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For Apollo’s New CEO, Insurance coverage Is In—Racy Buyouts, Not So A lot

Apollo International Administration Inc.


APO -0.29%

made its identify scoring double-digit returns on debt-laden buyouts. Beneath new Chief Government Officer

Marc Rowan,

the agency’s future will develop into more and more about discovering methods to eke out a number of 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 corporations seeking to park reams of money from promoting retirement-savings merchandise often called 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 large or midsize companies, asset-backed securities, plane finance and residential mortgages, whose returns want solely exceed by slim margins what the insurance coverage corporations pay out to policyholders.

Apollo’s talent at creating alternate options to the plain-vanilla bonds that insurance coverage corporations 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 complete property.

The agency doubled down on the hassle with a deal in March to purchase 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 a completely 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 develop into CEO.)

Leon Black stepped down as Apollo’s CEO after revelations of his ties to the late Jeffrey Epstein, although a overview 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 mix 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 price greater than $4 billion, in response to Forbes.

“It’s the perfect construction,” he stated in an interview, his first since formally assuming the CEO position. “Once we began Athene in 2009, the dimensions of the capital to construct the enterprise precluded it, but when I may have, I’d 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 danger. Its investments on behalf of insurers are usually much less liquid than standard-issue bonds and may very well be harder 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 lately to an all-time excessive as buyers have grown extra comfy with the agency’s new construction. Traders can be looking out Tuesday for clues as to the place the inventory will go from right here when Apollo studies its first-quarter outcomes.

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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 power 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 tried to emulate the transfer in some vogue.

KKR

& Co., for instance, purchased 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 example, is focusing on raking in a pile of outside cash for numerous new investment businesses to help it hit a $1 trillion asset goal. Some of this is known as perpetual capital because it generates a steady stream of fees over an extended period.

“We all started as private-equity firms,” Mr. Rowan said. “Each of us, in our way, has diversified, and we are now incredibly different.”

With all that cash coming in through its credit business, Apollo is now a big lender—often in areas where banks can no longer operate because of regulatory hurdles. The firm now has 3,500 lending relationships, according to Co-President

James Zelter.

“There’s been a tremendous change in traditional Wall Street since 2008, which has only hastened our growth, and that’s changed the opportunity set for firms like ourselves,” he said.

Apollo’s leaders say the segments that house its private-equity and real-estate businesses, which had a combined $127 billion in assets as of the end of 2020, can grow by more than 50% over the next five years as the firm raises more big funds and pushes further into areas such as infrastructure and impact investing.

The firm, which is investing out of a $24.7 billion buyout fund, has been one of the most active investors during the coronavirus pandemic. It has also been building up its “hybrid value” business, which makes structured-debt and equity investments and offers more modest returns than full buyouts, with less risk.

“We think there is a place for a more value-oriented investor,” said

Scott Kleinman,

the firm’s other co-president. “That doesn’t mean we ignore growth. We just don’t like paying top-dollar for it.”

Write to Miriam Gottfried at [email protected]

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