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Apollo raises largest PE fund since financial crisis

Friday, 10 Jan 2014 | 7:53 AM ET

Apollo Global Management said on Thursday it had completed fundraising for its latest flagship global private equity fund, amassing $17.5 billion from investors, the most any such fund has raised since the financial crisis.

In their hunt for yield amid persistently low interest rates, investors who fell out of love with private equity and its debt-fueled excesses in the aftermath of the 2008 crisis are now increasing allocations to the asset class.

Global private equity fundraising throughout 2013 totaled $431 billion, up 13 percent on 2012, market research firm Preqin said last week.

(Read more: Private equity transaction fees are like 'crack cocaine')

Apollo's peers have also benefited. Carlyle Group finished raising a $13 billion U.S. buyout fund in November; KKR & Co. is wrapping up fundraising for its latest North American fund with more than $8.3 billion; Warburg Pincus closed on a $11.2 billion global fund last May and technology-focused Silver Lake has clinched $10.3 billion.

The largest private equity fund in history remains Blackstone Group's $21.7 billion fund that was raised in 2007.

Leon Black, chairman and CEO of Apollo Management
Jonathan Alcorn | Bloomberg | Getty Images
Leon Black, chairman and CEO of Apollo Management

Apollo and its investment professionals committed an additional $880 million toward the fund, dubbed Apollo Investment Fund VIII, the New York-based firm said.

"Fund VIII benefited from the support of a diversified group of investors, including many public pensions, sovereign wealth funds, corporate pensions, endowments and foundations, funds of funds and high net worth investors," Apollo Chief Executive Leon Black said in a statement.

To be sure, Apollo's private equity funds go beyond the traditional acquisitions of companies and unloved divisions of conglomerates, often buying the debt of companies that are in distress and ending up with their equity in a restructuring.

(Read more: High Times aims to form $100M private equity fund)

This has proved to be a winning combination. Apollo's previous flagship fund, the $14.7 billion Fund VII, has been one of best-performing private equity funds raised in 2008. The fund generated, from inception to the end of September, gross and net annual internal return rates of 38 percent and 29 percent, respectively, according to Apollo.

A lot of dry powder for private equity in 2014: Pro
Bob Partridge, Private Equity Leader, Asia-Pacific at EY, sees high confidence in the private equity market coming into 2014.

In Fund VII, 57 percent of Apollo's deals involved buying debt of distressed companies or buying distressed companies outright, while only 28 percent were straightforward acquisitions of companies not in distress. Corporate carve-outs of divisions accounted for 15 percent.

With more money flowing into private equity, however, and competition for deals becoming fiercer, the challenge Apollo now faces is spending the biggest fund it has ever raised without overpaying for assets.

Apollo started raising Fund VIII with a $12 billion target in November 2012. But strong demand from investors resulted in it seeking approval from them to raise the ceiling on the fund.

(Read more: Private equity funds barely worth it: Study)

Apollo was founded in 1990 by Black and former Drexel Burnham colleagues Joshua Harris and Marc Rowan and went public in March 2011. It had $113 billion in assets under management as of the end of September, $43 billion of which was in private equity.

By Reuters

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