Apollo Global Management LLC, the private-equity firm run by Leon Black, said fourth-quarter profit fell 36 percent as it collected a lower amount of fees for investment performance in its funds.
Economic net income after taxes, a measure of earnings excluding some compensation costs tied to Apollo’s 2011 IPO, decreased to $421.7 million, or $1.06 a share, from $655.8 million, or $1.69 a share, a year earlier, New York-based Apollo said today in a statement. The results beat expected earnings of 79 cents a share, according to the average estimate of 15 analysts surveyed by Bloomberg.
Apollo is one of the most active buyout firms in exiting investments as markets have risen, selling assets worth $5.8 billion in the fourth quarter. Dispositions included the sale of CKE Restaurants Inc. to Roark Capital Group Inc., as well as share sales of payment processor Evertec Inc., organic grocery chain Sprouts Farmers Market LLC and chemical companies Taminco Corp. and LyondellBasell Industries NV. Apollo last month also closed its eighth buyout fund with $18.4 billion.
“Private-equity results were highlighted by continued healthy fund appreciation and active harvesting,” Credit Suisse Group AG analysts led by Christian Bolu said today in a note to clients. “Fundraising efforts continue to go well for Apollo. Apollo is now the only publicly traded alternative-asset manager with a larger post-crisis fund than a pre-crisis fund.”
Apollo rose 0.4 percent to $31.90 at the close of trading in New York. The shares have gained 0.9 percent this year, after advancing 82 percent in 2013. Apollo sold shares to the public in March 2011 for $19 apiece.
The firm said the value of its private-equity holdings rose 9 percent in the fourth quarter as the Standard & Poor’s 500 index of large U.S. companies advanced 9.9 percent. Competitors Blackstone Group LP, Carlyle Group LP and KKR & Co. said their buyout portfolios gained 12 percent, 9 percent and 8.4 percent, respectively.
Apollo’s carried interest in the fourth quarter fell 45 percent to $526.8 million from a year earlier, when the firm earned what is known as a “catch-up” of entitled profits following gains in its sixth buyout fund, which held companies such as LyondellBasell and real estate brokerage Realogy Holdings Corp.
The firm’s assets under management jumped to 161.2 billion as of Dec. 31 from $112.7 billion at the end of the third quarter as its life insurance business, Athene Holding Ltd., completed its $1.8 billion acquisition of Aviva Plc’s U.S. annuity operations. Bermuda-based Athene provides fixed-annuity policies to retirees.
Economic net income at Apollo’s credit business rose 65 percent to $160 million, while its real estate segment reported a profit of $3.9 million following a loss a year earlier. Credit is the firm’s largest business by assets, with $101 billion under management, after Apollo bought loans from banks hurt by the 2008 financial crisis and expanded investments in Europe and the U.S., including in insurance assets and consumer loans.
Apollo, like its competitors, has sought investment opportunities outside of traditional leveraged buyouts to raise more money and reduce their reliance on private-equity earnings, which can be volatile. New York-based KKR yesterday said fourth-quarter earnings more than doubled as it sold assets at a profit and benefited from rising portfolio values. Blackstone, based in New York, last week posted record-high profit for the quarter as it sold private-equity and real estate investments. Both firms, like their peers, report profit that, by excluding some costs, differs from U.S. generally accepted accounting principles.
Net income at Apollo under those standards, known as GAAP, decreased to $159.2 million, or 93 cents a share, from $171.5 million, or $1.12 a share, a year earlier.
The quarter for Apollo was “obviously a stellar performance, but one must keep in mind that the fourth quarter was also a very strong quarter for the market,” Oppenheimer & Co. analysts led by Chris Kotowski said in a note to clients.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit in a cycle that lasts about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.
Apollo said it invested $1.1 billion from its private-equity funds in the fourth quarter, up from $100 million to $200 million in the previous two quarters. The firm has $23.7 billion of committed capital yet to be deployed, known as dry powder.
Apollo said it will pay stockholders a dividend of $1.08 a share on Feb. 26.