Temptation Returns: Record $23.5 Billion Apollo Buyout Fund

WSJ reported:

Apollo Global Management LLC, the private-equity firm co-founded by billionaire investor Leon Black, has raised $23.5 billion for the world’s largest-ever buyout fund. 

The record-breaking fundraising is the latest demonstration of a surge in investor appetite for leveraged buyout funds, extending a run of records in recent months. 

NYT reported:

Cash is being raised at a rate not seen since 2008. CVC Capital, based in London, raised more than $18 billion for Europe’s largest buyout vehicle earlier this year, Silver Lake pulled together $15 billion for tech deals, and Kohlberg Kravis Roberts set a record in Asia with a $9.3 billion fund while also putting the finishing touches on a $13.9 billion United States fund.

With so much money sloshing around, it is getting harder to imagine how it all will be invested profitably. The research outfit Preqin estimates there is some $920 billion available in private equity. With leverage, that is more than $3 trillion to deploy.

Private equity underwriters (PEU) count on cheap debt, preferred taxation and rising asset prices.  Take away these advantages and the greed/leverage boys have to scramble to hold things together.  Ironically, Senator Evan Bayh helped Apollo keep its preferred taxation, even as Bayh was interviewing to join the Apollo PEU team.  

Cash being raised at a rate not seen since 2008 brings back memories of the go-go PEU years.  Here's Carlyle Group co-founder David Rubenstein in 2010.  Looking back at the financial crisis he said:

“Debt was offered to you no matter what.  Very few of us were able to resist the temptation”--Carlyle chief David Rubenstein 

So what did Mr. Rubenstein do as that cheap debt imploded?

"The flavor of the day is buying your own debt at below face value. I'm buying bank debt in my deal with leverage from the bank that made me that deal"--David Rubenstein in Forbes, May 2008.

There's plenty of PEU cash to make levered deals and buy back affiliate debt on the cheap should the face value of that debt fall.   Apollo Global has $23.5 billion to do just that.