Apollo to Shed Stake in Lighthouse - Analyst Blog


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According to Reuters , Investment Manager Apollo Global Management, LLC ( APO ) is set to vend its stake in Lighthouse Investment Partners LLC, the fund-of-hedge-funds manager. Notably, Australian asset manager - HFA Holdings Ltd. is the owner of Lighthouse.

Impressed by Lighthouse's management team and its business strategies, Apollo Global invested in Lighthouse in 2010, adding a new product line to its assortment of offerings. However, difference of opinion over stratagem and Lighthouse's disappointing performance impelled Apollo to exit the fund.

Over the last three years, Lighthouse has disappointed with its top-line performance and took initiatives to reduce investment management costs to aid bottom-line expansion. However, HFA's holding that gains around 90% of its net operating income from Lighthouse recorded flat income in the three years since Apollo's investment in 2010.

Therefore, followed by Apollo Global's exit, HFA Holdings is chalking an outright sale of Lighthouse. Established in 1998, HFA provides absolute return fund products to retail investors in Australia and was listed on the Australian stock exchange in 2006. Notably, in 2008, HFA acquired Lighthouse for $674.5 million and has over $7 billion of AUM out of $8 billion managed by Lighthouse, as of Sep 30, 2013.

According to the 2011 regulatory filing, as per terms of the agreement, Apollo and a co-investor, the South Carolina Retirement System, got $75 million in HFA notes convertible at 97.66 cents ($A1.1) per share, which equaled 39.6% stake in HFA. Further, the investors received 31.25 million share options at an exercisable price of A$8 per share. Following the deal, Apollo Global distributed the investment products and services of Lighthouse globally.

On the other hand, Lighthouse which specializes in offering personalized managed accounts to investors that pulls together individual hedge fund portfolios, enhanced Apollo's private equity, credit and real estate offerings, making it a competitor for The Blackstone Group L.P. 's ( BX ) BAAM and Kohlberg Kravis Roberts & Co. L.P. 's ( KKR ) Prisma.

Notably, Apollo Global's assets under management (AUM) more than doubled since its investment in HFA. As of Sep 30, 2013, Apollo has AUM of $112.7 billion, including $59.4 billion in credit, $42.8 billion in private equity, and $9.3 billion in real estate.

However, certain disagreements between Apollo Global and Lighthouse and the overall dismal performance of the latter led to the end of this alliance.

We believe that the robust performance of Apollo Global's investment portfolios, particularly its private equity segment, will drive growth going forward. Moreover, the company's strong liquidity position and consistent fund raising ability indicate increased capital deployment activities in the forthcoming quarters. Currently, Apollo Global carries a Zacks Rank #3 (Hold). A better-ranked stock in the same sector includes Artisan Partners Asset Management Inc. ( APAM ) with a Zacks Rank #1 (Strong Buy).

ARTISAN PTNR AM (APAM): Free Stock Analysis Report

APOLLO GLOBAL-A (APO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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