Apollo Global Management (APO) made a big move by acquiring MidCap Financial. Athene Holding, Apollo’s life insurance arm, is the major investor in MidCap. Apollo’s management has a positive outlook on this partnership, given MidCap’s leadership position and proven credit track record. These features will likely provide a number of opportunities Apollo’s affiliates.
MidCap has AUM (assets under management) of around $7 billion and is targeting AUM of $20 billion over the next five years.
MidCap has various opportunities in niche lending, US leveraged lending, and the US middle market. Niche lending refers to business development companies and direct lending funds that are managed by other public business development companies and publicly traded by alternative asset managers (XLF) like Ares (ARES), KKR (KKR), and Blackstone (BX).
The size of niche lending has been estimated at $58 billion. US leveraged lending and US middle market sizes have been estimated at $875 billion and $139 billion, respectively. In 1Q17, Apollo’s Credit segment AUM stood at $141 billion, of which fee-generating AUM stood at $115 billion.
Performance in 1Q17
Apollo’s Credit division has a value-oriented approach that is similar to private equity. In 1Q17, Athene was the major contributor to performance. Its fair value rose ~5% from the valuation done at the end of 4Q. This rise resulted in a $39 million unrealized gain and net carried interest income of $17 million.
Athene’s AUM of $73 billion is now being partially managed by Apollo. This includes a European portfolio consisting of $5 billion in assets and a US portfolio consisting of $68 billion in assets, which is managed by Athene Asset Management.