Apollo’s credit biz nearly doubles

The unit represents the fastest growing channel at Apollo, while overall profit slightly declines.

The credit segment at Apollo Global Management increased to $105.7 billion at the end of June, compared with $62.2 billion at that time last year, the firm reported in its earnings release on Aug. 6. Credit represents the fastest growing part of Apollo’s business, which is now at a total of $168 billion (up from $113 billion last year in June). The firm’s private equity group now manages $51.6 billion, while the real estate portion handles $9.1 billion, a slight decline from last year when it was at $9.5 billion. The remainder is in the firm’s capital and liquidity bucket.

Executives on Apollo’s earnings call said they see more and more opportunities in the credit side coming from both European and US banks deleveraging or restructuring and shedding their credit or loan books. Because of these factors and others driving the market, the firm expects its credit unit to continue growing even further.

“We’re continuing to operate amid a backdrop of three major credit themes, which will go on for a long time, including the impact of secular change from financial re-regulation, the deleveraging of bank balance sheets globally, particularly in Europe and continued investor demand for yield and opportunistic credit in a low-rate environment,” Joshua Harris, co-founder and senior managing director at Apollo, said on the earnings call. “These market dynamics are allowing us to step into pickets of the credit markets such as shipping or aircraft leasing, which have historically been occupied by more traditional providers of capital,” he added.

The credit business raised $3 billion in new commitments in the second quarter, part of which came from the private placement of Athene, an insurer that Apollo took control of in 2012. The firm raised $800 million for its new credit funds in the quarter, half of which went to the Credit Opportunity Fund III. A fund that is focused on illiquid credit opportunities sourced across the Apollo platform, Harris said on the earnings call. The extra $400 million in the quarter brought total fund commitments to $1.5 billion. The fund is targeting $2.5 billion in total.

The new money in the credit business has been coming from a variety of investors, including pension funds, sovereign wealth funds, high net worth individuals and retail distribution channels. Harris noted that the firm recently received several hundred million in commitments for the COF II fund from the high-net-worth distribution platforms at two large private banks, which he declined to name.

Apollo has also held on to its position as the largest CLO manager in the US. In the second quarter, Apollo priced a $1.5 billion US CLO, which was the largest CLO transaction since the financial crisis and the fourth largest CLO of all time. The firm also priced its second European CLIO in the quarter at €380 million.

Apollo’s profits overall declined slightly this quarter, though: by six percent from this time last year. The firm posted net income of $207.5 million or 52 cents per share, which is down from $220.1 million and 56 cents per share at the end of June last year.