Apollo Lists, Raises $2B

The Holy Grail of permanent capital continues to lure private equity. In what could give the green light to more private equity firms launching public vehicles, New York’s Apollo Management raised $2 billion with its public market vehicle, AP Alternative Investments, on the Euronext stock exchange in Amsterdam. The offering fell short of it’s initial $2.5 billion goal, but still generated enthusiasm among marketwatchers.

Apollo had initially sought to raise $2.5 billion. Those plans were scaled back following the listing of the Kohlberg Kravis Roberts & Co. (KKR) public vehicle, KKR Private Equity Investors. KKR floated the vehicle in May and while it raised $5 billion in its IPO, its stock price fell significantly.

Apollo had initially sold 75 million shares in June for $1.5 billion. Consistent pricing on the exchange allowed for more shares to be sold, and investors have so far snapped up approximately 100 million shares of AP Alternative Assets for $2 billion. Like KKR’s public market company, Apollo’s IPO buyers represented large institutional shareholders already familiar with private equity. The Abu Dhabi Investment Authority (Aida) bought $600 million worth of shares, while Citigroup, Credit Suisse, Goldman Sachs International and JPMorgan had an option to buy more than 11 million shares.

AP Alternative Investments will invest its capital in Apollo-sponsored deals. The public vehicle will be able to co-invest up to $1.5 billion alongside Apollo’s latest fund, the $10.1 billion Apollo Investment Fund VI. AP Alternative Investments also expects to invest in the firm’s Strategic Value Fund, its Apollo Investment Europe vehicle and co-invest as much as $150 million alongside Apollo Investment Corporation, the firm’s publicly held business development company. AP Alternative Investments may also purchase LP interests in existing Apollo funds.

While the tepid performance of the KKR listed entity reportedly scared off the likes of Blackstone Group and The Carlyle Group from raising similar vehicles, at least for now, there are still more public launches of private equity groups lined up. Swedish private equity firm EQT Partners, for one, is reported to be seeking up to $1.3 billion (€1 billion) through a public listing, and reportedly, there is speculation that Texas Pacific Group, Apax Partners and others could crowd into the public market.

For many, the move to the public realm is a sign of private equity’s institutionalization. It not only provides a pool of permanent capital, but bridges the gap between private equity’s cottage industry past and it’s rise as an institution today. It also helps answer the “succession” question as the industry’s forebears reach retirement age, and in some cases, it removes manufactured constraints, such as pre-determined investment windows.

While the move to the public market has gained steam in recent months, it is not necessarily a new trend. Last year Ripplewood Holdings launched RHJ International on the Brussels Euronext exchange. The Ripplewood IPO was different, in that it gave new shareholders an interest in companies the firm already controlled. Other private equity shops with public listings include Canada’s Onex Corp. and London-based 3i Group as well business development companies such as American Capital Strategies, Gladstone Capital and Allied Capital. This past March, Swiss fund-of-funds manager and secondary investor Partners Group also went public in a €1.4 billion ($1.7 billion) IPO. —M.S.