For Apollo’s New CEO, Insurance Is In—Racy Buyouts, Not So Much

Written by on May 13, 2021

made its title scoring double-digit returns on debt-laden buyouts. Below new Chief Govt Officer

the agency’s future will turn into more and more about discovering methods to eke out just a few share factors greater than company and authorities bonds pay.

The shift displays Apollo’s evolution from a leveraged-buyout store to a credit-investing powerhouse catering primarily to insurance coverage firms seeking to park reams of money from promoting retirement-savings merchandise referred to as mounted annuities.

For Apollo, that has meant constructing platforms that churn out an increasing array of funding merchandise designed to be comparatively low-risk. These merchandise embrace loans to huge or midsize companies, asset-backed securities, plane finance and residential mortgages, whose returns want solely exceed by slim margins what the insurance coverage firms pay out to policyholders.

Apollo’s talent at growing options to the plain-vanilla bonds that insurance coverage firms have historically relied on, at a time of ultralow rates of interest, has helped property in its credit score enterprise greater than triple over the previous 5 years to upward of $320 billion. The enterprise now accounts for greater than 70% of the agency’s roughly $455 billion in whole property.

The agency doubled down on the trouble with a deal in March to buy the 65% of insurer

Athene Holding Ltd.

that it doesn’t already personal. The transfer, which is able to flip Apollo’s greatest supply of property into an entirely owned division, got here simply after Mr. Rowan was named chief govt. A co-founder of the agency, he was the architect of the insurance coverage technique, serving to construct Athene within the aftermath of the monetary disaster.

(His appointment got here as a shock to individuals near the agency anticipating co-founder

Josh Harris,

who had been overseeing Apollo’s day-to-day operations, would turn into CEO.)

Leon Black stepped down as Apollo’s CEO after revelations of his ties to the late Jeffrey Epstein, although a evaluation discovered no involvement within the disgraced financier’s legal actions.



Photograph:

Patrick T. Fallon/Bloomberg Information

For the 58-year-old Mr. Rowan, who took over from longtime CEO

Leon Black

following revelations of Mr. Black’s ties to the late, disgraced financier

Jeffrey Epstein,

the mixture with Athene fulfills his imaginative and prescient for Apollo. An proprietor of a number of eating places within the Hamptons who usually retains a low profile, Mr. Rowan is value greater than $four billion, in accordance with Forbes.

“It’s the perfect construction,” he stated in an interview, his first since formally assuming the CEO function. “After we began Athene in 2009, the dimensions of the capital to construct the enterprise precluded it, but when I may have, I might have owned 100%.” The merger will give the agency a completely aligned construction and will pave the way in which for Apollo’s credit score enterprise to double, he stated.

Apollo’s technique isn’t with out threat. Its investments on behalf of insurers are usually much less liquid than standard-issue bonds and could possibly be tougher to unload in a market downturn. And Apollo’s fortunes at the moment are extra tied to Athene’s annuities enterprise, which may hit the agency if its development slows.

That weighed on Apollo’s shares after the deal was introduced, although they’ve climbed just lately to an all-time excessive as buyers have grown extra comfy with the agency’s new construction. Traders will probably be looking out Tuesday for clues as to the place the inventory will go from right here when Apollo studies its first-quarter outcomes.

SHARE YOUR THOUGHTS

What’s your evaluation of Marc Rowan’s newest strikes as the brand new CEO of Apollo? Be part of the dialog beneath.

The take care of Athene is the fruits of one thing Mr. Rowan and Apollo acknowledged years in the past: Chasing development in Apollo’s private-equity enterprise by increasing into new methods too shortly may drive the agency to pursue inferior funding alternatives. With credit score, notably the lower-yielding methods, the alternatives are practically limitless.

All of Apollo’s publicly traded rivals have attempted to emulate the move in some fashion.

KKR

& Co., for instance, bought a 60% stake in International Atlantic Monetary Group Ltd. in February and is developing new platforms to manage its insurance assets.

Unlike many of its peers, Apollo designed its credit offerings with insurance companies in mind, Mr. Rowan said.

There are far fewer investment opportunities yielding 8% to 12%—what many peers have targeted in their credit businesses—than those yielding the 4% that would suit insurers. “I want to play in the big pile, not the little pile,” Mr. Rowan said.

A range of business models have emerged among the big, public buyout firms as they seek the next leg of growth. All have recognized the need to generate steady and predictable asset-management fees, but their strategies for accomplishing that have diverged.

Blackstone Group Inc.,

for instance, is specializing in raking in a pile of outdoor money for quite a few new funding companies to assist it hit a $1 trillion asset purpose. A few of this is named perpetual capital as a result of it generates a gradual stream of charges over an prolonged interval.

“All of us began as private-equity corporations,” Mr. Rowan stated. “Every of us, in our manner, has diversified, and we at the moment are extremely totally different.”

With all that money coming in by way of its credit score enterprise, Apollo is now a giant lender—typically in areas the place banks can now not function due to regulatory hurdles. The agency now has 3,500 lending relationships, in accordance with Co-President

James Zelter.

“There’s been an amazing change in conventional Wall Avenue since 2008, which has solely hastened our development, and that’s modified the chance set for corporations like ourselves,” he stated.

Apollo’s leaders say the segments that home its private-equity and real-estate companies, which had a mixed $127 billion in property as of the tip of 2020, can develop by greater than 50% over the subsequent 5 years because the agency raises extra huge funds and pushes additional into areas akin to infrastructure and impression investing.

The agency, which is investing out of a $24.7 billion buyout fund, has been one of the energetic buyers in the course of the coronavirus pandemic. It has additionally been increase its “hybrid worth” enterprise, which makes structured-debt and fairness investments and affords extra modest returns than full buyouts, with much less threat.

“We expect there’s a place for a extra value-oriented investor,” stated

Scott Kleinman,

the agency’s different co-president. “That doesn’t imply we ignore development. We simply don’t like paying top-dollar for it.”

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com

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