Apollo’s Fund VIII Hits $8.4B

Capitalizing on its brand-name recognition and on a strong performance of the predecessor fund, the New York firm founded by Chairman and CEO Leon Black said it’s been attracting greater interest from limited partners outside the United States.

“Apollo is well-positioned to capitalize on several powerful secular trends that are favoring our industry, including increasing allocations to alternatives as institutional investors seek to meet their return objectives in a low interest-rate environment, increasing constraints on global financial intermediaries; the emergence of unconstrained credit as an asset class; and the consolidation of limited partner relationships among branded scale investment managers,” Marc Spilker, president of Apollo Global Management, told investors on the firm’s Aug. 8 conference call.

Asked to describe the makeup of limited partners in Fund VIII, Spilker said it’s strong on domestic, with a growing percentage of capital coming from international investors. “We’ve seen that so far and expect that to continue,” he said. The fund will invest in buyouts around the globe and debt instruments.

Spilker said the fee structure for Fund VIII will remain similar to prior funds, with one minor difference. Apollo Global Management increased to 100 percent from 68 percent the portion of the transaction fees it shares with limited partners to offset the management fee. The move reflects a trend by sponsors to comply with standards from the Institutional Limited Partners Association. An ILPA spokesperson said Apollo Global Management has publicly endorsed the group’s 2011 Principles 2.0, which include language on general partner fee income offsets.

Charles Zehren, a spokesman for Apollo Global Management, declined to comment on fees or other aspects of fundraising.

Apollo Global Management disclosed a fundraising target of $12 billion in a June 27 Form D filing for Apollo Investment Fund VIII. Industry sources have said the fund’s hard cap is $15 billion. The fund’s Form D listed UBS AG, Mirae Asset Securities and Picton SA as potential recipients of sales compensation, suggesting they are acting as placement agents.

Limited partners for Apollo Investment Fund VIII include Oregon Investment Council, which committed $300 million and New York City Public Pension Funds, which pledged $500 million.

Apollo Global Management disclosed a net IRR of 28 percent as of June 30 for its vintage 2008 Fund VII, which raised about $14.9 billion. The firm reported $14.7 billion in total invested capital, $14.9 billion in realized value and $12 billion in unrealized value for the fund, which carried a total value of $27 billion.

Among the big commitments from pension funds to Fund VII, the California Public Employees’ Retirement System pledged $800 million in 2008. As of Dec. 31, CalPERS contributed $632.6 million and received $406.8 million in distributions. All told, CalPERS has earned an investment multiple of 1.64x and an IRR of 22.2 percent.

Other LPs for Apollo Investment Fund VII include Colorado Public Employees’ Retirement Association, Kansas Public Employees Retirement System, New Mexico Education Retirement Board and the Public Employee Retirement System of Idaho.

Portfolio companies from Fund VII included CKE Restaurants, former El Paso Corp unit EP Energy, Hostess Brands, McGraw-Hill Education, Great Wolf Resorts, Athlon Energy and LyondellBasell Industries. The firm has been monetizing investments from the fund, including a secondary offering for LyondellBasell, and IPOs for payment processor Evertec Inc, aluminium manufacturer Constellium NV and chemical maker Taminco Corp and Athlon.

Apollo Global Management reported $13 billion in dry powder in its private equity portfolio, including a $6.6 billion first close for Fund VIII, and remaining capital in Fund VII and Fund VI held back for follow-on investments. The firm also has about $1 billion left to go in its Apollo Natural Resources Partners LP fund.

Among a Buyouts list of money raised this year, Apollo Global Management ranks No. 1 for Fund VIII, ahead of $6.9 billion for Carlyle Group’s fund, Carlyle Partners VI LP, and $6.3 billion raised for Silver Lake Partners IV LP from Silver Lake—see accompanying chart