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Apollo has dramatic ambitions for both sides of its balance sheet. Its M&A strategy should therefore be viewed through the prism of both assets and liabilities.
The asset manager is among rumoured bidders for Pension Insurance Corporation, a UK insurer that purchases and manages corporate pensions. PIC’s £39bn in insurance obligations and £44bn investment portfolio is a meaty opportunity for Apollo’s “retirement services” business, which specialises in annuities.
But consider the difference between this deal and one made earlier in the year when Apollo acquired Atlas SP, then a segment of Credit Suisse, which makes securitised loans to banks and speciality finance companies.
Apollo, alongside its insurance affiliates Athene and Athora, wants to be a superior investor of long-dated insurance and pension liabilities. It does so by looking at somewhat more exotic securities beyond publicly traded corporate or government debt. The ostensibly higher returns are supposed to stem from a premium for holding illiquidity.
Apollo’s competitive advantage may really be the fact that it is building a business on a blank sheet of paper. It can step into a void of traditional banks and insurers otherwise burdened by previous mis-steps.
According to its half year filings, PIC has £32bn of investment in either corporate or government bonds. Apollo’s insurance book still has plenty devoted to such traditional asset allocation. But it emphasises 16 distinct “origination platforms” that make secured private loans. Some platforms focus on traditional corporate loans backed by cash flow while others lend against equipment. The idea is to generate a slightly excess return.
Apollo’s share price is up nearly 50 per cent this year. It says that even with $600bn of total assets under management, the global credit and lending market size leaves plenty of room for growth. Competition is fierce and a rumoured £5bn price for PIC would exceed its book value. Pay attention to whether Apollo and its rivals can properly match their asset and liability dreams.
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