Credit gains lead strong Q2 for Apollo

Chairman and chief executive officer Leon Black hailed the breadth and depth of Apollo’s credit business while reporting overall economic net income of $395m during the alternative investment firm’s second quarter conference call.

Apollo Global Management said it still has several funds raising capital as its credit business posted strong results for the second quarter and a large year-over-year gain in economic net income.

Chief financial officer Martin Kelly said on the firm's Wednesday (3 August) earnings call that Financial Credit Investment III, which it disclosed in June SEC filings, and Apollo's Special Situations fund were still in the market.  Kelly gave no indication as to the expected timeline of fundraising on those funds.

He did, however, report that Apollo's third European Principal Finance fund (EPF III) would likely achieve a first close sometime in the fourth quarter of 2016. Apollo launched EPF III in May and has a target of $3.5 billion. The firm's second European debt fund, which also raised $3.5 billion, closed at the end of 2012. Apollo Global Management's credit platform reported 3.7 percent gross returns.

Apollo's credit platform saw an increase in ENI during the second quarter as well, improving $96 million reported in the second quarter 2015 to $206 million. A 20 percent increase in value of Athene, Apollo's insurance holding company drove the ENI gain, according to materials released in conjunction with the call. The $206 million ENI was also a large increase from the first quarter's ENI of $112,000.

“Over the past decade, we have created what we believe is the largest and most diverse alternative credit platform in the world,” said chairman and chief executive officer Leon Black (pictured). “Given the breadth and depth of our credit business, we are able to offer investors a variety investment solutions across asset classes and the risk/reward spectrum.”

Inflows into the credit business during the second quarter were $12.5 billion, which combined with the $3.7 billion brought in during the first quarter, brings the year-to-date total to $16.2 billion. These inflows were attributed to advisory mandates for Apollo Asset Management Europe, new equity and origination at the firm's MidCap Financial unit and fundraising the third Financial Credit Investment Fund (FCI III).

Apollo's credit business reported $134 billion of AUM at the end of the second quarter, up 20 percent from the same time last year.

Overall, Apollo reported total assets under management of $183.6 billion, an increase over the $172.5 billion reported at the end of the first quarter.

Overall economic net income (ENI) for the second quarter was $394.9 million, an improvement over both the $72.9 million loss reported in the first quarter and the $154.6 of ENI reported in the second quarter of 2015.

Within Apollo's private equity business, ENI during the quarter ending on 30 June was $250 million. That performance comes after the segment reported a $79.6 million loss during the first quarter and ENI of $61 million in the second quarter of last year.

Looking ahead, co-founder Josh Harris cautioned that he does not expect a change in the low interest rates and worldwide quantitative easing policies that have led to “not very exciting” credit spreads of late.

“We all need to be accustomed to the fact that we could be in a zero-interest rate environment for a prolonged period of time,” he said.