Apollo Global Management announced that it will buy up to $250 million of its own shares.
Apollo chairman and chief executive Leon Black told analysts that at around $13 a share, the firm was undervalued.
“The market is giving us a negative value for our franchise and track record in producing market leading returns in good times and in bad,” said Black pointing out that the firm’s balance sheet cash translated into $3 a share with the $10 balance per share drastically undervaluing the firm’s unrealised assets.
Up to $150 million of the repurchase programme will be executed via the open market with the remaining $100 million recovered through a reduction in equity issued to staff to meet tax obligations related to equity-based payments.
Mark-to-market losses on Apollo’s unrealised assets translated into a substantial fall in the firm’s economic net income (ENI) in the last quarter of 2015, down to $32.8 million from $104 million in the previous quarter. ENI per share fell almost 70 percent year-on-year (y-o-y) from $26 cents per share to $8 cents per share.
The firm’s private equity investments were worst affected by mark-downs but the credit business, which at $121 billion in assets under management (AUM) as of 31 December, was not immune. High yield bond market volatility and general headwinds in credit markets saw economic income fall by almost $30 million y-o-y in the credit business to $71.4 million. Overall performance in the fourth quarter was minus 1.2 percent with full-year performance recording 1.2 percent.
Despite the difficulties in short-term performance, Apollo reported that it brought in almost $24 billion over the course of 2015 with $12.3 billion of capital raised in the final quarter, of which $10 billion came via the credit unit.
Much of that new capital is coming in via bespoke managed accounts, management said on the analysts call. In the opening weeks of 2016, the firm has raised $1.6 billion via separate accounts.
And in the credit business, acquisitions by Athene, the insurance holding company, and Mid Cap Financial, Apollo’s secured lending business, drove much of the capital accretions. Mid Cap completed the majority of its acquisition of a portfolio of loans from Mubadala and GE in the last quarter of 2015, with the balance of the deal expected to close this quarter. Mid Cap’s AUM rose to more than $5 billion by the end of 2015, from less than $2 billion at the start of the year and is anticipated to reach $6 billion by the end of the first quarter.
Apollo expects to have several flagship funds back in the fundraising market over the course of 2016 including its third European Principle Finance fund which focuses on buying assets such as non-performing loan portfolios and businesses within the European financial sector. The insurance-related credit strategy, Financial Credit Investments will also launch its third vehicle this year.
On the call, management discussed the choppy leveraged finance markets, noting that the private equity unit will face more difficulties financing buyouts. Asked if that was specific to Apollo, Black highlighted the firm’s strong relationships with a number of bank lenders and that the firm is in a strong borrowing position versus some peers. He added that banks will always be more circumspect on lending when there is a risk of hung deals and they are under scrutiny by regulators. He said debt pricing could rise and equity cheques get larger as a result.
Those same choppy leveraged finance markets are providing Apollo’s distressed investment teams with opportunities, said senior managing director Josh Harris. Distressed investment almost doubled between the third and fourth quarters of 2015 and the firm expects that rate to accelerate further, he said.
“Our teams are starting to buy bonds in names that they’ve been following for years,” he noted.
Apollo reported AUM of $170 billion as of 31 December including $138 billion of fee-generating AUM and $26 billion in dry power.