Apollo Hybrid Value; any details?

Apollo recently closed what they're calling a "hybrid value" platform, to invest "in senior and subordinated debt along with structured equity investments and buyouts. It typically makes non-control investments in financially stressed or distressed businesses and structured equity, either control or non-control positions that would fund myriad transaction types, including growth capital and deleveraging deals. It typically invests in companies with enterprise values between $750 million and $2.5 billion. It prefers to invest between $75 million and $250 million." (CapIQ)

Anyone have more color on the mandate? Is this just PE/Credit but with even more sophisticated financial engineering in the background? Seems interesting (a little reminiscent of BX Tac Opps) but would love more details. For the control deals, odd to see APO reaching into the LMM space; looks like HV did two transactions this year 2bn ish a piece.


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Comments (38)

  • Intern in IB-M&A
Sep 13, 2019 - 10:46am

This. Definitely not LMM although still curious to know why these buyouts, which look pretty unremarkable, were executed out of the hybrid value fund.

Sep 13, 2019 - 11:14am

Not to beat a dead horse, but you are way off mark defining that holding size as LMM...

"Rage, rage against the dying of the light."
  • Analyst 1 in IB - Cov
May 29, 2021 - 8:02pm

Correct me if I'm wrong, but LMM finds usually refer to funds raised of c. $2-$5bn raised, not the ev of the companies they invest in right?

Considering funds typically invest in 10-25 companies and they cited the CapIQ info, I think this adds up no? 

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  • Associate 2 in Other
Feb 18, 2020 - 12:39pm

it's run by partner who is in charge of fig and on the board of athene
i'd imagine it's a bit of a mixed bag of downside protected growth equity investments, value oriented special sits, occasional buyouts (but in non-competitive processes). generally heavily structured, heavily negotiated, more proprietary opps

Mar 23, 2020 - 11:26am

It is basically a structured equity fund with a very flexible mandate. To the poster above's comment, they are usually working on proprietary opportunities or more off-the-run, special situations type deals. Probably shooting for mid/high-teens IRR through a combination of dividend/current yield and equity-linked upside (i.e. warrants or convert provisions) vs. the 25%+ IRR LBO funds shoot for. Above poster was also correct in that its senior equity, or they have structural downside protections such as liquidation preferences. It's a fairly large fund for the type of deals they are doing, so that only adds to the flexibility of situations they can pursue.

  • 1
  • Analyst 1 in PE - LBOs
Apr 23, 2020 - 11:45am

Know 1 or 2 guys there.... can confirm that what Deeper'N'Cheaper said is pretty much accurate. Minimum $ check they'll write is around $50m, but they aim to do between $100m - $1b sized checks.

Most Helpful
May 7, 2020 - 6:39pm

If helpful: I did a first-round here. Two back-to-back one hour interviews over video conference. First hour is with a principal and just a straight hour of technical questions -- not even an introduction (lol). It's Apollo though so on par with what you'd expect. He asked for my favorite NFL team then created a consultant-like mini case out of it (i.e., how many seats in the stadium, what happens if attendance is down and they try to level out revenue by implementing xyx approach, etc.). The rest was a combination of basic accounting and basic IB interview questions to some more advanced stuff. Just because I know this is WSO and folks are usually clamoring for as much detail as possible, my recommendation would be to brush up on those old IB interview guides and the random finance/accounting interview guides you can find online (solid combo of both). You can also PM me with specific questions.

Edit: Also expect brain teasers and mental math. Again, it's Apollo, so make sure you're going in with the appropriate expectations.

edit again: im getting a bazillion PMs, so I retract that -- stop messaging me with questions. this comment was already way more detailed than the typical WSB post. here's the few questions I remmeber: how do you find transaction comps (he wanted to hear of clever ways, including looking at fairness opinions), something in the bond yield math world (it was simple, I think). and I was interviewing to be an associate. the goal seemed to be to answer as many technical questions in an hour as possible. they ranged from easy to challenging. cant remember if there was options math but frankly that's simple if you review the concepts for 30 minutes. nobody's going to ask you to walk them through an iron condor or iron butterfly or some weird shit like that and if they do, do you really wanna work there?

there, that's all i remember. go study everything. no more PMs pls

Mar 3, 2021 - 8:10pm

I think their first fund was ~$3.25bn...it's the fund in which they did Expedia and Albertsons.  I don't think they are doing LMM buyouts - their average deal size is $500m+.  They haven't done a lot of control deals - maybe one or two but structured control.  They are mainly focused on the 50-80% LTV tranche of a cap structure and they market themselves as being able to do debt or equity.  They also do secondary distressed when markets sell off. 

In the public disclosure, Fund 1 is a 17-18% return fund and they are raising a much larger fund 2 now.  One of my friends works there and they are definitely hiring.  I understand the interview process is fairly rigorous (not unexpected for a big shop) but the group still has a fairly small firm feel with only ~30 people globally.  The closest comps would be TacOpps or Sixth Street.  

Mar 4, 2021 - 7:53am

Associate who just left said it is very good.  Great experience, looked at lots of deals, partners & principals are good mentors, have been at Apollo a long time and care about associate development.    Can get intense at times, especially during March / April sell off last year.

