Apollo’s Private Equity Business Rakes in Management Fees

Apollo Global Management’s private equity business is raking in management fees after raising the largest buyout fund ever.

The unit collected about $123 million in such fees during the second quarter, a 59 percent jump from the same period last year, according to Apollo’s earnings report filed Thursday with the Securities and Exchange Commission. Management fees amounted to $194 million for the first half of the year, about 25 percent more in than the first six months of 2017. 

The private equity industry has been booming. Apollo last year closed a record $24.7 billion buyout fund that has yet to begin investing. Apollo’s Fund IX shattered the more-than-decade-old record set by rival Blackstone Group with its $20.4 billion fund that closed in 2006, according to data provider Preqin.

Institutional investors have been leaning into private equity for its strong returns, though their interest is laced with concern over high buyout valuations and the industry’s unprecedented volume of dry powder. The lofty prices that private equity firms have been paying for companies relative to their ebitda — earnings before interest, taxes, depreciation and appreciation — may hurt returns. 

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“Despite the high-priced environment in which we’ve been operating, we’ve been able to create Fund VIII at an average enterprise value-to-adjusted ebitda multiple of less than six times, in a market where the average private equity deal multiple has been more than 10 times,” Leon Black, Apollo’s founder and chief executive officer, said during the firm’s earnings call Thursday. 

Apollo’s $18.4 billion Fund VIII, closed in 2013, is about 80 percent invested and has a net internal rate of return of 17 percent, according to the earnings report. At the end of June, Apollo had about $35 billion of private-equity dry powder to invest, including the record capital that investors have committed to Fund IX, the filing showed. 

The new buyout fund’s investment period started at the beginning of the second quarter, Apollo co-founder Josh Harris said during the earnings call.

Apollo managed about $270 billion in total assets at the end of June, with private equity accounting for about 27 percent, or $72 billion. Only two years prior, Apollo’s private equity unit had $41 billion. 

The firm, which also invests in credit and real assets, reported $108.5 million of economic net income during the second quarter, a 41 percent drop from the same period last year. The results were dragged down by its investment in Athene Holding, which manages insurance products for the retirement market. 

Apollo’s share price lost 2.8 percent Thursday, closing at $34.11.