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What are the most likely sources of carry income for Apollo near term? The market is at an all time high, and one would think that's the best environment for realizations, but APO hasn't really rallied to reflect that. ADT isn't the answer. And I doubt any future Apollo-backed IPO that is loaded with debt and a huge APO overhang will do much better. So where will carry come from?
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No. of Recommendations: 2
What are the most likely sources of carry income for Apollo near term? The market is at an all time high, and one would think that's the best environment for realizations, but APO hasn't really rallied to reflect that. ADT isn't the answer. And I doubt any future Apollo-backed IPO that is loaded with debt and a huge APO overhang will do much better. So where will carry come from?

Thanks for the question. The best answer is sell the stock, you don't have confidence in the company.

Alternative responses include a) re-assessing the odds of some of the assumptions you've made given APO's track record, b) APO successfully using other realization channels (sell whole companies to strategic buyers or other investment firms) or using other creative means to sell over time (SPACS - Chuck E. Cheese), c) generating carry from credit and real estate (small potatoes in comparison).

Basically, Apollo has a PE value approach that has generally worked well over a period of decades. If you think this approach will not work in the future, or if you think carry income in the near-term is crucial to the investment thesis, then the good news is that the market is open from 9:30 to 4:00 PM Eastern time. Redeploy your capital into something better.

ET
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I don't have as much confidence in them as you do, but I also know I can be wrong. I have been selling since about a year ago. I sold a bit more yesterday before posting my question. I probably have a quarter of what I used to own left and I'm thinking about what to do with it. I've done well, but only because APO collapsed in 2015/16 and I averaged down agressively.

I'm aware of their long history; it's why I initially bought. But their history over the last 5 years of my ownership makes me question my assumptions regarding their track record. Specifically, I wonder if their playbook for PE works today. ADT indicates maybe not. Does using a SPAC really make a difference? Isn't it still a public company with a bad balance sheet and a huge sponsor overhang?
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But their history over the last 5 years of my ownership makes me question my assumptions regarding their track record.

Five years is a long enough time for a stock to perform and I can certainly understand why you want to shift capital to other opportunities. Given Blackstone's C-Corp announcement this may be a good time to cut Apollo loose if you are so inclined.

Specifically, I wonder if their playbook for PE works today. ADT indicates maybe not. Does using a SPAC really make a difference? Isn't it still a public company with a bad balance sheet and a huge sponsor overhang?

I mentioned the SPAC example because it is an alternative to a traditional IPO. There is nothing inherent to a traditional IPO or SPAC that requires Apollo to bring debt-heavy companies to the market; at the very least they could require their portfolio companies to sell more equity in the IPO; Apollo can also stop doing dividend-recaps prior to the IPO or SPAC.

The advantage of a dividend-recap is that it gooses IRR and cuts LP exposure to the stock. But if enough investors sour on heavy debt loads, presumably Apollo can adjust. I think the history of Apollo reveals a degree of creativity.

Did Apollo bring ADT to the market too soon? Yes, and Leon Black would agree with you. Does that invalidate their process? I don't think so but you may disagree. I'm not even sure that ADT is going to be a loser for Apollo. Investors like Bill Miller are sniffing around ADT at this price; maybe they see something undervalued.

However, if you think Apollo's PE approach is past its sell date then it's time to get out.

Over time I came to the conclusion that online stock posters should not try to convince others to invest or stay invested. (No 'here's 5 reasons why Apollo PE will succeed' or '3 reasons Apollo is undervalued') when a fellow board participant is on the fence.

It's your decision; it's your money.

ET
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