Apollo’s Asia expansion has lured in US$35 billion from region

APOLLO Global Management’s revamp of its Asia business is starting to pay off: It is raised US$35 billion from the region since the start of 2022 to bolster expansion.

Under head of Asia-Pacific Matthew Michelini – the person chief executive officer Marc Rowan picked to reshape Apollo’s presence in the region – the company has been tapping into clients’ demand for more reliable yields from private markets investments including credit and hybrid financing.

Apollo has set its sights on luring capital from insurers and institutions that handle money for retirees in the region. That includes Japan and Australia where such firms want more access to private market opportunities. Insurance companies alone contributed about US$14 billion of the money raised in the last two years. The company has also beefed up regional investment teams in private credit and hybrids, while shutting its Asia real estate equity fund business.

“A lot of the tailwinds in the last 10, 15 years are not going to be tailwinds any more,” Michelini said, referring to easy monetary policy and low interest rates that propelled a long rally in public market investments.

The New York-based firm, with US$651 billion of assets worldwide, historically focused on private equity and such real estate deals in the region. While other investors chased high-growth companies in countries including China and India, Apollo opted to buy stakes at more reasonable prices, often valued at six or seven times earnings before interest, taxes, depreciation and amortisation, if acquiring control.

After Rowan took over as CEO in 2021, the company started an investment grade-focused credit team in Asia. It also added staff that specialise in hybrids, such as convertible bond- and preferred stock-like investments in the private markets. It is struck annuity and insurance partnerships including those with Australia’s Challenger and FWD Group Holdings.

Apollo has recruited 50-plus investment staff in the region since 2021, doubling such headcount ahead of the five-year timeframe initially set. It is boosted overall Apac-based full-time staff to more than 650, the firm said. Nine additional senior appointments have been made, including regional heads of wealth and insurance as well as senior credit investment executives.

The company’s investment in the region grew about 8 per cent over the two years till the end of 2023, even after deal flows slowed for the broader industry because of higher returns in the US and Europe.

A Princeton University math graduate, Michelini joined Apollo in 2006. Having worked closely with Rowan in building the Athene Holding annuity brand and then Apollo’s hybrid investment business, he was sent out to the region during the pandemic for a “redesign”, with both businesses seen as having strong potential in the region.

In one of the biggest partnerships sealed since his arrival, Japan’s Sumitomo Mitsui Trust Holdings and its bank unit in July 2022 pledged US$1.5 billion to invest alongside Apollo and Athene. The deal gives the Japanese companies’ pension clients access to a pool of hybrid investments that Apollo and Athene have been incubating for the last 15 years.

Insurance, retirement

Apollo sees Japan as one of the most important markets outside the US for the firm. Heavily exposed to cash and domestic equities in the last two decades, Japanese consumers earned lower returns than US and European peers. Now, facing inflation for the first time in about 20 years, Japanese consumers are looking for safe guaranteed investment products, Michelini said on Apr 11.

The Japanese government has introduced asset management reforms to help bring quality investment products to the market.

Regional insurers are also increasingly enlisting the help of the likes of Apollo to venture into private market investments.

Apollo agreed to take a small stake in Richard Li’s FWD in 2021. FWD said in its filing that Apollo affiliates will help manage part of the Pan-Asian insurer’s investment, across credit and alternative assets. Last year, FWD rolled out the first policy in Singapore that gives customers access to Apollo’s alternative investment expertise. Apollo’s Athene unit also clinched deals to reinsure guaranteed return policies for unidentified Japanese and South-east Asian insurers.

Apollo in November expanded a strategic pact with Challenger, as the Australian investment manager for retirees sought access to developed market yield outside its home country. The two already had an agreement, which includes a venture to build a non-bank lending platform in Australia and New Zealand. A US$500 million commitment in 2022 from HostPlus, one of the largest superannuation funds in Australia, anchored a US$1.25 billion Apollo Asia-Pacific credit strategy.

India opportunities

In one of its largest regional investments, Apollo’s credit funds bought US$750 million of secured notes from Mumbai International Airport two years ago. Proceeds helped the operator of one of India’s largest airports, part of the Adani family’s business empire, refinance shorter-maturity loans and pay for fresh capital expenditure.

Even before landing in Asia, Michelini was involved in the hybrid value business’s deals to finance growth of India’s JSW Cement, and Global Schools Group, a K12 education network based in Singapore.

In 2022, the hybrid unit committed money to help Hero FinCorp, one of the largest closely held non-banking financial firms in India, which is trying to diversify product offerings across retail and corporate lending.

The hybrid value business, which Michelini still chairs, is designed for long-term partnerships with business owners. India proves to be a particular fertile ground for it, where fledgling entrepreneurs seek out investors who can advise them on strategy, management, capital structure and acquisitions without ceding control, Michelini said.

“You have a lot of entrepreneurs who are self-made entrepreneurs or first- or second-generation,” he added. “They have big ambitions for growing their businesses.” BLOOMBERG