Apollo Global Management said it swooped in to snap up discounted assets during recent financial market turmoil in the U.K.
On a conference call to discuss Apollo’s
APO,
third-quarter earnings, the private-equity firm said it bought the fixed-income assets sold by the liability-driven investment strategies of U.K. pension funds, which were staving off margin calls when U.K. government gilt yields soared after the poorly received “mini budget” of tax-cut proposals from former Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng.
Both have since resigned, and bond yields
TMBMKGB-10Y,
TMBMKGB-30Y,
in the U.K. have settled down after the Bank of England’s emergency intervention and then policy U-turns made by the new chancellor, Jeremy Hunt.
“Our size, scale and ability to move quickly allowed us to step in and provide stability to the U.K. market in response to LDI-related forced selling at a favorable entry point,” said Scott Kleinman, co-president of Apollo Global Management. “Trading volumes skyrocketed to 800% above average levels when forced selling began, and we accounted for about a third of aggregate liquidity supply.”
Over three weeks in October, the firm bought $1.1 billion of collateralized loan obligations rated Triple A and Double A that were yielding over 8%, he said. “We’re confident that none of our competitors were able to move this swiftly or buy this significantly amid such volatility,” he said.
Like BlackRock Inc.
BLK,
KKR & Co.
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and other major private-equity firms, Apollo has long been known as a key distressed debt player, looking to scoop up assets at bargain prices during bouts of market volatility and stress.
CLOs are funds that invest in leveraged loans to corporations, which Wall Street slices and dices into tradable securities. Unlike subprime mortgage CDOs, CLOs held up better during in 2007-2008 global financial crisis, producing few defaults overall.
Kleinman responded to an analyst by saying there was nothing inherently wrong with the CLO tranches it purchased. “It’s just that happened to be the most liquid asset that those entities had to liquidate in order to cover their leverage and margin issues,” he said.
CLO funds typically offer smaller yields, meaning Apollo is likely to have bought the securities at a substantial discount. The VanEck CLO ETF
CLOI,
which invests in investment grade-rated tranches of CLOs, had a yield of 4.97% on Tuesday.
