* 1st-qtr after-tax ENI per share of 55 cts vs Street view
* 1st-qtr distribution of 84 cents/share, up from 57 cts
* Assets of $159.3 bln as of end March vs $161.2 bln end of
(Adds executive and analyst comments, financial details, share
By Greg Roumeliotis
NEW YORK, May 8 Apollo Global Management LLC
, manager of the largest private equity fund since the
financial crisis, said on Thursday its buyout funds appreciated
much less than before and that it saw more opportunities to
increase its credit investment assets.
Apollo raised an $18.4 billion private equity fund last year
on strong investor demand as its portfolio appreciated by 49
percent in 2013. But its first-quarter earnings on Thursday
showed its private equity funds appreciating just 2 percent in
the quarter, leading to a 71 percent drop in profit.
"Credit, credit, credit," Apollo co-founder and senior
managing director Josh Harris said on the earnings call in
response to an analyst's question on what will drive growth in
Apollo's fee-paying assets over the next 12 to 24 months.
"The private equity markets and the trading credit markets
are very aggressively priced," Harris said. "If you are a
pension fund, a sovereign wealth fund or a high net-worth
individual looking for a place to hide, illiquid opportunistic
credit is in my opinion the best opportunity in the world right
Apollo had $159.3 billion in assets as of the end of March,
$48.1 billion of which was in private equity and $101.2 billion
in credit, ranging from high-yield bonds and nonperforming loans
to residential mortgage-backed securities and collateralized
As regulators on both sides of the Atlantic restrict the
origination, holding and trading of debt by banks, alternative
credit fund managers such as Apollo are eying more opportunities
to provide capital to companies themselves - a practice often
referred to as shadow banking.
For example, Apollo sees an opportunity to provide mezzanine
financing to oil companies whose reserves are too complex for
them to tap high-yield bond markets, Harris said.
Apollo is also eying assets that banks are looking to shed,
such as Banco Santander SA's real estate management
business, which was sold to an Apollo credit fund in January for
664 million euros ($920 million).
"We are best in class in private equity ... but I don't
think that's terribly scalable. We don't see any reason (credit
assets) can't be a large multiple, frankly, of where we are
today at $100 billion," Apollo co-founder and chief executive
Leon Black told analysts on the same conference call.
Apollo has taken advantage of robust capital markets in the
least two years to cash out of investments. The cash generated
from performance fees, or so-called carried interest, increased
in the first quarter, allowing it to pay out a higher dividend.
But its buyout funds appreciated just 2 percent in the
quarter, slightly higher than the wider stock market but less
than its 14 percent appreciation in the first quarter of 2013.
Apollo reported total economic net income (ENI) after taxes
of $219 million versus $764 million in the first quarter of
2013. ENI is an earnings metric that takes into account the
market value of a company's portfolio.
This translated into ENI of 55 cents per share after taxes,
less than the average analyst estimate of 56 cents in a survey
by Thomson Reuters I/B/E/S.
"The decline was widely expected as Apollo could not replace
the profits generated from LyondellBasell Industries NV,
which was one of the best private equity investments ever,"
Morningstar analyst Stephen Ellis wrote in a note.
The resignation of Marc Spilker as president in March cost
Apollo $45.6 million, or 8 cents in post-tax ENI per share, due
to a noncash expense associated with equity-based compensation.
The New York-based company declared a first-quarter dividend
of 84 cents per share, up from 57 cents a year ago.
Apollo shares were down 1.8 percent at $26.36 on Thursday
afternoon on the New York Stock Exchange.
(Reporting by Greg Roumeliotis in New York; editing by Jeffrey
Benkoe and Matthew Lewis)