Economic net income after taxes, a measure of earnings excluding some compensation costs tied to Apollo’s IPO last year, was $379 million, or 98 cents a share, compared with a loss of $1.1 billion, or $2.89, a year earlier, New York-based Apollo said today in a statement. Analysts had expected earnings of 76 cents, according to the average of eight estimates in a Bloomberg survey.
“Results were well above expectations, driven by stronger investment performance in private equity and credit,” Steven Fu, an analyst at JMP Securities LLC, said in a note to clients today. “Realization activity was better than expected, a trend we believe has continued” into the fourth quarter, Fu said.
Apollo has taken holdings including packaging company Berry Plastics Group Inc. (BERY) and brokerage owner Realogy Holdings Corp. (RLGY) public this year to return money to clients before the debut of its new buyout fund. The firm is seeking $10 billion to $12 billion, smaller than the pool’s predecessor, which raised almost $15 billion in 2008.
The firm had registered seven companies for potential IPOs as of Aug. 2, President Marc Spilker said at the time, after completing offerings for two of its larger holdings earlier in the year. Caesars Entertainment Corp. (CZR) raised $16.3 million in February after scrapping a $531 million IPO in 2010, and ball- bearing maker Rexnord Corp. gathered $426.3 million in March.
Apollo rose 2.1 percent to $14.34 at 11:55 a.m. in New York trading. The stock, which has gained 13 percent this year through yesterday, is down 26 percent from its March 2011 IPO price.
The value of the firm’s private-equity funds increased 8 percent during the quarter, Apollo said, at a faster pace than rivals. Blackstone (BX) Group LP reported that its funds gained 7.1 percent, KKR & Co. said its holdings rose 6.1 percent and Carlyle (CG) Group LP saw an increase of 5 percent.
Buyout holdings at private-equity firms affect economic net income, or ENI, because the metric depends on quarterly mark-to- market valuations of those investments. Accounting rules require the firms to value their portfolio holdings every quarter.
Apollo’s economic net income doesn’t comply with U.S. generally accepted accounting principles. Quarterly profit under those standards, known as GAAP, was $82.8 million, or 55 cents a share, compared with a loss of $466.9 million, or $3.86, a year earlier.
Assets under management rose to $109.7 billion from $104.9 billion at the end of the second quarter, driven in part by growth of Apollo’s credit business. The unit, which includes distressed-investing, mezzanine, senior credit and non- performing loan funds, raised $1.2 billion during the quarter and contributed $195 million of ENI before taxes.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, overhaul then sell them, and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.
Apollo, like competitors Blackstone and KKR (KKR), has sought investment opportunities outside of traditional leveraged buyouts to attract more capital and reduce reliance on volatile private-equity earnings. Blackstone and KKR, both based in New York, reported third-quarter profits after losses a year earlier as the value of their buyout portfolios gained. Carlyle, the Washington-based alternative-asset manager, yesterday said it had a third-quarter profit of $204 million.
Worldwide, the value of private-equity deals announced in the third quarter fell 29 percent to $95.1 billion from a year earlier, with leveraged buyouts rising 62 percent to $39.3 billion, according to data compiled by Bloomberg.
Apollo said it will pay a distribution of 40 cents a share to public investors on Nov. 30.
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