Tags: leon black | downturn | election

Apollo Global CEO Leon Black Sees Possible Downturn After Next Election

(Dollar Photo Club)

Tuesday, 04 June 2019 04:38 PM

Leon Black, chief executive officer of Apollo Global Management LLC, said after 10 years of an upward economic cycle the next downturn won’t likely come until after the presidential election.

“We have an administration, like them or not like them, they have done a pretty good job extending economic growth and consumer confidence,” Black said in an interview with David Rubenstein at the Bloomberg Invest New York conference Tuesday.

Apollo, like its peers, has been benefiting from a robust fundraising environment as investors search for yield. The New York-based firm saw inflows of $24.9 billion during the first quarter, helped by its annuity seller Athene Holding Ltd.

Black said he has some regrets about taking Apollo public because investors don’t understand private equity firms like his. He said Apollo has many sides, operating as a value firm, a growth enterprise and a yield company, and shareholders have trouble seeing all the parts.

“The public market does not understand creatures like us very well,” he said. “They don’t know how to value. We trade at half of what we should be.'

Last month, Apollo announced plans to convert to a corporation from a partnership -- a shift that is expected to take effect during the third quarter. The change in structure may help boost the firm’s stock price since it will be eligible for inclusion in indexes, potentially increasing mutual and exchange-traded fund ownership.

As critics of the industry call for firms like Apollo to pay ordinary income tax on its carried interest, the co-founder of Apollo also said he can see both sides of the argument. But in defending the current capital gains tax rate, he said Apollo doesn’t collect an incentive fee until its funds hit an 8% return hurdle and then return the management fees to investors.

“I think PE has one of the more fair formulas with all of its investors,' said Black. 'We get a relatively small management, which is taxed as ordinary income.'

Black founded Apollo in 1990 with Josh Harris and Marc Rowan. He helped build the firm into one of the largest alternative asset managers with $303 billion in assets.

Mark Wiseman Sees Long-Term Capital Challenges (Earlier)

Mark Wiseman, global head of active equities at BlackRock Inc., said the firm has faced challenges in trying to raise a fund to take long-term stakes in companies.

The Long-Term Private Capital fund was seeking to raise as much as $12 billion by mid-2018 but fell behind schedule. In April, BlackRock said it had secured just $2.75 billion from investors, including $1.25 billion in hand and $1.5 billion committed.

“It’s been hard to explain a new model, a model that’s more of a permanent capital structure but private in nature,” Wiseman said at the Bloomberg Invest New York conference Monday night. “Having said that, sophisticated investors have understood it and we’re now seeing a lot of interest in the vehicle.”

Wiseman also voiced concern that public company executives are having difficulty focusing adequate energy on the long term. He said they need to look deeper into the future, rather than getting mired in quarter-to-quarter considerations. Public markets can put enormous pressure on a company’s leadership, making it easy to lose sight of the bigger picture, he added.

“You’re under constant pressure, under constant scrutiny day in and day out to perform. And if your stock is down, there are questions asked. You’re on the news, your shareholders are by definition selling, your board might be asking questions,” Wiseman said. “So there is this pressure put on public company executives to meet short-term targets.”

Wiseman understands that thinking given his previous role: he was chief executive officer of the Canada Pension Plan Investment Board. In that job, he said he liked to keep the mentality that “a quarter wasn’t 90 days, it was 25 years.”

BlackRock’s Long-Term Private Capital fund is part of its alternatives business, which it is trying to bulk up. The asset management industry is currently facing pressure on fees for indexed products, which make up about two-thirds of the firm’s assets. Its alternatives division is still tiny by comparison. BlackRock had about $152.9 billion in assets under management in alternatives as of March 31, making up just 2% of total assets under management at the world’s biggest money manager.

Wiseman is one of about seven contenders widely thought to be in the running to succeed CEO Larry Fink, who turned 66 in November.

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Leon Black, chief executive officer of Apollo Global Management LLC, said after 10 years of an upward economic cycle the next downturn won't likely come until after the presidential election.
leon black, downturn, election
Tuesday, 04 June 2019 04:38 PM
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