Apollo to deploy $25bn PE fund with distressed debt focus

The asset manager’s credit platform grew to $151bn and showed a gross IRR of 2.1% in the second quarter.

Apollo Global Management will start deploying its record-size private equity fund targeting distressed debt as early as this year, executives said on Wednesday’s earnings call.

The New York-based asset manager’s flagship Apollo Investment Fund IX exceeded its hard-cap with $24.7 billion in commitments by 30 June, and the firm expects to start deploying from the fund by the end of 2017 or early next year, Leon Black, chairman and chief executive officer at the firm, said on the call.

Black added that Fund IX, the firm’s largest ever, was fully allocated six months after launching in December. The fund focuses on three strategies: distressed debt, corporate carveouts and opportunistic buyouts.

Apollo is anticipating an increase in distressed debt opportunities in the next few years as the economic cycle turns, and it expects to invest a much larger portion of the Fund IX toward distressed debt than with its previous fund.

The firm plans to invest 20-25 percent of Fund IX in distressed debt opportunities, up significantly from the 1 percent allocated to the strategy in Fund VIII’s current portfolio, a State of Connecticut Retirement Plans and Trust Funds document obtained by Private Debt Investor sister publication Private Equity International showed.

This increase in the distressed portion comes at an expense of buyouts, which made up 67 percent of Fund VIII, while buyouts are expected to account for about 40 percent to 50 percent of Fund IX.

Black was optimistic about investing the fund amid a current environment of high equity pricings and anticipated low growth in the coming years, adding that even if a “recession happens in the next four years”, that would be “something we can take advantage of with Fund IX”.

Executives also noted the performance of the firm’s credit platform, particularly its drawdown funds like its European Principal Finance III and Financial Credit Investment III. The firm’s credit platform showed a gross internal rate of return of 2.1 percent in the second quarter and 10.4 percent the last twelve months ending 30 June, earnings results showed.

The firm deployed $1.2 billion from its credit platform in the second quarter and $3.9 billion during the year ending 30 June. This deployment was “driven by opportunistic investments in the utilities, energy and consumer discretionary sectors as well as investments in longevity assets, structured credit and distressed European real estate”, the earnings materials read.

Apollo’s credit business hit $151 billion of assets under management last quarter, up 7 percent quarter-over-quarter and 13 percent year-on-year. Across all strategies, the firm hit $231.8 billion of AUM.