Apollo plans long-term hybrid credit, equity fund

Co-founder Leon Black said the vehicle is a work in progress and one of several projects to augment permanent or long-term capital at the firm.

Apollo Global Management is working on a long-term vehicle that will combine credit and equity, according to co-founder Leon Black.

Like its listed peers, Apollo is focusing on permanent and long-term capital, which Black called “sticky platforms”, in part to maintain a stable stream of fees.

“There are other private equity cousins that we’re working on right now, that are works in process,” Black said at the Goldman Sachs US Financial Services Conference on Wednesday in New York. “We’re not done yet. We’ll see what happens with them.”

Black noted the hybrid fund combining credit and equity securities with a long-term duration would aim to deliver returns in the mid-teens.

Regarding permanent capital, Black said Apollo is in the middle of trying to replicate the success it has had with life annuity reinsurance platform Athene in the United States with reinsurer Athora in Europe. Athene has grown into a reinsurer with an $80 billion balance sheet, while Athora has so far raised $2.5 billion.

Apollo is also planning to grow its origination platform, MidCap Financial, and to expand its credit business.

“Our credit platform has grown from $20 billion to $160 billion in eight years but I think we’re just touching the surface,” Black said. “We probably have about two dozen products, many of them can be increased in size and in new areas such as trade credit or consumer credit.”

He explained that the challenge with Athene and Athora is they have become “two beasts that have to be constantly fed with credit products”.

Here are other takeaways from his discussion:

  • Apollo has no plans to raise an Asia fund or Europe fund. These regions have been included in the firm’s flagship fund.
  • It has about $20 billion in separately managed accounts with a dozen close relationships. The largest one is with Teacher Retirement System of Texas, which is between $5 billion and $6 billion.
  • The firm raised about $30 billion in six months for its latest fund, Apollo Investment Fund IX. “We cut people back to $25 billion because we thought that’s what we could handle,” Black said.
  • After hiring Joe Azelby from JPMorgan to head infrastructure investments, Apollo is building a team and eventually will raise a dedicated fund.