Apollo Global Management was a big seller of its holdings last year, but that wasn’t enough to lift the private equity giant’s profit for the final three months of 2013.
Apollo said on Friday that its profit in the fourth quarter, reported as economic net income after taxes, which includes unrealized gains from investments, fell 36 percent to $421.7 million. That translated to a profit of $1.06 a share, beating the average analyst expectation of 82 cents a share, as compiled by Thomson Reuters.
The decline was largely because of a lower level of carried interest income, the profit that Apollo gets from its investments. The firm said its total carried interest income was $526.8 million in the fourth quarter, 45 percent lower than the period a year earlier.
In explaining this decline, Apollo said that the previous year’s fourth quarter had benefited from a “catch up†of investment profit that was triggered when one of the firm’s big private equity funds reached a minimum threshold for investment performance. The fourth quarter of 2013, however, included no such benefit.
For the full year, Apollo reported a 28 percent increase in economic net income after taxes, to $1.9 billion.
According to generally accepted accounting principles, Apollo reported a 7 percent decline in fourth-quarter profit, to $159.2 million. By that metric, Apollo’s annual profit more than doubled to $659.4 million.
“Our results for the fourth quarter of 2013 completed an exceptional year for Apollo,†Leon D. Black, the firm’s chairman and chief executive, said in a statement. “As we look to 2014 and beyond, we believe Apollo’s integrated global investment platform leaves us well positioned to continue to deliver strong returns to our investors.â€
Mr. Black set the tone for last year when he declared in April that the firm was “selling everything that’s not nailed down.†Indeed, with markets buoyant, many private equity firms moved to sell their holdings in 2013, reaping big gains.
Apollo was among the most active in selling its investments. The firm sold CKE Restaurants, the parent of Carl’s Jr., to the Roark Capital Group, and it sold stock in the grocery store chain Sprouts Farmers Market and the chemical maker LyondellBasell Industries.
As it returned money to investors, Apollo also raised a fresh $18.4 billion buyout fund, the largest in its history. Over all, the firm’s assets under management rose 42 percent to $161.2 billion as of Dec. 31, with the closing of a major acquisition adding $44 billion of those assets.
And yet, Apollo’s private equity business was not as profitable as in the past. The private equity funds appreciated by 9 percent in the fourth quarter, but carried interest â€" a crucial source of profit â€" was somewhat lacking compared with the prior year.
Apollo’s total carried interest income from private equity, including realized and unrealized gains, fell by 49 percent in the quarter to $445.4 million.
Like many other firms, Apollo requires that its private equity funds meet a minimum threshold for investment performance before the firm can collect profit. The sixth private equity fund, a $10 billion war chest, crossed that threshold in the fourth quarter of 2012, giving Apollo an immediate surge of profit that was not duplicated in the recent quarter.
Other business segments performed better in the fourth quarter. Apollo’s credit business reported a 65 percent increase in economic net income to $160.1 million in the quarter, while its real estate business showed a $3.9 million profit, compared with a loss of $1.8 million a year earlier.
Apollo announced a fourth-quarter dividend of $1.08 per Class A share, bringing its dividends to $3.98 per Class A share for the full year.
