For decades, convincing pension and sovereign wealth funds to put cash into Apollo’s investment funds was straightforward. Returns were consistently excellent. It was harder to get public market investors excited about investing in the listed Apollo Global Management. The departure of Leon Black gives his successors a chance to try again
The larger-than-life Apollo co-founder is leaving after 30 years. He cited health concerns and the media firestorm over his relationship with the late sex criminal, Jeffrey Epstein. Whatever the reason, his departure comes at a delicate moment. Despite good results, Apollo has failed to convince the market to price in its investment success, past and future.
Since the start of 2020, Apollo’s share price has gone sideways. The stock of rivals Blackstone and KKR are up 30 per cent and 65 per cent, respectively. That has given new chief executive Marc Rowan a mandate for radical change. He has collapsed Apollo’s dual-class share structure and announced a merger with Athene Holding, a life insurance affiliate, which promises to be transformative.
Rowan has created a valuable credit investing business at Apollo built on a foundation of retirement annuities. Both KKR and Blackstone have replicated this strategy, if more primitively. Yet, they trade an average of a tenth higher on forward earnings multiples.
Apollo’s public listing created potential liquidity for founders such as Black and scope for the business to sell fresh equity to finance growth. It has also increased scrutiny. This has forced a business forged in the hard-nosed world of distressed debt to woo investors who care about the niceties of corporate governance. Simply turning a dollar of capital into $1.30 is insufficient.
At the moment, Apollo does not earn the benefit of the doubt from this crowd. To be fair, rather than offering mere defiance Apollo wants to evolve into a better version of itself. Black has left open the possibility that he may return eventually. If Rowan does his job well Apollo will be better business by then — and will be valued accordingly.
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