Apollo eyes launching hybrid private equity, illiquid credit product

  • Hybrid PE, illiquid credit product would be run by existing staff
  • Firm prepares to launch next natural resources fund
  • Flagship funds continue focus on public companies

Apollo Global Management is considering launching a hybrid product that would combine a focus on private equity and illiquid credit, the firm’s executives announced during its fourth quarter and full year earnings call Thursday.

The hybrid product would be managed by the existing investment teams, so would not require the hiring of new talent, Josh Harris, Apollo senior managing director, said on the call.

It would focus on capital solutions, structured equity and non-control stressed and distressed investments, Harris said.

It’s not clear how much Apollo would try to raise for the hybrid product. Harris talked about it along with other specialty products the firm expects to play a growing role in its client offerings. Other such vehicles include the firm’s natural resources funds. Apollo closed its most recent natural resources pool on about $3.4 billion in 2016. That fund deployed about $1.1 billion as of year end and the firm is gearing up to launch its third natural resources pool, Harris said. The first natural resources fund, a 2012 vintage, collected about $1.2 billion.

Natural Resources Partners Fund II was generating a 31 percent net internal rate of return as of Dec. 31, 2017, according to Apollo. Fund I was producing a 9 percent net IRR as of the of the year, the firm said.

Apollo closed its largest fund to date, Fund IX, on $24.6 billion last year. That fund has not yet started investing, but will be activated this year. The new fund will likely continue Apollo’s focus on finding public companies and taking them private, which represents about half the Fund VIII portfolio, Harris said.

“Public markets are providing fertile hunting grounds for us and we’d expect that to continue into Fund IX,” Harris said.

Apollo is entering another “harvesting cycle,” Harris said. Last year, the firm’s realization activity doubled from around $5 billion to more than $10 billion, he said.

“If the capital markets remain strong, we expect the pace of realization to increase going forward.”

Apollo’s fourth quarter economic net income rose by about 25 percent to $490.3 million year-on-year, Reuters reported. The increase was driven by strong performance in Apollo’s private equity funds, which appreciated 9.1 percent in the fourth quarter.

The firm’s assets under management rose to $248.9 billion at the end of the year, up from $242 billion last year.

Action Item: Check out the earnings report here: http://bit.ly/2DUGldw

Photo: Leon Black, Chairman and CEO Apollo Global Management, LLC, takes part in Private Equity: Rebalancing Risk session during the 2014 Milken Institute Global Conference in Beverly Hills, California April 29, 2014. REUTERS/Kevork Djansezian