Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

The report cards are in for publicly-traded private equity firms. Despite all the red ink and downward arrows, there's a silver lining.

On Thursday, Apollo said it swung to a loss in the first quarter, joining KKR, which relayed similar news last week. Blackstone and Carlyle, meanwhile, each posted first-quarter profit declines of roughly 80 percent. All were hurt by a stock market rout that dented the value of stakes in companies they'd taken public and -- to varying extents -- made dealmaking difficult. 

Rough Ride
Publicly-traded private equity firms have slumped over the past year, partly due to volatile markets. Apollo, Carlyle and KKR have commenced share buyback programs.
Source: Bloomberg

Apollo's investors can at least take comfort from another performance measure -- distributable earnings, or the after-tax profits on asset sales and fund management fees that the fund pays out to shareholders.

Even without any major sales in the quarter, Apollo had distributable earnings (after taxes and related payables) of $102 million, or 25 cents a share. And on Apollo's earnings call Thursday, co-founder Josh Harris said that regardless of whether his firm sells any of its holdings during a quarter, it should be able to generate at least that amount of cash flow each quarter. That's good for investors to know, because it means that even when the timing isn't right for Apollo to cash out on investments, the firm still has a stable base of cash earnings, primarily driven by management fees.  It's a figure that should grow somewhat in line with total assets under management .  

Focusing on spending (rather than cashing out) obviously dispels the likelihood of immediate gains that could be shared with shareholders, but paves the way for higher payouts down the road. At the Milken Institute Global Conference in Beverly Hills earlier this week, Apollo Chairman and CEO Leon Black remarked that the firm was "in a planting and building value stage," sowing "seeds" for the future. Indeed, the firm had a busy few months with buyouts like ADT, The Fresh Market and a pending deal for Apollo Education. A glance at the chart below shows the migration from what Black professed to be a sellers' market in 2013 (which generated more in distributable earnings for investors) to what is now a buyers' market for a select few:

Seed-Planting Mode
After a strong run selling everything that wasn't nailed down, Apollo and its rivals have entered a period of investment
Source: Company filings

Evidence that the cycle has turned is also visible in Carlyle's last four quarters, which reflect the same trend away from selling and toward investing. On Carlyle's earnings call last week, co-founder and co-CEO Bill Conway said there are opportunities "in almost every geography and asset class" for the firm to put its billions in dry powder to work. 

Back to Basics
Carlyle's distributable earnings of 35 cents this quarter came in below the firm's three-year average of 65 cents
Source: Company filings

Still, headwinds are unavoidable. Carlyle was said to be in talks to acquire a sizable parcel of assets from Halliburton and Baker Hughes, a deal that was contingent on the now-defunct merger of the energy giants. And Royal Philips is said to be planning to sell its lighting division through an initial public offering after failing to land an agreement with potential investors which included Apollo and Blackstone, according to Bloomberg News. 

But a handful of these deals will stick and over time, investors in the firms' various funds will have little to complain about. Shareholders that share a similarly long-term outlook should be on the same page. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Apollo has long been committed to distributing "substantially all" of the cash flow it generates each quarter except for what's deemed necessary to run and grow the business (this quarter it distributed 100 percent).

  2. Investors that inject additional capital into specific deals alongside a firm typically pay reduced, or no, fees on the amount allocated. 

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at