August 2, 2018 / 3:40 PM / 14 days ago

Weak private equity performance dents Apollo's second-quarter earnings

(Reuters) - Alternative asset manager Apollo Global Management LLC (APO.N) on Thursday posted a weaker-than-expected rebound in its second-quarter earnings per share, as the value of its private equity investments rose less than rivals.

Apollo’s quarterly economic net income per share came in at 27 cents, missing analysts’ expectations of 54 cents, according to Thomson Reuters I/B/E/S, and compared to 46 cents a year earlier. It followed the New York-based firm’s first quarterly loss since 2016 earlier this year.

Solid quarterly marks reported by peers had raised expectations Apollo would show similarly strong appreciation in its private equity portfolio.

“The shortfall was primarily driven by lighter than expected private equity investment performance,” JMP Securities analyst Devin Ryan, who rates the stock “market outperform”, wrote in a note.

The value of Apollo’s private equity portfolio rose only 1.7 percent in the three months through June, compared with a 9.5 percent appreciation at rival Blackstone Group LP (BX.N), 6.7 percent at KKR & Co Inc (KKR.N) and 3 percent at Carlyle Group LP (CG.O). The benchmark S&P 500 index .SXP rose 2.9 percent in the second quarter.

“We had a couple of things related to retail and Canadian natural gas that we had to mark down but relative to the overall portfolio we’re very positive and excited about where it is,” Apollo co-founder and Senior Managing Director Josh Harris said in an investor call.

Earnings were also hit by a drop in the share price of fixed annuity service provider Athene Holding Ltd (ATH.N), which was spun out of Apollo in 2016 and in which it retains a stake.

Apollo shares were down 3.7 percent at 11:10 a.m. ET.

Overall, second-quarter economic net income, which reflects the mark-to-market valuation gains or losses on Apollo’s portfolio, fell 40.9 percent from a year ago to $108.5 million.

Distributable earnings - the actual cash available for paying dividends - fell to $218.2 from $246.2 million a year earlier.

Apollo’s assets totaled $269.5 billion at the end of June, up from $247.4 billion the previous quarter, boosted by the closing of the acquisition it led for Voya’s annuity business.

Reporting by Joshua Franklin in New York; Editing by Nick Zieminski and Frances Kerry

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