If you want a view into the travails of the private equity industry, you can check out the shares of AP Alternative Assets, which is operated by Apollo Management. Traded on the Euronext, the price has gone from $20 in 2006 to $1.
According to a piece in this week's Barron's [a paid publication], AP Alternative Assets could be headed for even more trouble. Keep in mind that the fund focused on the frothy deals of 2006 to 2007 (although, there are some 2008 transactions). This means there are positions in ailing companies like Harrah's, Realogy, and Claire's Stores. Yikes!
Unfortunately, private equity investments are typically structured with small equity positions. So, when valuations collapse -- and the debts need to be restructured -- the equity gets crushed.
True, AP Alternative Assets' losses are unrealized (that is, nothing has been sold off). But, they are still a reflection of the severe problems with private equity. Besides, if you look back at the history of private equity, investors often realize losses when they invest at market peaks.
Another problem with AP Alternative: it's use of leverage. While this can magnify returns, it also can do the reverse.
In other words, as Barron's advises, it's probably best to stay away from shares of AP Alternative Assets for now.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
4-04-2009 @ 3:25PM
RICH BRULATO said...
Apollo has lost too much of its value...not a good investment.
4-04-2009 @ 5:40PM
John said...
Leon Black and his lackeys have helped cause the current economic crisis. They are getting what they deserve, along with the "investors" who gambled with them. Guess the only recourse the gamblers will have is the Madoff "investor" solution: SIPC and a piddling $500,000, courtesy of the US taxpayer.
4-05-2009 @ 3:03PM
Kent said...
The golden era of the PI firms probably is fast closing to an end. The Apollo's, KKR's, Texas Pacific, Carlyles, Blackstones et al specializing in leverage buy-outs will have a tough time finding private investors of the magnitude they once had. Going public is not an easy task either as witnessed in KKR's failed attempt to go public due to the economic melt-down. In due course, each of them will undergo a change in how they do business but I don't foresee them returning to the glory days they once had.