Apollo Leads Private-Equity Firms in Gaining CLO Market Share

Apollo CEO Leon Black
Apollo Management LP chairman and chief executive officer Leon Black. Photographer: Jonathan Alcorn/Bloomberg

Private-equity firms are gaining a bigger share of the collateralized loan obligation market, with Apollo Global Management LLC rising to the second spot in the U.S. after failing to crack the top 10 in 2011, according to Moody’s Investors Service.

Leon Black’s New York-based Apollo acquired CLOs managing about $9 billion in assets since the start of last year, and raised more than $1.4 billion of such funds in the same period, according to data compiled by Bloomberg. Apollo gained in the U.S. for deals backed by widely syndicated loans, landing behind Dallas-based money manager Highland Capital Management LP, according to data from Moody’s.

Apollo, Blackstone Group LP’s GSO Capital Partners LP and Carlyle Group LP now rank among the 10 biggest CLO managers after expanding in new areas as takeovers wane. The firms raised $5.1 billion of new CLOs and acquired managers of the funds in both the U.S. and Europe since the start of last year.

“Private-equity firms keep expanding in the U.S. and Europe,” Yu Sun, a New York-based senior credit officer in the structured credit rating team at Moody’s, said in a telephone interview. “Private-equity shops in the last couple of years have been growing through acquisition.”

In October Apollo acquired Gulf Stream Asset Management LLC, which controls 10 CLOs with about $3 billion in loans, according to an Oct. 24 news release. In April it completed the acquisition of Stone Tower Capital LLC, which had about $18 billion in assets, according to an April 2 statement.

Apollo Growth

Firms such as Apollo have capital to put into the business and help it grow, whether organically or by an acquisition, Joe Moroney, who helps run the senior credit business at Apollo in New York, said in a telephone interview.

Apollo’s assets under management rose 46 percent to $105 billion as of June 30, from $71.7 billion a year earlier, the firm said Aug. 2 in regulatory filing announcing second quarter results.

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and returns.

There have been $25.8 billion of CLOs backed by widely syndicated loans raised in the U.S. this year, the most since 2007, according to Bloomberg and Morgan Stanley data. JPMorgan Chase & Co. increased its CLO forecast for 2012 by $5 billion to $35 billion and said there may be $50 billion to $60 billion of the funds raised next year.

Apollo pushed CIFC Corp., a New York-based investment firm, to eighth place this year from second in 2011, according to Moody’s. Peter Gleysteen, CIFC CEO, didn’t return a telephone call seeking comment.

Blackstone’s GSO was ranked seventh in the U.S. in 2012, down from fourth in 2011. Carlyle rose to sixth from seventh in the same ranking.

PE Advantage

New York-based GSO remains the largest manager globally by assets with $18.7 billion across 41 funds, according to Moody’s. Carlyle ranks second with $14.9 billion and Apollo eighth with $10.4 billion.

“Private-equity firms have the infrastructure, the financial capital and the human capital to be able to have a long-term oriented and growth-oriented business model in the loan and CLO space,” Linda Pace, head of U.S. structured credit at Carlyle in New York, said in a telephone interview.

Private-equity firms expanded their businesses into credit as takeovers fell, with announced deals totaling $440.8 billion in 2011, half of the $878.5 billion peak seen in 2007, Bloomberg data show.

Diversifying their revenue and profit streams is in part meant to satisfy public investors in the firms who’ve bought shares during a handful of private-equity manager IPOs in the past five years.

“It’s a good compliment for private-equity firms to have a stable asset management business that produces fee streams that are predictable,” Jane Lee, managing director at GSO in New York, said in a telephone interview.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE