Share
NEW YORK CITY (Nov 4): Apollo Global Management LLC said on Thursday it posted a wider-than-expected quarterly loss as jittery markets weighed down private equity valuations, but it sees money making opportunities in the assets of cash-strapped European banks.
Private equity has had a tough third quarter as the decline in markets led to a lower value of portfolios, while buying and selling assets has become more challenging as markets fluctuate and debt financing remains tight.
Last month, peer Blackstone Group LP, as well as the private equity segments of banks, including JPMorgan Chase & Co and Goldman Sachs Group Inc reported losses in the third quarter. KKR and Co LP is due to report results on Friday.
Despite market volatility, Apollo said it saw opportunities in Europe's crisis, investing in corporate and consumer debt the region's banks are looking to sell. It made over US$300 million (RM936.28 million) in European credit-related investments in the third quarter.
"We are capitalising on very interesting investment opportunities to deploy our significant dry powder, especially in Europe, where we are actively invested," Apollo president Marc Spilker told analysts on a conference call.
European banks are under pressure to recapitalise and shed risky assets. France's BNP Paribas SA and ING Groep NV of the Netherlands are already ditching billions of euros of euro zone government bonds.
Apollo, which invests in real estate and capital markets, as well as private equity, posted economic net income (ENI), a measure of operating profit, that showed a loss of US$1.14 billion in the third quarter, compared with a year-earlier profit of US$315.3 million.
Apollo shares fell as much as 6.4% on Thursday morning as investors fretted over the unrealised mark-to-market valuations, but reversed most of the losses as October's bull market boosted its portfolio .
"If the quarter went to the end of October it would have been a different story, a lot of that lost value has come back," said Ticonderoga Securities analyst Warren Gardiner.
Apollo's main loss came from unrealised carried interest in its private equity funds due to lower valuations of equity and debt holdings, including Metals USA Holdings Corp and LyondellBasell Industries NV.
But October came with a bullish market. LyondellBasell stock fell 37% in the third quarter and then rose 35% in October alone. Metals USA declined 40% in the third quarter and then rose 22% in October.
Overall, Apollo estimates the unrealised value of its portfolio appreciated in October by 60% since the end of September and its incentive business recovered about half of the economic net loss that took place in the third quarter.
"Although volatile global equity and credit markets resulted in lower unrealized values in our portfolios during the third quarter, today's environment plays to our strength as a contrarian, value-oriented investor," Apollo chief executive officer Leon Black said in a statement.
Adjusted ENI per share, which takes into account compensation and taxes, came to a loss of US$2.89, according to Reuters calculations. The analysts' average forecast was for a loss of 80 US cents, according to Thomson Reuters I/B/E/S.
Apollo declared a third-quarter dividend of 20 US cents per Class A share, four cents less than the previous quarter.
Founded in 1990 by Black, a former Drexel Burnham Lambert banker, Apollo went public in March. Since then the company has lost more than 30% of its value, although it is up almost by half from an Oct 4 low.
With roots in fixed income and an appetite for investments in distressed assets, Apollo has supplemented its private equity management portfolio with businesses, including credit trading and collateralized loan obligations.
Even though transaction and advisory fee revenue dropped, total revenue in Apollo's management business was up 10% year-on-year to US$151.5 million in the third quarter, buoyed by a 15% rise in management fee revenue.
Apollo's total assets under managements stood at US$65.1 billion at the end of September, up 12.6% from a year ago, it said. The company added it had US$9.4 billion to spend on private equity investments.
Apollo shares were down 0.6% at US$13.01 in trading on the New York Stock Exchange, off an earlier low at US$12.25. — Reuters
SHARE
