Apollo IPO Filing Shines Light on Opaque World of Private Equity

Private equity makes up a sizable and growing share of the $53.4 trillion in global assets under management. Yet the private-equity investor remains a faceless if formidable player in the financial markets. The prospectus for Apollo Global Management, filed last week, gives a few interesting glimpses.

Private equity funds-- which make up three quarters of the $40 billion in Apollo's assets under management -- seek to build controlling interests in companies, usually through buyouts. If nimble, they can thrive in good times and bad. Apollo, for example, seeks out distressed or underpriced companies in bear markets.
According to Apollo's filing, if you had invested money the top performing private-equity funds in 1986, you'd have beaten the S&P 500 by 9 percent a year, even after factoring out fees and expenses. Forgetting for a second the other 75 percent of those funds, that kind of statistic draws in big money. Private equity funds raised $282 billion last year, up from $73 billion in 2004.

And who gave them all that money? Apollo's disclosure on that front is interesting. It's not just wealthy individuals or corporations, which accounted for only 10 percent and 9 percent, respectively, of its private equity investments. Public pension funds contributed 33 cents on every dollar raised, and endowments another three cents. Foreign governments, however, made up a quarter of the money in Apollo's funds.

Apollo, in turn, has invested that money in some brand-name companies, Harrah's Entertainment, Smart & Final and Norwegian Cruise Lines. Some made last year, though, are looking more distressed these days: including real-estate firm Realolgy and troubled mortgage lender Countrywide.