Apollo Global Management LLC, the private-equity firm run by Leon Black, said second-quarter profit fell 5.7 percent as it earned less money from selling investments.
Economic net income after taxes, a measure of earnings excluding some compensation costs tied to Apollo’s 2011 initial public offering, decreased to $207.5 million, or 52 cents a share, from $220.1 million, or 56 cents, a year earlier, the New York-based firm said Wednesday in a statement. Analysts had expected per-share earnings of 66 cents, according to the average of 16 estimates in a Bloomberg survey.
Apollo in the past two years has been one of the most active buyout firms in exiting investments, taking advantage of rising markets to sell holdings and take companies public. The firm in the second quarter sold shares of grocery-store chain Sprouts Farmers Market Inc., industrial-components maker Rexnord Corp. and Berry Plastics Group Inc. Distributable earnings, a measure of cash profit earned mostly from exits, fell to $227 million from $604 million in the same period last year.
“The bottom line is it was a muted quarter for distributions and fund valuation,” Credit Suisse Group AG analyst Dina Shin said of Apollo’s results today. “On the investment front, Apollo will continue to expand into different sleeves of alternative credit, including debt instruments in energy, oil and gas, insurance and aircraft-leasing industries.”
Apollo shares fell 2.5 percent to $25.25 at the close of trading in New York, extending its decline this year to 20 percent. The company sold shares to the public in March 2011 for $19 apiece.
The firm said the value of its buyout holdings rose 5 percent in the second quarter, in line with the same period last year and matching second-quarter gains at Carlyle Group LP and KKR & Co. Blackstone Group LP, the largest manager of investment alternatives to stocks and bonds, said its private-equity holdings appreciated 8.4 percent in the latest quarter.
The value of buyout holdings at private-equity firms affects economic net income, or ENI, because the metric in part depends on quarterly mark-to-market valuations of those investments. Accounting rules require the firms to value their portfolio holdings every quarter.
“While the stock may be weak off the headline numbers, key underlying fundamentals remain solid with strong underlying investment performance,” Jason Weyeneth, an analyst at Sterne Agee & Leach Inc. in New York, said today.
Apollo’s assets under management rose to $167.5 billion from $159.3 billion at the end of the first quarter, as the firm raised new money for its funds and distributed $1.7 billion to clients.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit in a cycle lasting about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.
In addition to buyout holdings, Apollo manages $105.7 billion in credit assets and $9.1 billion in real estate. Earnings in the credit business more than doubled from the second quarter last year, and the real estate unit swung to a profit from a loss a year earlier.
Apollo’s economic net income differs from U.S. generally accepted accounting principles. Net income under those standards, known as GAAP, increased to $71.7 million, or 33 cents a share, from $58.7 million, or 32 cents, a year earlier.
The firm said it will pay stockholders a dividend of 46 cents a share on Aug. 29.
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