Business

Apollo returning profits to partners in shares

Leon Black’s Apollo Global Management will become the first private-equity giant to return profits to its general partners in the form of stock instead of all cash, The Post has learned.

The firm will pay partners working on its $17.5 billion flagship fund a chunk of their commissions — or the profits made from buying and selling companies — in Apollo’s publicly listed stock.

Moreover, the stock will not fully vest until three years after the successful sale of the company that earned the partner that commission, one source said. Apollo declined to comment.

The move more closely aligns the partners’ interests with those of the firm’s shareholders. It also puts Apollo on the same path as Wall Street investment banks that are paying bonuses more in stock or other deferred compensation to curb the sort of short-term thinking that many blamed for the financial crisis.

The firm’s three top partners — Black, Josh Harris and Marc Rowan — already own sizable slugs of Apollo stock and will not be affected by the change in compensation.

Apollo, along with Blackstone, Carlyle and KKR, is one of the few large publicly traded PE firms. Success in raising money, coupled with its strong performance, could prompt its PE peers to consider a similar move.

“I would think Apollo’s competitors will definitely look at the idea now,” said compensation consultant Andrew Tasnady.

Apollo’s 2006 fund has a 10.5 percent net annual return as of September 2013. By comparison, KKR’s 2006 fund is generating 6.2 percent and Blackstone’s fund a 5.5 percent return.

Last year, Apollo raised the limit on its latest buyout fund to $17.5 billion to meet demand from investors. The fund is nearly 20 percent bigger than the 2008 fund, which hit $14.7 billion.

While earnings can be choppy for PE giants, most have done well since their debuts. Apollo shares, which closed at $28.23 on Friday, have surged more than 70 percent since the firm went public in 2011.

Apollo has made other changes to its pay structure that may not sit well with some partners. If Apollo fires a professional without cause, for instance, the payout does not automatically vest, a source said.

Since 2008, roughly 44 percent of Apollo’s 27 PE partners under the age of 50 have either left or are planning to leave the firm. A source close to Apollo said some of the recent exits were involuntary.

“These people were leaving because they were told to leave,” said the source. “As firms grow, a lot of guys clog up the middle. Some are performing, some are not.”