In its fourth quarter and 2021 earnings call, Apollo reported securing more than $4 billion for Apollo Hybrid Value Fund II as of the end of December. That puts the vehicle within its target range of $4 billion to $5 billion, reported last June by affiliate title Buyouts.
It is not known if the fund has a hard-cap. Apollo declined to provide a comment.
Ares reported similar momentum for Ares Special Opportunities Fund II in its fourth-quarter and 2021 earnings call. The offering collected $4.9 billion as of the end of December, well ahead of its $4 billion target, reported in January by Buyouts.
The firm is now “well on our way” to reaching the pool’s hard-cap of $6 billion, co-founder and CEO Michael Arougheti said in the call.
Apollo Hybrid Value Fund II and Ares Special Opportunities Fund II are part of a fairly new niche strategy that appears to be gaining popularity among LPs. Broadly known as special opportunities, it was pioneered just over a decade ago by Blackstone’s Tactical Opportunities, today a $36 billion platform.
While special opportunities programs vary in their details, they often share key characteristics, such as a focus on dealflow beyond the scope of a manager’s existing flagship funds. Other common features are the flexible provision of bespoke, non-control debt, equity and hybrid capital solutions and an all-weather approach to deal sourcing and investing.
Apollo’s and Ares’ vehicles are among a handful of related funds targeting a combined $20 billion to $25 billion, Buyouts estimates. Another is Blackstone Tactical Opportunities Fund IV, which late last year brought in an initial $2-billion-plus against a $4.5 billion target.
Hybrid Value was set up in 2018 as an extension of Apollo to invest non-control debt and equity among the firm’s private equity, private credit and real assets groups. Closing a debut fund in 2019 at $3.25 billion, the program now manages more than $14 billion. It is co-headed by senior partners Matt Michelini and Rob Ruberton.
Ares unveiled Special Opportunities in 2017 to invest mostly debt as well as non-control equity in businesses that are undergoing transformational change or stress. Led by Scott Graves, partner and co-head of the private equity group, it closed an inaugural vehicle in 2020 at $3.5 billion and today oversees $11.8 billion.
Both strategies have turned in robust performance. Apollo Hybrid Value Fund I was earning a 29 percent gross IRR and a 23 percent net IRR as of 31 December, while Ares Special Opportunities Fund I was earning a 55.2 percent gross IRR and a 43.1 percent net IRR.
Apollo reported record inflows of capital in 2021 of almost $68 billion, much of it through fundraising, growing managed assets to more than $497 billion. In the call, co-president Jim Zelter said “we feel comfortable” about the firm’s 2022 inflow goal of $80 billion, which includes the launch of a 10th flagship buyout offering with a $25 billion target.
Ares also accounted for record inflows last year. These totalled nearly $77 billion, increasing managed assets to more than $305 billion.
This article first appeared in affiliate publication Buyouts