Some LPs Play Both Sides Of Apollo, Blackstone

A number of institutional investors are both limited partners in the funds of publicly traded buyout shops Apollo Global Management and The Blackstone Group as well as shareholders in those companies.

Other recent shareholders of publicly traded buyout shops include rival buyout firms: Bain Capital LLC, for example, until last year held shares in Kohlberg Kravis Roberts & Co. However, none of the shareholders I spoke to are using their stakes in any kind of strategic way; in most cases they are simply managing the shares for outside investors.

Money managers Invesco, Neuberger Berman and Partners Group all turn up on lists of LPs and shareholders with one or more of these firms, as do public pension funds State Teachers Retirement System of Ohio and Ohio Public Employees Retirement System, according to Securities and Exchange documents and other sources.

On the surface these institutional investors appear to be hedging their bets. Were Blackstone Group to reduce management fees on its next collection of private equity funds, for instance, its LPs would be singing its praises; but its public shareholders, for whom management fees spell revenues and profits, would be far less thrilled. Indeed, that the interests of LPs and shareholders in publicly traded buyout firms sometimes diverge is one reason LPs say they may be wary of backing such funds.

Talks with representatives of Invesco, Neuberger Berman and Partners Group find they have no overarching or coordinated strategy regarding these both-sides-of-the-fence investments. They manage so many different products for clients, both institutional and retail, that it is coincidental that they have interests in both funds and the managers of those funds. Meantime, Michael Pramik, a pension industry communications specialist for OPERS, wrote in an e-mail that the pension fund chooses “not to comment on our private equity strategy at this time,” while I was unable to reach a spokesperson at the Ohio State Teachers retirement system for comment. Both pension funds appear to have been LPs and shareholders with Blackstone Group.

A spokesman for Invesco confirmed that the firm, through its private equity group, has been an LP in at least one Blackstone Group fund, although not a recent vintage. There is no coordination with the Invesco PowerShares Capital Management exchange traded fund that as of year-end held more than 108,000 shares of Blackstone Group ($1.5 million at its recent share price of $13.62), according to a Form 13F. Similarly, Partners Group, based in Baar-Zug, Switzerland, is an LP with Apollo through its private equity funds. A separate Luxembourg fund, Partners Group Listed Investments SICAV, invests in Apollo Global Management and some 30 other listed private-equity investment vehicles. Public documents show the firm held 175,000 shares ($2.3 million at recent share price of $12.90) as of year-end. It is a coincidence that they ended up being both an LP and public equity holder, said Dr. Anna Hollmann, a spokeswoman for the firm.

The former Lehman Brothers funds of funds group, now part of Neuberger Berman, shows up in a 1999 Dow Jones directory as having backed funds managed by Apollo Global Management and Blackstone Group. The firm held more than 374,000 shares in the former ($4.8 million) and more than 530,000 shares of the latter ($7.2 million) as of year-end, according to Form 13Fs. But with dozens of fund managers, and more than $193 billion in assets under management as of year-end, the firm has no coordinated strategy between the LP interests and publicly traded shares.

A review of other public equity holders in Apollo Global Management, Blackstone Group and KKR finds some other notables:

• Bain Capital LLC. After selling approximately 1.4 million shares of diversified buyout shop KKR ($19.8 million at recent share price of $14.14), rival firm Bain Capital no longer held a position in the buyout shop by last June, according to a Form 13F. A spokesman for Bain Capital said that “the position was held in a trading fund that one of its affiliates manages on behalf of outside investors.”
• Apollo Capital Management LP, an affiliate of Apollo Global Management, was a shareholder in KKR to the tune of 1.9 million shares ($26.9 million) as of year-end, according to a 13F filing. These shares are believed to be held in accounts managed for outside investors, not Apollo Global Management’s balance sheet.
• Lexington Partners VI Holdings LLC, an affiliate of New York-based secondary buyer Lexington Partners, was among the largest institutional shareholder in KKR as of March 31, holding 19.5 million shares, or 8.4 percent of all outstanding shares, valued recently at $275.6 million, according to a 13F filing. I was unable to reach an executive at Lexington Partners for comment. But the firm appears to have been one of the largest investors in KKR Private Equity Investors LP. This was the publicly traded affiliate (trading on the Euronext Amsterdam stock exchange) with which KKR merged a few years back to pave the way for a public listing on the New York Stock Exchange.