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Apollo Slashes Management Fee for BDC
The business development company’s base management fee has been reduced from 2 percent to a tiered structure ranging from 1 to 1.5 percent.
Apollo Investment Corp., a business development company tied to private equity firm Apollo Global Management, has overhauled its fee structure, reducing the management fee from 2 percent of assets under management.
The fee cut, announced in Apollo Investment’s quarterly earnings statement on Friday, is a direct response to a federal rule change that allows BDCs to take on more leverage.
Under the new fee structure, which came into play on April 1, the base management fee for Apollo's BDC has been lowered to 1.5 percent of gross assets up to a debt-to-equity ratio of 1 to 1 – the previous leverage cap for BDCs. For all assets in excess of that 1-to-1 ratio, the new management fee will be 1 percent.
James Zelter, a director at Apollo Investment and co-president of Apollo Global, said the BDC believed the new fee structure “more closely aligns the incentives of our manager with the interests of our shareholders.”
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In Friday’s announcement, Apollo Investment said Zelter would step down as CEO and be succeeded by Howard Widra, the BDC’s president since June 2016. Replacing Widra as president is Tanner Powell, the chief investment officer at Apollo Investment Management, the BDC's investment adviser. Powell will continue to serve as the external manager’s CIO in addition to being president at the BDC, according to the statement.
Alongside the reduction in management fees, Apollo Investment Corp. also tweaked the structure of its performance fees. Beginning January 1, the incentive fees will be subject to a three-year look-back provision, which takes into account capital losses on assets.
The BDC’s performance threshold for paying incentive fees, currently set at 7 percent, will remain at that level, according to the statement. The incentive fee rate will also be unchanged at 20 percent of gains, though Apollo Investment Corp. said the rate would be waived to 15 percent from April 1 through the end of the year.
A spokesperson for Apollo Investment didn't return phone calls seeking comment.