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.

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.

Raising the Stakes
It's unclear if Apollo's largest-ever fund can match the success of some of its predecessors
Source: Company filings; data at March 31, 2017
^“MIA” represents a “mirrored” investment account established to mirror Funds I and II for investments in debt securities; *This fund was stung by the global financial crisis

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. 

On the Cheap
Apollo is paying a lower-than-average multiple for ClubCorp. It did the same in other buyouts within the past year including Rackspace, Outerwall, Fresh Market and Apollo Education.
Source: Pitchbook
*Data through June 30, 2017

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.  

More Immune
Thanks to a lower reliance on performance earnings, firms like Apollo and Ares should be slightly more protected than rivals if markets retreat. Still, there's no denying they'd decline.
Source: Wells Fargo

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.

Flight Path
Apollo's stock has outperformed peers recently. Its blended forward P/E multiple of 10.6 is higher than its five-year average, but still trails rivals including Blackstone and Oaktree.
Source: Bloomberg

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.

  1. 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. 

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Gillian Tan in New York at

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