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Apollo in Talks to Sell Minority Stake to Abu Dhabi: WSJ

Private equity firm Apollo Management is in talks to sell a minority stake to the investment arm of the Abu Dhabi government, according to a report Friday.

An agreement between Apollo and the Abu Dhabi Investment Authority would deepen ties between the groups and push along Apollo's plans to raise money through a public offering.

Blackstone Group LP sold nearly 10 percent of the firm to an arm of the Chinese government just before the private equity firm's June IPO. The China stake allowed Blackstone to gain a key partner in its Asian expansion and to raise an additional $3 billion on top of the $4 billion it raised through the IPO.

Apollo is in talks to sell 10 percent of the firm to ADIA for $1.5 billion, the Wall Street Journal reported on Friday, adding that Apollo founder Leon Black owns 50 percent of the firm.

An Apollo spokesman declined to comment. ADIA could not be reached.

Black was in Abu Dhabi early last week trying to hammer out a deal, but there is still a gap in how both sides value the firm, the Journal reported, citing people familiar with the matter.

Large private equity firms are pursuing IPOs for several reasons, among them the ability to raise money more easily rather than going out and tapping institutional investors every few years. Buyout firm executives refer to private equity IPOs as "permanent capital," meaning a permanent source of money that does not have to be paid back to institutional investors every few years.

Private equity firms buy and sell companies by borrowing most of the money.

Public equity gives buyout firms a source of capital to expand the business and diversify beyond traditional buyout fund investors.

IPOs also allow private equity firms a cash infusion to pay out founders and top talent -- and ensure that as publicly traded companies, the firms continue after founders retire.

Kohlberg Kravis Roberts & Co. filed to take part of itself public on Tuesday, seeking to raise $1.25 billion.

Private equity firms seeking to go public are watching a bill in Congress that could more than double their corporate tax rate, should it pass.

They are also watching the shaky credit markets, which some analysts believe are signs that the buyout industry boom is about to fade. Going public allows private equity firms to cash out while the buyout climate is still hot.

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Apollo was one of the first private equity firms to launch a publicly traded fund, bringing its debt-investment vehicle, Apollo Investment, to market in 2004. Launching a publicly traded fund is different than taking part of the firm public, because in doing the latter, a firm is more likely to have to disclose its profits, its conflicts, and even salaries.

Apollo also launched AP Alternative Assets LP last June, a publicly traded fund on the Euronext that raised $1.5 billion in the offering.

ADIA invested around $600 million in AP Alternative Assets, Reuters reported last year, gobbling up around 40 percent of the shares.

ADIA is among the largest government investment authorities in the world and is responsible for investing all of the Abu Dhabi state oil revenues and assets.

Standard Chartered Bank in Dubai estimates that the state-owned ADIA manages between $450 billion and $500 billion.

Abu Dhabi is located in the United Arab Emirates.

More Middle Eastern money has been headed to U.S. private equity and private investment firms lately, as record high oil prices have prompted oil-wealthy investors to diversify their holdings.