Apollo launches new secondary market business as AUM inches up in quarter

Apollo Global Management on Thursday reported $515 billion in assets under management as of June 30, a 0.4% increase from the end of the prior quarter and up 9% from $414 billion year-over year.

Apollo also announced the launch of a new secondary market business with $4 billion in commitments including from the $829 billion Abu Dhabi Investment Authority, said co-President Jim Zelter during the earnings call. The business is called sponsor and secondary solutions, or S3 for short, and aims to provide secondary and fund financing including private equity, credit and real asset secondary investments and net asset value loans, Mr. Zelter said.

Apollo's quarterly AUM increase was driven by inflows of $36 billion, including a quarterly record of $12 billion from the firm's insurance business, Athene, and the acquisition of retail manager Griffin Capital, offset by $6.8 billion in realizations that included $4.8 billion from Apollo's equity funds. Apollo finalized the acquisition of Griffin's U.S. wealth distribution and asset management businesses in May. Griffin's two interval funds, renamed Apollo Diversified Real Estate Fund and Apollo Diversified Credit Fund, had a combined $6.5 billion in total AUM as of April 3.

After the close of the second quarter, Apollo received $13 billion of commitments to its flagship buyout fund, Apollo Investment Fund X, amounting to more than half of the fund's $25 billion fundraising target, said CEO Marc Rowan in an earnings call.

Mr. Rowan said that alignment of interests with its investors is "something unique in our industry and is something of great comfort to our clients, particularly during periods of market volatility."

He said that its retirement businesses, insurance companies Athene and Athora, "are among the largest investors in each of our products side by side with our third-party institutional and retail clients."

At the end of the second quarter, Apollo launched a new strategy, Apollo Aligned Alternatives, which it calls AAA. The strategy was designed for individual investors as a core equity replacement, producing equity-like returns with fixed income-like volatility.

There's "no J-curve, no two levels of fees, complete alignment, no capital calls," Mr. Rowan said. "This is private, and it is equity, but it is not private equity."

AAA's portfolio is made up of 180 different positions, which have been put together over the past 13 years, mostly of Athene's equity accounts.

"Although we designed this product for retail, along the way to the retail launch, three very large institutions thus far have concluded that this actually meets all of their needs" and the three committed $5 billion.

SuMi TRUST Holdings, a trust banking group in Japan, committed $1.5 billion in July, plus "a sizable commitment from an Asia-based institutional investor and a high-net-worth money manager," Mr. Rowan said.

Apollo's corporate credit reported gross returns of -4.1% for the second quarter and -4.7% for the year ended June 30. Structured credit had gross returns of -5.3% for the second quarter and -6.8% for the 12 months ended June 30. Hybrid value reported a -1.2% return for the second quarter but 3.5% for the one-year period. It's flagship private equity business reported a -4.9% return for the second quarter but was up 2.4% for the year ended June 30. Direct originations produced a gross return of 3.3% for the second quarter and 6.8% gross return for the year ended June 30.

Apollo had a GAAP net loss of $2.1 billion for the quarter ended June 30, compared to a net loss of $870 million in the first quarter and net income of $658 million in the year-earlier quarter.