Morning Coffee: Apollo plans to pay its partners in a more volatile way. Barclays not cutting much in Asia after all
Times are changing at private equity firm Apollo. Not only is the massive fund trying to alter its culture to become less ruthless and more friendly under new CEO Marc Rowan, but it's rethinking the way it pays its most senior people.
Following Apollo's results yesterday, the Financial Times notes that Rowan is changing the way it pays four senior executives (Matt Nord and David Sambur, who run private equity, John Zito, deputy chief investment officer of credit, and Grant Kvalheim, president of Athene) so that their compensation is more heavily skewed towards stock instead of returns from investing in Apollo's funds.
While these most senior staff are getting stock though, speaking on Apollo's results call yesterday, Rowan also explained that pay for partners below them will now skew more heavily towards income from fund investments instead, and away from income derived from management fees. This is as it should be, said Rowan, describing it as a "constant battle" to keep more of Apollo's fee earnings and earnings from its Athene retirement services business for the fund's investors. By comparison, Apollo's partners are "well suited" to understanding the earnings they get from investing in Apollo's funds, and the volatility of those earnings, Rowan added.
The implication is that most Apollo partners will, in the future, receive a higher proportion of carried interest in their pay and a lower proportion of cash bonuses. This will be a good thing in years when Apollo can actually exit its investments, but in the third quarter of 2023 its income from existing private equity investments was down 92%.
Rowan said "younger people" entering Apollo are "working hard," and that he wants to create a firm where they're motivated by the firm's 200 well-compensated partners. They will have "two amazing generations of mentors," he added. "This is the ecosystem that we're trying to create."
Separately, as Barclays cuts costs, CEO C.S. Venkatakrishnan says it won't be cutting much in Asia after all. This comes after sources in Asia told us Hong Kong cuts were imminent, but Venkatakrishnan says that "proportionately" Asia won't be badly affected, although his enthusiasm for expanding in China appeared tempered.
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Meanwhile:
Ray Dalio, the main mentor and founder at hedge fund Bridgewater, left last year and is now all about his family office and a Xwitter account where he posts extracts from his book on the principles of living. This is a change for Bridgewater. At its Peak, the New York Times says that of the fund's 2,000 employees 80% were working on operations tasks and Dalio's principles and fewer than 20% were involved in investment research. (The New York Times)
Singaporean bank DBS Group Holdings Ltd is banned from acquiring new businesses for six months after a series of outages. (Bloomberg)
It's a bad time to work in private equity. "Many of the reasons these guys outperformed had nothing to do with skill. Borrowing costs were cheap and the liquidity was there. Now, it’s not there. Private equity is going to have a really hard time for a while . . . The wind is blowing in your face today, not at your back." (Financial Times)
Brijesh Goel, the Goldman Sachs banker who joined Apollo and passed trading tips to his friend and squash buddy, was ordered to spend 36 months in prison. “You took the stand right in this chair and you lied again and again and again.” (Bloomberg)
Private equity firm CVC won't be selling 10% stake through the IPO to raise at least €1.5 billion this autumn after all. Markets are too volatile. (Financial Times)
Laura Overdeck, the wife of billionaire hedge fund manager John Overdeck of Two Sigma says that John asked her to sign some documents that moved marital assets to Wyoming trusts but didn't mention that in doing so she was also forfeiting her right to those assets if they divorced. (Forbes)
Two Sigma is spinning out its private equity unit amid internal discontent. The unit employs 20 or so employees and people there are unhappy with the support they've received for external fund raising. (Bloomberg)
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