(Adds more earnings details, analyst comment)
By Greg Roumeliotis
NEW YORK Feb 7 Apollo Global Management LLC
reported a 37 percent drop in fourth-quarter profit per
share on Friday, failing to match its carried interest income
from a year ago, yet the result beat most analysts' expectations
on stronger fund values.
Apollo took advantage of red-hot capital markets to cash out
on investments throughout 2013, an approach epitomized by
co-founder and Chief Executive Leon Black last April with the
phrase: "We are selling everything that is not nailed down."
Besides management fees, Apollo receives performance fees
for the private equity funds it manages, typically 20 percent of
a fund's profits, in the form of carried interest, once the
fund's investment returns exceed a specified hurdle rate.
One of its funds, Fund VI, crossed its 8 percent hurdle rate
in the fourth quarter of 2012, paying out carried interest that
had accrued through a "catch-up" mechanism that no longer
applied in the fourth quarter of 2013.
As a result, economic net income after taxes, a metric that
includes the mark-to-market value of Apollo's assets, totaled
$1.06 per share, compared with $1.69 a year earlier. Analysts,
on average, looked for 82 cents, according to a Thomson Reuters
Apollo's private equity funds appreciated 9 percent in the
fourth quarter, the same level of appreciation as a year ago but
more than analysts expected. Peer KKR & Co LP has
reported an 8.4 percent rise in the value of its private equity
assets in the same quarter, while Blackstone Group LP
reported an 11.5 percent rise.
"With carried interest on the balance sheet up, and
secondary markets still open, the outlook for continued
distribution strength (for Apollo) remains favorable," Sterne
Agee analyst Jason Weyeneth wrote in a note.
During the fourth quarter, Apollo sold shares in companies
including LyondellBasell Industries NV, Sprouts Farmers
Market Inc, Evertec Inc, Norwegian Cruise Line
Holdings Ltd, Taminco Corp and Countrywide Plc
It also sold CKE Restaurants Inc to buyout firm Roark
Capital Group in a deal that people familiar with the matter
said valued the company at between $1.65 billion to $1.75
Assets under management reached $161.2 billion at the end of
December, up from $112.7 billion at the end of September, mainly
driven by its insurance subsidiary Athene Holding Ltd's
acquisition in October of Aviva USA Corp that boosted its assets
by $44 billion.
With most of the Aviva USA annuity assets invested in debt,
the deal also boosted the profits of Apollo's debt investment
unit, which saw management fees soar as a result of the jump in
assets under management.
Last month, Apollo also completed fundraising for the
largest private equity fund raised since the financial crisis,
amassing $17.5 billion from investors.
Apollo declared a fourth-quarter distribution of $1.08 per
share, bringing total distributions for 2013 to $3.98 per share,
its highest ever.
(Reporting by Greg Roumeliotis in New York; Editing by Jeffrey
Benkoe and Phil Berlowitz)