Zelter: Apollo keeps dry powder on hand for market dislocation

Apollo Global Management has about $44 billion in dry powder across its platform as of June 30, Co-President and Chief Investment Officer for Credit James Zelter told Buyouts. That includes $34 billion for private equity, $6 billion in credit and $4 billion in real assets, according to the firm’s second-quarter earnings report.

The topic came up during Zelter’s keynote interview at the Private Debt Investor New York Forum Tuesday. He said Apollo is not building its credit business in expectation of a global financial crisis but he does see more volatility coming.

“We’ve actually built our business to … capitalize on market dislocations,” he said. “I’m building our business with the assumption that there’s going to be one of these dislocations, so with more mandates that allow us on a trigger event to put more capital to work.”

Apollo’s private credit program was designed to benefit from a market dislocation by having more capital on hand to put to work when most other firms cannot.

“Even though we’ve been in a great, idyllic market for 10 or 11 years, there’s been four or five times when you’ve felt like you were the only person buying a few things,” he said. “Last November/December was one of those times, certainly in energy in 2015 was one of those times, [also] summer of 2012 in Europe; so, market dislocations occur and freedom of motion really runs against that grain.”

Apollo has also halved its Europe credit exposure, from 40 percent about three years ago to 20 percent today. Zelter told Buyouts he was concerned about the European Central Bank’s qualitative easing program and the overall state of the industry, but the shift was because of the opportunity in the market. “From my perspective, the U.S. is the marketplace,” he said at the Forum.

Zelter said he has seen a diminishing level of optimism lately among investment professionals.

“If you take 100 CFOs last June of 2018, on a conference call, 75 or 80 percent would be positive and maybe 15 percent would be conservative. This June, if you did that same CFO report—not that we do it scientifically, but just anecdotally—I think you’re seeing a much more muted enthusiasm of the future,” Zelter said.

Apollo has $312 billion in total assets under management and $201 billion on its credit platform, according to its second-quarter earnings report. Of that $201 billion, $105.5 billion is in corporate credit, $49.7 billion in structured credit, $18.2 billion is in direct origination and $27.8 billion in “advisor and other.”

It deployed $1.8 billion in capital into credit in Q2, and $4.1 billion in the fiscal year, according to its earnings report.

Last October, Apollo had a close of more than $2.3 billion on its Apollo Structured Credit Recovery Fund IV, according to Private Debt Investor. The fund’s target is $2.5 billion, according to a Form D filing.

Action item: Read Apollo’s Q2 2019 report here.