As Apollo launches new products, Leon Black says ‘best is yet to come’

Apollo Global Management expects to launch its third natural-resources fund later this year, and it’s in market with its debut hybrid private equity/credit fund — two vehicles that represent the firm’s continued growth, Chairman and CEO Leon Black told the audience at an industry conference Wednesday.

Black, who spoke at Buyouts Insider’s PartnerConnect East Conference in Boston, said he has no plans to stop working at the firm he helped found in 1990 in the wake of the collapse of Drexel Burnham Lambert.

“My plan is to keep doing what I’m doing. I’m blessed with some highly talented, fantastic partners, Marc Rowan and Josh Harris,” Black said. “We’ve been together now over 30 years. They’re 10 and 15 years younger than me … and I think that we each play a pretty important role in the firm. I truly believe the best is yet to come and plan to be a part of it.”

What’s yet to come includes the firm’s debut Hybrid Value Fund, which combines a focus on private equity investing with the downside protection of credit. Apollo is in market with the Hybrid Value Fund targeting $3 billion, Buyouts has reported.

The fund is expected to generate “equity-like returns … in low to mid teens with downside protection as credit vehicle,” Black said.

While Apollo is well known as a PE investor, its credit strategy has grown enormously since the financial crisis, ramping to around $160 billion in assets under management from $15 billion.

That growth was fueled by a few external factors, including regulations that helped push banks out of the private credit arena, and the low-interest-rate environment forcing LPs to find products that could help them hit their target return of 7 percent to 8 percent.

Apollo has always focused on the conjunction of private equity and credit, with the flexibility to deploy more capital to one strategy or the other depending on the environment. In the financial crisis, Apollo “backed up the trucks” and deployed more money than ever before, Black said.

And so in credit, Apollo built a menu of vehicles across the credit spectrum, from senior floating-rate debt to European principal finance. The firm also built a fixed-annuities insurance platform,  Athene, which went public in 2016. The firm wants to replicate that success in Europe with a similar platform, called Athora.

Another newer area for Apollo is natural resources. The firm raised $1.3 billion in 2012 for its debut natural-resources fund. It followed that up in 2016 with about $3.5 billion for Fund II. The target for the third vehicle is not clear but will likely be at the same level or above Fund II, sources have told Buyouts.

Black said that for the near future, he expected the environment to remain one of high prices and low interest rates. “I think that, yes, rates will continue to go up … but as long as inflation doesn’t go haywire, and there doesn’t seem to be any signs that it is, I think rates will go up very gradually,”  he said. 

Asked what are the keys to building a long-term, sustainable private equity firm, Black said they are having an identity and maintaining the discipline to stick to that identity.

“It’s very important to stick to the discipline and create a culture in terms of the people you have as your partners who understand that discipline and keep passing it on to new generations of young partners that come up through the ranks,” he said.

Leon Black, chairman and CEO of Apollo Global Management, takes part in Private Equity: Rebalancing Risk during the 2014 Milken Institute Global Conference in Beverly Hills, California, on April 29, 2014. Photo courtesy Reuters/Kevork Djansezian