislocation. It is the firm’s “time to shine,” Sambur said.

This is borne out in an active deal pace. For example, Apollo in the spring agreed to a $5.2 billion take-private of aerospace supplier Arconic and this month completed an $8.1 billion take-private of specialty chemicals distributor Univar. Both are Fund X investments.

Rowan referenced the deals in the earnings call, saying they “came at a time that was challenging for the market,” with “both executed better than expected, giving us increased confidence in the ability to get transactions we like done.”

Apollo collected $35 billion of gross inflows in the second quarter, $15 billion of which came from third-party fundraising, and $154 billion of inflows in the last twelve months. This helped drive managed assets totaling $617 billion.