Back in Black: Apollo fund values surge

In a letter to LPs, firm founder Leon Black revealed that several funds are now reporting positive or flat unrealised performances after dramatic write-downs earlier this year.

Several major funds managed by Apollo Global Management are now reporting positive or flat performances, a dramatic – and unrealised – reversal of fortune from the steep losses reported at the beginning of 2009.

In a letter to investors yesterday, Apollo founder Leon Black said the firm’s investment activities during the worst part of the recession will “set the trajectory for generating what we believe will be outsized returns” for the firm’s most recent private equity fund, Apollo Investment Fund VII, which closed on $14.7 billion in 2008. That fund has drawn down only $3 billion to date, and Apollo is now marking those investments at 1.2 times cost, up from the “a low of 55% of cost”, wrote Black.

In a public disclosure, Apollo backer the California Public Employees’ Retirement System reported a first-quarter valuation of Fund VII at 0.6 times cost. (Story continues after the table below)

Fair value vault
Apollo fund valuations, Q1 vs. Q3

Name of fund (date; size)

Multiple of cost

as of 31/3/09

Multiple of cost as of 30/9/09

Apollo Investment Fund VI (2006; $10.1bn)



Apollo Investment Fund VII (2008; $14.7bn)



Apollo Credit Opportunities Fund I (2008; $1.2bn)



Apollo Credit Opportunities Fund II (2009; $1.5bn)



Sources: CalPERS; Apollo; PEI

An earlier fund, Apollo Investment Fund IV, which raised $10.1 billion in 2006, is now back at a flat valuation after having been written down to roughly 0.6 times cost in the first quarter, according to the letter. That fund is “largely invested”, according to Black.

Of two recent credit opportunity funds, one is reporting a modest gain and another is flat, according to Black.
In his letter, Black alluded to the challenges of fair value reporting, which require fund managers to mark their investments to current market conditions. These requirements “can . . . cause market participants to lose focus on long-term value creation”, wrote Black.

Black also took issue with a recent Wall Street Journal article describing the firm’s fund performances. The article relied on performance figures from the first quarter of this year, which showed all of Apollo’s most recent fund values to have been cut nearly in half.

Apollo’s fund performances are of great consequence to CalPERS, which has committed some $3.3 billion to Apollo-managed funds since only 2007. The pension has a relationship with Apollo going back to 1995.

CalPERS has hired investment bank Houlihan Lokey Howard & Zukin to review the pension’s relationship with Apollo.

Black wrote that since the second quarter of 2008 Apollo has invested approximately $9 billion in equity across its funds in leveraged senior loans, distressed debt and the debt of portfolio companies.