$70 Billion ‘Hybrid’ Credit, Equity Business Boost

What does Apollo Global Management Inc.'s $70 bn boost to hybrid credit mean for alternative investors, middle-market businesses, lenders, and smaller investors?

Apollo Global Management Inc. is strategically expanding into hybrid strategies that provide financing solutions between traditional credit and private equity. As David Sambur, Apollo's Co-Head of Equity, notes, this approach offers "credit-like" yields coupled with equity upside while incorporating enhanced protections compared to standard funds.

Implications for Alternative Investors:

Many investors have reached their allocation limits for private equity. However, hybrid equity strategies can be funded from different allocation buckets, presenting new opportunities for firms like Apollo to attract capital. These strategies aim to deliver low double-digit returns, potentially as alternatives to public equities in institutional portfolios.

Benefits for Middle Market Businesses:

Apollo's hybrid strategies offer flexible, creative, and partnership-driven capital solutions, assisting companies and shareholders in achieving their objectives. By providing non-control equity and debt capital, Apollo supports growth initiatives without necessitating full ownership transfers. For instance, Apollo's Hybrid Value Funds have invested in leading Asian businesses, such as JSW Cement and Global Schools Group, to facilitate their expansion plans.

Opportunities for Lenders:

Apollo's expansion into hybrid strategies enables it to offer a comprehensive suite of financing solutions across the risk-reward spectrum. This diversification allows lenders to participate in innovative capital structures that more effectively balance risk and return.

Access for Smaller Investors:

Apollo Aligned Alternatives (AAA), a fund designed for wealthy individuals, is projected to reach $20 billion in assets by year-end, up from approximately $18 billion in November. This growth indicates increased accessibility to alternative investment opportunities for smaller investors, exposing them to diversified private market assets.

In summary, Apollo's expansion into hybrid strategies offers alternative investors, middle market businesses, lenders, and smaller investors enhanced opportunities for growth and diversification, aligning with their respective financial goals.

Understanding Hybrid Strategies:

Hybrid strategies are designed to occupy the space between conventional debt and equity financing. They offer flexible, partnership-driven capital solutions, providing companies with non-control equity and debt capital. This approach enables businesses to pursue growth initiatives without relinquishing control, effectively bridging the gap between traditional credit and private equity investments.

Apollo's Projections for the Coming Year:

• Hybrid Value Fund: Apollo plans to launch its third vintage fund under the Hybrid Value strategy, targeting approximately $6 billion in 2025.
• Apollo Aligned Alternatives (AAA): Aimed at wealthy individuals, AAA is expected to reach $20 billion in assets by year-end, up from about $18 billion in November.
• Hybrid Equity Business: Apollo envisions its hybrid equity segment, encompassing AAA and Hybrid Value strategies, as a potential alternative to public equities for pension funds, aiming for low double-digit rates of return. Currently, Apollo manages around $70 billion in hybrid strategies.

Partnerships with Other Allocators:

Apollo has engaged in several strategic partnerships to enhance its investment capabilities:

• Mubadala Investment Company: In November 2024, Apollo extended a multi-billion-dollar partnership with Mubadala, focusing on various investment opportunities.
• Motive Partners: In July 2021, Apollo formed a strategic and financial partnership with Motive Partners, a private equity firm specializing in financial technology investments, to capitalize on technological transformations in financial services.
• Citigroup Inc.: In September 2024, Apollo announced a $25 billion private credit and direct lending program in collaboration with Citigroup, aiming to provide substantial financing solutions to businesses.

These partnerships reflect Apollo's commitment to expanding its investment strategies and collaborating with various allocators to capitalize on emerging opportunities in the financial landscape.

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