• No better time for credit investors as banks hampered: Black
  • Strategy to target bad loans held by institutions under stress

Apollo Global Management LLC, the credit and private equity manager led by Leon Black, is seeking $3.5 billion to buy bad debt from European banks and asset managers, three people with knowledge of the plans said.

Apollo has started marketing the fund, European Principal Finance III, to potential clients and expects to complete the process around the end of the year, said the people, who asked not to be named because fundraising details are kept private. The New York-based firm’s previous fund for the strategy collected $3.5 billion and started investing in 2012, and the first vehicle got $1.5 billion and started deploying money in 2007.

European banks were holding 1 trillion euros ($1.1 trillion) in nonperforming loans at the end of 2014, according to the International Monetary Fund. While U.S. firms such as Apollo, KKR & Co., Blackstone Group LP’s GSO Capital Partners, Oaktree Capital Group LLC and Avenue Capital Group raised billions of dollars in the past five years to buy bad debt from the banks, the deal flow of nonperforming loans only started recently accelerating, according to a March report by the European Parliament.

Apollo, which has targeted loans on banks’ balance sheets with its previous funds, is also interested in acquiring debt held by stressed asset managers and large institutional investors, one of the people said.

Charles Zehren, a spokesman for Apollo at Rubenstein Associates, didn’t return messages seeking comment.

“I don’t think there’s ever been a better time than today because of the huge credit opportunity,” Black, Apollo’s chief executive officer, said earlier this month at the Milken Institute Global Conference in Beverly Hills, California. “The more severe regulatory environment that came out of the financial crisis really pushed a lot of the traditional providers of credit to have to shrink their balance sheets and meet various leverage ratios.”

The firm’s 2012 fund was producing an 8 percent annualized return after fees as of March 31, and the 2007 pool was generating a 17 percent return, according to Apollo’s first-quarter earnings statement.

Apollo, formed in 1990 by Black, Josh Harris and Marc Rowan, managed $172.5 billion in credit assets, private equity holdings and real estate as of March 31.

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