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Apollo pitches investors on deal to ease industrywide fundraising slump

The firm pitched it as a way to ease clients' liquidity pressures, according to people familiar with the matter


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By Allison McNeely and Dawn Lim
Apollo Global Management Inc., struggling to overcome an industrywide slump, has approached some of its investors about raising money for its newest private equity fund by cashing them out of an old one at a discount.
The firm pitched it as a way to ease clients’ liquidity pressures, according to people familiar with the matter. Apollo, meanwhile, had sought to line up potential buyers for those stakes who would also inject capital into the latest fund, Apollo’s 10th. 

While most of the investors have so far declined the offer to sell, Apollo’s effort underscores the depths of the industry’s fundraising woes and what firms are willing to do to address them. Pulling off such an elaborate transaction at scale is difficult because buyers and sellers are finding it harder than ever to agree on how to value fund stakes.   

Several Apollo clients balked at cashing out at a discount, deterred by the prospect of surrendering gains, the people said. The ninth flagship fund had a 25% net internal rate of return as of Dec. 31, Apollo said in February, ranking it in the top quartile of buyout peers, according to Cambridge Associates data. Some pensions reported weaker comparative performance for the fund in recent periods. 

Apollo’s private equity business, led by David Sambur and Matt Nord, faces one of the most competitive fundraising environments in years as the New York-based firm seeks to win investors’ confidence and demonstrate it can keep its fee machine growing even as the economy slows.

The challenge has been compounded by constraints on institutional investors, such as pensions and endowments, which reached the limits of what they could allocate to private equity during last year’s inflation-fueled market swoon. 

‘Striking Distance’
That followed more than a decade of easy money, when the biggest alternative-asset managers hit their fundraising goals in less than a year. By 2022, it took buyout firms an average of 29 months to reach their targets, according to Preqin. 

“Private fundraising is definitely choppy,” said Michael Wolitzer, head of Simpson Thacher & Bartlett’s investment funds practice. “The established managers are raising money, but it’s slow and it’s extended.” 

Apollo, which previously told investors it would wrap up a $25 billion buyout fund by the end of last year, has come up well short of that target. While executives told analysts during a February conference call they expected to come within “striking distance” of the goal, they said they had raised just $15 billion as of Jan. 31.

Blackstone Inc., the biggest alternative-asset manager, also extended the fundraising timeline for its flagship fund and pulled back from earlier ambitions to raise as much as $30 billion.

Transactions to free up capital such as the one contemplated by Apollo might seem like an attractive solution for private equity firms — but that’s not always true for their clients. Investors are generally unwilling to take discounts on fund holdings unless they’re desperate for liquidity.

Carlyle Group Inc. brought in two buyers in recent months to replace investors in an older fund and pledge money for its latest buyout fund, and the firm had to ask clients to extend its fundraising schedule. The buyers, LGT Capital Partners and Partners Group, drove a hard bargain, pushing back against calls by bankers to put up more cash for the new fund, people familiar with the matter said. 

The pair ultimately agreed to invest $1 in the new fund for every $2.30 they spent buying out the older stakes. They demanded a roughly 20% discount from their mid-2022 valuation, a steeper price than many investors were willing to pay to get out.

LGT and Partners Group wound up buying about $450 million of older stakes and committed $200 million to Carlyle’s new fund. The Washington-based firm had originally expected a deal of at least $1 billion.  

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First Published: Apr 20 2023 | 11:28 PM IST

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