  • Associate 2 in PE - LBOs
Mar 4, 2021 - 8:16pm

I interviewed here – 2 with principals and 1 with a partner. They are Apollo PE's special sits team and have a very flexible mandate (public + private, equity + credit, performing + distressed). You can google the deals they did during COVID, their name was in the news every few weeks last year with a new deal. 

The interview process was intense. One was straight finance technicals while another was a bunch of brainteasers and case study-style questions. Can confirm that I also got the NFL case study question like the above poster. One of the interviewers said their returns are going to beat traditional PE returns because they have no "dogs" in the portfolio and a bunch of deals that are 30%+ IRR. Not sure how much of that has to do with COVID.

Hard to gauge culture from an interview but the people I talked to seemed pretty normal. Headhunter ratio said they're very focused on culture and development, for whatever that's worth.

Mar 5, 2021 - 1:51am

There is always the potential to find pockets of inefficiency with a strategy like this, particularly in market dislocations like we saw last Spring; but in general/aggregate, a hybrid strategy should underperform a pure equity strategy in terms of straight returns (setting aside relative risk). Obviously there are always individual exceptions, and these guys are definitely smart, but boasting that you're going to outperform traditional PE returns on a consistent basis seems misguided. While the private markets certainly aren't perfectly efficient, equity investors do demand a higher return for the higher risk, all else being equal. That's not just an academic argument either, you can see what the Blackstone TacOpps returns have looked like. Investments made in the 12-18 months post-COVID may look great, but over the long run it is difficult to consistently outperform an asset class that almost definitionally takes on more risk in exchange for higher potential returns.

This is a great platform though. Have a friend there. Super smart guys, but make no mistake it's still Apollo's culture, and special sits guys have never been known for being gentle. Caveat emptor.

  • Associate 2 in PE - LBOs
Mar 9, 2021 - 3:27pm

This is supposed to be true, but I've seen plenty of PE firms underwriting common equity in fully-levered LBOs to teens returns in the last few years. So if those guys are taking lower risk and getting similar returns (and better returns in the event of a cycle), then those strategies seem like no-brainers. I might be missing something though.

  • Analyst 1 in IB - Gen
May 29, 2021 - 6:14pm

Anyone for the London office? Seems like a cool strategy but never seen them do any deals on this side of the Atlantic. 
Keen to hear about the team / deals / culture and maybe interviews

May 29, 2021 - 9:07pm

Also if helpful, I interviewed with APO PE when they were internally discussing launching the product. From my discussions with the guys there then (like 2015/2016) the idea was a slightly different product than their flagship PE fund. Slightly lower risk, lower returns to compensate and maybe longer-term investments  as a bonus. I think Michelini was pulled to run it. Sharp guy. I think he did a lot of Athene work so def an impt person there. I think he was the staffer for PE at the time. Later on I think I saw a marketing doc for the fund in like 2019. Marketed how they are quick to close. Can provide big capital amounts. Good liquidity. Sounds like a nice solution for corporates looking to get a solid billion dollar investment quick (like a few weeks to get something signed and closed it seemed). Was not surprised when I saw in the news in 2020 that APO was doing deals with Expedia, airBNB and the like. Sounds like HV was a strong solution for that. I think Josh and team spoke about the fund in earnings calls about raising gen 2. Sounds like solid team. Prob works hard like anything at APO but maybe a bit more credit focused than traditional PE there. Who knows. 

Jun 10, 2021 - 7:01pm

How would you compare hybrid value to its PE? It seems like a catch-all strategy which will give you broader experience, skillsets and exposures. Would it have better exit opps and prestige compared to PE? 

Jul 28, 2021 - 4:35pm

Know 1-2 guys in both APO PE /HVF. From a pure technical standpoint, HVF will probably give you a broader skillset at assoc level. This is because the associates in HVF have both the credit skills to assess the downside risk but also the private equity skillset to assess the upside. These guys will invest anywhere in the capital structure (illiquid credit, converts, pref., other funky structured instruments + plain vanilla equity). I would imagine that their commercial DD will be not as rigorous as PE though precisely because of their downside protection. 

In terms of industry exposure they are pretty similar as both funds are sector agnostic. HVF is Apollo's special opportunities platform so they do a lot of bilateral situations in a potentially quick time frame vs PE team doing more standardised phase 1, phase 2 processes. Tciket sizes clearly will be bigger in PE, although HVF has underwritten large checks as well (e.g. $1.5bn Albertsons). In terms of exits, PE clearly more suitable for tiger cubs whereas HVF could be more interesting for the likes of Elliott etc. who invest across the entire capital structure

  • Associate 2 in PE - LBOs
Sep 14, 2021 - 9:13pm

Technical skill set in HVF is significantly broader than PE for the reasons you mentioned. Diligence rigor is the same as PE because more than half of the team and investment committee used to work in PE. The experience in HVF is also better because the velocity of actionable deals is way higher. For example, they have only 7-8 associates globally but have done 20 deals in just 3 years (COVID rescue financings obviously helped the deal volumes). Meanwhile, there are 50+ associates in PE, most of whom are staying till 1am+ every day creating random industry pages and running public company screens, while the rest are trying to recruit for their next job.

  • Prospect in Research - Other
Jun 10, 2021 - 11:49pm

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  • Intern in IB - Gen
Jul 28, 2021 - 4:40pm

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