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On Wednesday, Apollo Global Manager (NYSE:APO) sold 30 million shares at $19, the price range top. But the stock traded down over 5% to $18 at Friday’s close.

What happened? A lot of the demand came from retail investors who thought the alternative investment management (which includes private equity) bull market might extend to APO. For example, Blackstone (NYSE:BX) and KKR (NYSE:KKR) are up 47% and 56%, respectively, in the last six months.

Savvy institutional investors were much less interested in APO’s IPO for several reasons:

  • BX, KKR and APO all use different, customized accounting conventions to report results. Therefore there can be no accurate ‘apples to apples’ comparisons.
  • 'Carried interest’ estimates (future expected profits from private equity investments) are murky at best.
  • APO had only one out of three IPO portfolio successes in the last three years:
    1. Verso Paper Corp (NYSE:VRS), May 14, 2008 -- down 58% from the IPO price.
    2. Metals USA Holdings Corp (NYSE:MUSA), April 8, 2010 -- down 23% from the IPO price.
    3. Noranda Aluminum Holding Corp (NYSE:NOR), May 13, 2010 -- up 94% from the IPO price.

The question then is, ‘"What’s wrong with APO's investment philosophy and execution compared with BX and KKR?"

Perhaps the biggest problem with APO’s IPO was supply and demand. Concurrent with the 30 million share IPO, there was a shelf registration of 35 million shares. Want to buy 35 million more shares? Call your broker; they are definitely available.

Source: Apollo Global Management: The Dog We Expected