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Apollo Announced Slump in Private Equity Earnings

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October 31, 2014

Apollo Global Management LLC announced on Thursday that its third-quarter performance wasn’t as good as expected. The shaky market conditions hurt the company’s holdings and the fees for overseeing the holdings also increased.

 

According to the company, its third quarter profit was $2.2 million, which means its Class A shares suffered a loss of five cents because of undistributed losses in excess of the company’s dividend. The profit also went down from $193 million during the same period last year.

 

The third-quarter economic net income stood at $48 million, which is 91% down from the net income last year. According to the Wall Street Journal, the results failed to meet the expectations of Wall Street analysts, who were forecasting 35 cents a share result. As it stood, Apollo’s share price after tax was at 12 cents a share.

 

The private equity company suffered from the volatility in stocks and bonds, which are crucial for valuation of the holdings. Recent weeks have seen similar results for other private equity companies as well. For example, we recently reported on similar performance issues at KKR.

 

Business Week quoted Apollo’s co-founder, Josh Harris, who said, “We would like nothing more than for the rich valuations in the marketplace to withdraw from their current high levels. A pullback in equities ultimately helps to drive pricing downward to levels where we feel more comfortable.”

 

The problem for private equity companies at the moment is that buyout holdings just aren’t valuated as highly as in previous years. According to Business Week, Apollo’s private equity holdings declined 2% in the last quarter, with losses in companies such as EP Energy Corp. and Caesars Entertainment Corp proving to be disastrous for the company. In the light of an 18% gain last year during the same period, the performance clearly highlights the problems that volatile markets are presenting.

 

Although Apollo wasn’t able to sell its assets as quickly as it would have wanted, the company was still able to get rid off some of the shares and boost its record. Most notably it disposed shares in Athlon Energy Inc., which is an oil and gas producer, as well as Berry Plastics Group Inc., which is a plastics products company.

 

Furthermore, Apollo’s current assets are valued at $163.9 billion, which is still a relatively good performance under these tough conditions.

 

The Financial Times quoted Leon Black, the chairman and chief executive of Apollo, saying, “During the third quarter, we sustained our pace of significant realisation activity and distributed nearly $4.6bn to Apollo’s fund investors, bringing the total to $16.5bn in the last four quarters. In the current market environment, we continue to leverage Apollo’s integrated global platform to raise and deploy capital across all of our businesses, while maintaining our strong investment performance.”

 

Analysts also pointed out that Apollo is one the private equity companies most under pressure from market conditions. The Daily Mail report said that this is because “it likes to take many of its companies public, and historically more than half of its private equity portfolio has included publicly-traded securities”.

 

Indeed, the company has told that it is now considering other channels to drive its exit activity.

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