Private Equity Boom: Why Apollo's New $18B Buyout Fund Matters

Jan 10 2014, 12:17pm CST | by

Private Equity Boom: Why Apollo's New $18B Buyout Fund Matters

World's 10 Biggest Private Equity Funds

There’s big news in the world of private equity. Apollo Global Management just raised $18.4 billion for its latest flagship buyout fund.

The firm closed the fund on December 31, meaning it’s no longer fundraising but is ready to start buying investments with the cash. Of the $18.4 billion, outside investors represent $17.5 billion with the remaining coming directly from Apollo and its top employees.

Why is all this important? Fundraising hasn’t been easy for private equity shops since the credit crisis, but the Apollo Investment Fund VIII is the largest buyout fund to close since the credit crunch in 2008.

In 2008, the private equity industry overall raised $230 billion in capital, according to Preqin. The figure dropped to $110 billion in 2009 and continued to decline through 2011 raising just $77 billion that year.

That may be why Apollo’s goal for Fund VIII was a mere $12 billion.

But thanks to a booming market in 2013, fundraising picked up big time in with $169 billion in aggregate capital raised, according to Preqin data.

Beyond that, it means Apollo and others are about to deploy the billions they’ve raised.

That’s significant because 2013 was primarily a big year for selling holdings rather than buying them.

Apollo CEO, Leon Black, noted at an industry conference in April 2013: “We think it’s a fabulous environment to be selling.” At the time, Apollo had sold about $13 billion in assets in the previous 15 months. “We’re selling everything that’s not nailed down, and if we’re not selling, we’re refinancing,” the billionaire founder said.

With $18.4 billion of fresh powder in its hands, Black and Apollo are ready to do some more buying too.

But even with all those billions raised, the Apollo Investment Fund VIII still isn’t the biggest buyout fund to ever close.

That title goes to the Blackstone Group’s Blackstone Capital Partners V which closed in 2006 after raising $21.7 billion. The firm was targeting just $13.5 billion.

Goldman Sachs Merchant Banking Division takes the #2 spot with $20.3 billion raised in 2007.

It’s important to note Goldman won’t be expected to raise a fund like that any time soon as regulations like the Volcker rule hamper its ability to act like a private equity firm.

At the same time, traditional PE shops like Apollo, Blackstone and KKR have been busy trying to expand outside of private equity by adding real estate, credit, hedge fund and asset management units.

Apollo, for instance, has $64.4 billion in assets in its credit business compared to $37.8 billion in its private equity unit.

And these days Blackstone is more of a real estate shop than it is a PE firm. It’s the world’s largest private sector owner of real estate assets; its real estate assets, $56.7 billion, represent the biggest chunk of the firm’s total $210 billion.

KKR’s Public Markets segment, which houses its hedge fund and leveraged credit businesses, is growing rapidly managing some $27 billion in assets compared to $13 billion in 2008. KKR  is even experimenting with the retail investment crowd; it launched a couple of traditional mutual funds for individual investors about a year ago.

But don’t expect KKR and its big name competitors to give up on traditional private equity–especially now as investors are hungry to get back into the game.

“If you want to paint a picture of our firm, private equity will continue to be at the center of it,” co-founder George Roberts told Forbes last year.

Watch for big PE deals this year.

Source: Forbes Business


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