Listed private equity firms enjoyed quite a third quarter this year, but that shouldn’t be much of a surprise.
Earlier this year, Apollo chief Leon Black told an audience in Los Angeles that exit opportunities for private equity investments were “almost biblical. There is a time to reap and there’s a time to sow,” adding, almost unnecessarily, that Apollo was reaping. And by the looks of their third quarter results, they’ve reaped quite a bit. The firm reported $192.5 million of economic net income (ENI) (versus $82.8 million from the same period last year) and a 59% spike in revenues. Quarterly profits more than doubled in the third quarter.
Apollo wasn’t the only success story in the PE universe in the third quarter. Oaktree Capital Management ramped up profits by about 70% on the strength of $42.9 million of ENI, up from $25.2 million from 3Q 2012. KKR beat analyst expectations by posting a 20% gain in profits for the third quarter thanks to a sizeable jump in its quarterly ENI, up to $613.7 million in 3Q 2013 compared to $509.9 million in 3Q 2012. KKR’s private equity portfolio did much of the heavy lifting, up 5.9% for the quarter. Blackstone’s PE portfolio rose 4.2% in the third quarter, despite a 54% drop in quarterly revenue, while Carlyle was also in the black, posting a 5% gain in its PE division despite an 88% slide in overall profits.
Stock prices of the four largest publicly traded private equity firms have seen strong growth in 2013, with Apollo, Blackstone and KKR far outperforming the S&P 500’s 25% YTD increase. | Source: PitchBook
A surging stock market is behind many big exits in recent quarters, with investors taking advantage through both IPOs and secondary offerings. Apollo shaved its positions in Realogy Holdings, Norwegian Cruise Line Holdings and LyondellBasell Industries over the third quarter, realizing about $1.3 billion of profit on its Realogy investment alone. Apollo was behind the August IPO of Sprouts Farmers Market, which popped about 123% on its first day of trading, marking the largest first-day gain for a U.S. IPO in more than two years.
PE firms aren’t slowing down either, if fundraising and deal-making trends are any indication. Carlyle is expecting to wrap up its latest flagship buyout fund in the next several weeks with no less than $12.9 billion of commitments. Likewise, Apollo disclosed in its third quarter earnings release that it has raised about $12 billion toward its eighth flagship fund. It’s an industry-wide trend—PitchBook data released in October showed a 67% jump in the number of PE funds closed from 3Q 2012 to 3Q 2013, though almost three-quarters of those funds were for $500 million or less. No mega-funds ($5 billion or more) were closed during the third quarter, the first blank for the industry since 3Q 2012.
What mega-firms lacked in mega-funds, they’ve been making up for in mega-buyouts. KKR has recently been on a deal-making binge, investing $1.8 billion of equity during the third quarter before inking another $1.6-billion buyout deal for The Brickman Group last week. Ares Management closed its $1 billion buyout of CPG International in early October alongside Ontario Teachers’ Pension Plan. Ares was also part of the $6 billion secondary buyout of Neiman Marcus that closed later that month.