Apollo Global Management LLC just confirmed one of Wall Street's worst-kept secrets: It has raised a record $24.6 billion for the world's biggest buyout fund, exceeding its initial target of $23.5 billion. I've written previously that the combination of the industry's peak levels of dry powder and rich deal valuations could dampen firms' returns, and Apollo may be no exception to that trend.
For now, neither executives nor investors are breaking a sweat, in part because Apollo continues to ferret out attractive buyout opportunities, helped by its willingness to tackle slightly riskier, more complicated deals. The latest came earlier this month with its agreed-upon takeover of struggling golf club operator ClubCorp Holdings Inc. at a buyer-friendly valuation of less than 8 times the Dallas company's projected 2018 earnings before interest, taxes and depreciation.
The new fund, which may end up at $24.7 billion in total, itself is a positive for Apollo's shareholders because it'll meaningfully boost management-fee earnings which are, by nature, more stable and predictable than performance fees.
Specifically, Apollo's fee-related earnings are expected to reach $1.50 a share or more in 2018, a decent step up from a baseline figure of roughly $1 a share between 2012 and 2015. Although some of this growth will be driven by Apollo's credit arm, the gargantuan private equity fund could be responsible for as much as 40 cents a share or more than a quarter of its fee-related earnings, according to Oppenheimer, which is nothing to shrug at.
Still, one shouldn't expect the firm's shares to pop on confirmation of the fund's closure: Thanks to the high-profile nature of the fundraising, a string of Wall Street analyst upgrades have already filtered through, meaning the expectation of a larger fee-related earnings haul in the future is already baked in.
The fee pool, though, could soon swell. In April, Apollo announced the hiring of Joe Azelby as its global head of real assets, a move that signals some not-overly-original intentions to make a foray into infrastructure -- and another round of fundraising, likely sooner rather than later.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
As an example, shareholders tend to ascribe a valuation above 16 times to management-fee earnings compared to 5 or more times for carried interest or performance fees.
To contact the editor responsible for this story:
Beth Williams at firstname.lastname@example.org