Apollo: Aviva USA deal boosted fee income in 2013
February 11, 2014 by Victor Epstein
Apollo Global Management, the New York City-based private equity firm, reported Friday that its acquisition of Aviva USA helped it increase its revenue from management, advisory and transaction fees by more than $100 million in 2013.
Its management fee revenue rose by $107.6 million, or 17 percent, and it recorded an additional $46.6 million in advisory and transaction fees.
Apollo’s insurance arm – which is called “Athene Holding,” completed the acquisition of Aviva USA on Oct. 2 for $2.6 billion and renamed the West Des Moines-based insurer “Athene USA.” The fee data disclosed Friday morning was part of Apollo’s earnings report for the fourth quarter and all of 2013.
The fourth quarter began Oct. 1 and ended Dec. 31.
The fees data is meaningful to Iowa because a representative for one group of Apollo-controlled employes warned state regulators in July that the private equity firm not only profits from the purchase and sale of companies like Aviva USA, but also drains their assets through excessive management and advisory fees. Jim Baker of the United Here Union said Apollo locks the companies into long-term contracts for those services, which continue after their sale, during his appearance at a hearing on the pending acquisition by the Iowa Insurance Division.
Apollo expects to hold an initial public offering for Athene by Nov. 30, 2015, when it will be spun off as a publicly traded company.
Apollo President Marc Spilker said Friday that the Aviva deal added $44 billion of fee-paying assets to Apollo’s credit segment, according to a transcript of the company’s analyst conference call from SeekingAlpha.com. Another company official indicated Apollo gets about $4 million in annual fees from Athene for each $1 billion of assets it manages.
The Aviva USA deal lifted Athene’s assets to about $60 billion.
“Our 2013 financial results highlight a positive dynamic that we discussed previously, which is the growing earnings contribution from our management business to Apollo’s overall earnings profile,” Spilker said during the analyst call. “Although Athene may be the most visible driver of this evolution, it’s just one example of how we are leveraging our integrated platform and scale to create value for our investors.”
It was unclear exactly how much Athene is paying Apollo in total fees, and a company spokesperson declined to disclose them Friday. However, the various fees listed in Friday’s earnings report indicated sizable year-over-year gains by Apollo.
It said the private equity firm’s annual revenue from advisory and transaction fees grew by 31 percent to $196.6 in 2013 “primarily due to monitoring fees related to Athene.” Fourth quarter revenue from those fees increased 47 percent on a year-over-year basis, or $17.7 million, to $55.2 million “due to increased monitoring fees related to Athene.”
Apollo Chief Financial Officer Martin Kelly credited Athene with supporting the growth of its management fees by $67 million in the fourth quarter. The private equity firm also indicated that it received a a $44 million monitoring fee from Athene in the fourth quarter – nearly double the amount before the Aviva deal was consummated.
“The percentage of Athene-related assets invested in Apollo managed assets was approximately 15 percent as of Dec. 31,” Kelly said, noting that the ratio is expected to increase gradually over time.
Baker told Iowa insurance regulators in July that United Here represents 20,000 employees at the Ceasars Entertainment casino company, which Apollo acquired in 2008 for $17.7. The private equity firm subsequently drained more than $340 million in transaction, asset management, advisory and monitoring fees from Ceasars, he said.
Apollo currently provides asset allocation and related services to Athene, which is legally headquartered in Bermuda and maintains an operational headquarters in West Des Moines. About $9.2 billion of Athene assets were either sub-advised by Apollo or invested in Apollo funds and investment vehicles as f Dec. 31.
Apollo controls the insurer through its private equity division via a limited partnership based in the Channel Islands which held a 72.5 percent ownership stake in Athene as of Dec. 31, according to Friday’s earnings report. Bermuda and the Channel Islands are both noted tax havens.
Apollo plans to grow its insurance arm and funnel that growth through West Des Moines, according to remarks made by Athene CEO Jim Belardi in July. At that time he said the insurer had “no relationship” to Apollo’s private equity business.
Athene announced plans last month to shutter its building in Topeka, Kansas, by the end of this year and shift 220 positions West Des Moines.
Shares of Apollo, which trades under the APO symbol, gained 12 cents Friday to close at $31.90 each. The stock is up 29 cents so far this year.
Apollo shares closed at $14.64 each the day before the pending deal was first announced the morning of Dec. 21, 2012.
