Apollo Global Management: Benefiting From Alternatives
Summary
- Apollo Global Management is one of the leading alternative investment managers across the globe.
- Company’s asset under management of $331 billion has grown two-fold over the past five years with high FRE margins.
- Apollo used the fear-driven period during the COVID-19 pandemic to its advantage.
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Fear-driven periods in the past have been used as buying opportunities for savvy investors. - John Paulson
Apollo Global Management (NYSE:APO), has turned out to be the big winner during the economic slowdown caused by COVID-19. The company has a solid track record of handling crises like these. It has been very proactively doing deals and raising capital. Also, the company has been meeting with its portfolio companies and providing liquidity which at this tough time is very critical. With the stock trading at $51.30 as on 04-06-2020, it’s a definite buy.
Company Overview
Founded in 1990, Apollo is a leading global alternative investment manager. The company is led by Managing Partners Leon Black, Joshua Harris and Marc Rowan. As of March 31, 2020, the company has total Asset under Management (AUM) of $315 billion, including approximately $216 billion in credit, $77 billion in private equity and $39 billion in real assets.
Apollo has built its reputation on navigating all market environments, but particularly challenging ones, very successfully on behalf of its investors.
Credit
Credit is an integral part of the company and has contributed to its growth and success. The company’s credit segment has a total AUM of $210 billion. Total AUM decreased 3% quarter-over-quarter to $210 billion, primarily driven by market activity, partially offset by inflows
As on March 31, 2020
Private Equity
Private equity has been the cornerstone of Apollo’s business since the start of the business operations. The private equity funds of the company have owned more than 150 companies since its inception across various sectors. The personal equity business has approximately $68 billion in assets under management (AUM) as of March 31, 2020. Total AUM decreased 12% quarter-over-quarter to $68 billion, primarily driven by market activity and realizations
Real Assets
Apollo’s Real Assets business is fully integrated with its private equity and credit businesses and follows the same value-driven philosophy. Its real assets business has approximately $38 billion in assets under management (AUM) as of March 31, 2020. Total AUM decreased 2% quarter-over-quarter to $38 billion driven by market activity.
Company has grown exceptionally in the past five years
Particulars | 2014 | 2019 | CAGR |
Asset Under Management | $ 164 Billion | $ 335 Billion | +15% |
Fee Related Earnings (FRE) | $ 435 million | $917 million | +16% |
FRE margins | 41% | 57% | - |
Apollo Global Management Vs. S&P 500
Apollo global management has outperformed the S&P 500 by a wide margin during the past five years. The company is led by management who has been working with it for the past 33 years and consistently produced attractive long-term investment returns.
Apollo Global Management | S&P 500 | |
| Total return (since 18-05-2015) | ~107% | ~40% |
COVID-19 Effects
The pandemic resulting from the novel coronavirus (“COVID-19”) have caused severe disruption to the global economy and financial markets. Though the company has experienced mark to market losses in the underlying funds.
The further material effects in the operating performance:
- Fall in Asset Under Management (AUM) from $335 billion to $315.5 billion, principally from unrealized market losses.
- Performance fee-generating AUM decreased to $22.8 billion during the quarter as unrealized mark-to-market impacts arising from the COVID-19 pandemic.
- Amid the unprecedented market volatility caused by the global pandemic, the company is relying on the expertise and discipline it has developed over the past thirty years. Before COVID-19, the company was stocking up on dry powder, and it used the coronavirus downturn to its advantage.
Actions in response during the COVID-19 slowdown
- Done deals:
- Raised funds and deleveraging.
- The company met with its portfolio companies to assist them in managing their liquidity.
- Between Apollo and current portfolio companies, the shared efforts amount to over $50 million in relief effort contributions globally.
Risk Factors
- Drop-in AUM will affect the earnings of the business.
- Increase in interest rates will make LBOs more challenging to do.
The risk factors can hurt the company’s near-term earnings, but I still believe the company is a potential buy. It has an excellent track record and has outperformed the market for the past ten years. It is one of the savviest investment firms across the country with Leon Black at the helm.
Source: Company’s 10-K Filling, Earnings Presentations
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Comments (2)
"Sometimes, you might not realize your biggest portfolio risks until it’s too late."As a shareholder of $ APO, I'm of course happy about the very positive company development. Hopefully another equally positive development is likely.
But every "buy" rating should always include an appropriate "stock rating".The ratio of "company value to sales" places the company among the world's most expensive companies. How is the buy rating in relation to a stock overvaluation? There is no margin of safety. Too optimistic attitudes often involve potentially great risks in themselves. In other words. Success is already the seed of failure. How is the above sentence to be seen in this context?
From my cautious point of view, APO is a hold.