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(Bloomberg) -- Apollo Global Management Inc. is expanding two hybrid strategies, which supply financing that sits between credit and private equity, as it ramps up alternatives to buyouts.
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Alternative asset managers are trying to entice investors into new funds such as these after years of poor private equity distributions. Many institutional investors only commit to new vehicles if firms release their capital in old funds.
Some investors say they’ve exceeded the amount they can allot to private equity. However, certain investors can allocate to hybrid equity from other buckets, creating an opening for firms such as Apollo.
“We’re seeing investors allocate capital from their private equity or special situations budgets,” David Sambur, Apollo’s co-head of equity, said in an interview. Hybrid strategies offer “credit-like” yields and equity upside, while getting more protections than would otherwise be found in those funds, he added.
Apollo declined to comment on specific funds.
The firm’s hybrid strategies offer debt and structured-equity capital to firms whose founders want to transform their businesses without relinquishing control. Apollo’s hybrid product has a shorter hold period than typical private equity, but a longer one than private credit. The firm says it aims to provide “value-add solutions” with a less hands-on approach than a typical buyout.
Apollo is set to debut its third vintage fund under its Hybrid Value strategy with a roughly $6 billion target next year.
Meanwhile, Apollo Aligned Alternatives, a fund for wealthy individuals, is on track to hit $20 billion at year end from about $18 billion in November, the firm said on its most recent earnings call.
Apollo sees its hybrid equity business, which houses AAA and Hybrid Value strategies, as a potential replacement for public equities in pension funds, and has touted low-double-digit rates of return. The firm already manages about $70 billion in hybrid strategies.
Many in private markets including Apollo Chief Executive Officer Marc Rowan have been promoting the need for more private, illiquid products in everyday investors’ retirement plans, and say daily access to funds isn’t necessary in these long-term investments.