Apollo earnings fall, fundraising remains strong

Mid-market speciality finance firm MidCap contributed inflows of about $2.7 billion.

Earnings continued to fall at Apollo Global Management due to a lower rate of realisations compared to previous years, management confirmed during its first quarter earnings call on Thursday (7 May). The firm received inflows however of around $5 billion with $2.7 billion of that coming from its mid-market specialty finance firm MidCap Financial.

Other significant fundraisings included a first close on Apollo’s new energy opportunity fund at $425 million and $600 million from three strategic managed accounts including one that included a $300 million add-on for an existing account and another $250 million of a new account, which the firm believes can be expanded over time, Joshua Harris, co-founder and senior managing director at Apollo, said. All this will leave the firm well-positioned for long-term growth, he added.

Despite an environment where valuations remain elevated, the firm deployed $2.3 billion in capital, Harris said, with $760 million deployed in credit, including non-performing loans in Europe, energy lending and other opportunistic debt investments and $500 million deployed in real estate, primarily in commercial real estate debt investments. Across its funds, Apollo had more than $28 billion in dry powder, at the end of the first quarter.

Economic net income stood at $93.5 million for the quarter ended 31 March 2015, falling from $106.1 million for the fourth quarter of 2014 and $223.7 million in the first quarter of 2014. Apollo will pay a dividend of $0.23 per share to shareholders, down from $0.56 in the first quarter of 2014. Harris commented that when accumulated for a yearly figure of $1, the amount reflected strong enough performance given Apollo paid $0.11 per share after it listed in 2011.

MidCap added $2.1 billion of fee generating income to Apollo during the first quarter. “We believe that this is just the beginning for MidCap,” Harris said. “Given the changing landscape in the financial services, we see significant opportunities to scale the MidCap platform,” he continued. The partnership with LendKey, a student loan origination platform, is “a great example of the value we can bring to this innovative direct origination platform”, Harris added.

On an asset level at MidCap, the firm is targeting net returns of 6 to 8 percent, but with added leverage the firm will be getting into the mid-teens for investors, management said.

Commenting on the credit markets, Harris said they have become extremely aggressive, making it more difficult to invest and “I’m not sure that environment is going to end anytime soon”, he said, which will drive the firm to invest in more opportunistic and idiosyncratic deals and set up their platform to invest in these. “Certainly a more interesting part of the market is illiquid, or not rated, untraded, cross-over investment grade,” he said.

The firm is expecting to bring in another $2 billion from the Teachers Retirement System of Texas over the next few months, $1 billion of which will be focused solely on credit investing.