Apollo Global has invested $25bn of fresh capital since US President Donald Trump’s “liberation day” trade war caused corporate bond spreads to widen, taking advantage of the opportunity to invest at higher returns.
The private capital group told shareholders on Friday it had raised significant cash in anticipation of market disruption from Trump’s trade wars. It then quickly invested, mostly in public debt markets, after markets fell in the days following Trump’s announcement on so-called reciprocal tariffs at the beginning of April.
“We believe we are one of the largest active buyers of assets post-liberation day,” Marc Rowan, chief executive of Apollo, told shareholders on a conference call. “Public markets were the fastest to adjust from a price point of view and exhibited what we expect to see going forward: limited liquidity.”
Jim Zelter, president of the group that manages $785bn in assets, noted that the “current administration was clear on their objectives pre- and post-election . . . At Apollo, we’ve been preparing for this environment . . . in anticipation of this market disruption.”
Apollo’s move to take advantage of market turmoil hit the spread-based earnings in its Athene insurance business in the first quarter of the year. That caused Apollo shares to drop nearly 3 per cent in early Friday trading.
The private capital group raised most of the cash for its investments through the unit, by issuing deposit-like contracts from Athene called “funding agreements”.
“What we chose to do was to massively increase our use of funding agreements . . . to pile up cash,” said Rowan on the conference call.
Those contracts, considered “inflows” to Athene, are ultimately borrowings that must be repaid. But Apollo has bet that the unit can earn more than the borrowing cost through its debt investing.
The spread income Apollo earned from managing insurance assets was $804mn, slightly short of forecasts from analysts polled by Bloomberg. Apollo said the decision to raise more cash had shaved about $20mn off its spread-based earnings.
But Apollo still reported a record $559mn in fee-related earnings in the first quarter of the year, surpassing analyst forecasts, boosted by the launch of new credit and hybrid equity funds in its assets management unit.
The New York-based group generated its best returns from a strategy designed to refinance stretched buyout deals or help public companies in need of cash to shore up their finances.
Apollo’s “hybrid value” funds, launched six years ago, gained 3.8 per cent in the first quarter and 19.3 per cent over the past 12 months, making them the highest-returning strategy inside of Apollo.
The returns are nearly triple what Apollo has earned from its flagship buyout funds, which gained just 6.6 per cent over the past 12 months. Apollo’s credit funds, which account for the vast majority of its assets, earned between 7.7 per cent and 11.8 per cent over the past year.
Buyout fund performance has plunged across the industry as higher interest rates and moribund dealmaking activity have created a logjam of unsold private equity-owned assets.
While Apollo was able to take advantage of the carnage through its hybrid funds, the difficult market also hit its own earnings. In the first quarter, Apollo made just $14mn in performance-based profits — otherwise known as principal investment income — significantly below analyst forecasts, as it was unable to sell many investments for a profit.
