FINANCE Bloomberg Businessweek March 11, 201922
Capital, and it’s been sizing up its insurance and
jet-leasing businesses, people familiar with the mat-
ter have said. That’s while GE’s new leader, Larry
Culp, works to revive the conglomerate.
Apollo is the buyout giant led by Leon Black.
Zelter is its co-president. The firm is trying to
rekindle some of GE’s old magic without repeat-
ing the company’s mistakes, which led to a 2008
taxpayer bailout. Few think it will be easy. “Apollo
can still build a great business, but it’s quite hard
to build one of the scale and breadth that GE built,”
says John Dionne, a senior lecturer at Harvard
Business School and a senior adviser to one of
Apollo’s closest competitors, Blackstone Group LP.
The effort is part of the reordering of Wall
Street following the longest recession in 70 years.
No longer do the biggest banks have a monopoly
on extending credit. Firms such as Apollo have
swooped into businesses where regulators have
imposed restrictions on deposit-taking institutions,
like requiring more capital, especially against less
liquid and riskier credit investments.
GE Capital, which once held more than
$500 billion in assets, has shrunk to about one-
fifth its peak size. Zelter is betting Apollo can run
a lending business better than GE could. Apollo’s
credit business already manages $193 billion, the
most of its private equity rivals. And it will bene-
fit from a range of funding sources that GE Capital
can only envy. They include investors in its funds,
its own employees, and Athene Holding Ltd., an
insurance company with more than $125 billion in
assets. Athene invests its funds mostly with Apollo,
which in turn also has a stake in the insurer. “I
don’t come into work every day thinking I want to
have a bigger business than everyone else,” Zelter
says. “Size is a result, not an objective.” Zelter and
an Apollo spokesman declined to comment on any
discussions regarding transactions with GE.
Apollo is no stranger to GE Capital. In 2013 the
firm acquired MidCap Financial, a health-care
lender with a $2 billion portfolio. Two years later,
it boosted MidCap’s growth with the purchase of
$3.6 billion in loans managed by GE Capital and
Abu Dhabi’s Mubadala Development Co.
MidCap now has more than $19 billion of funds
available to lend and is one of Apollo’s largest
permanent capital vehicles, meaning investors
can’t pull their money out on short notice.
MidCap’s investments returned 19 percent in 2018,
according to a February investor presentation. It
finances real estate, mid-market companies, and
corporate takeovers led by other—usually smaller—
private equity firms.
In 2012, Apollo created Merx Aviation Finance,a jet-leasing business. Merx bought 26 planes from
GE Capital Aviation Services a year later and has
acquired 168 aircraft since its founding, accord-
ing to its website. In another transaction last year,
Apollo bought $1 billion of GE Capital’s private
equity investments in the energy sector.
Apollo and Athene have expressed interest in
buying all or part of GE Capital’s insurance business,
people familiar with the matter said. Problems at the
unit, which includes long-term care insurance, have
caused GE to take billions of dollars in writedowns
and spurred a regulatory review. Apollo is one of
only a few potential buyers that would be able to
acquire such a portfolio, which it would then be able
to manage, potentially collecting lucrative fees. GE’s
Culp said it “remains to be seen” whether the com-
pany will sell the insurance business or continue to
manage it without selling new policies. Other private
equity firms such as Blackstone and KKR & Co. have
eyed GE Capital’s assets.
Apollo and Athene have said they’re looking to
expand their ability to originate more loans them-
selves, giving the duo more control over the types
of loans in which they invest. Athene partly owns
AmeriHome Mortgage Co., which makes residen-
tial loans. Apollo also has a publicly traded busi-
ness development corporation—a company that
makes loans to businesses—and a real estate invest-
ment trust that invests in commercial mortgages.
The BDC and REIT structures are additional sources
of permanent capital. Apollo has “the ability to be
more patient with investments,” says Steve Biggar,
an analyst at Argus Research Corp.
Apollo is perhaps best known for its private
equity funds, which buy companies and may load
them with debt to finance the acquisitions. But
credit is its largest business by assets under man-
agement. The firm’s three co-founders—Black, Josh
Harris, and Marc Rowan—know their way around
debt markets, having started their careers at Drexel
Burnham Lambert, the former junk-bond pioneer
run by Michael Milken.
The market for debt is getting riskier, according
to industry leaders such as Howard Marks,
co-founder of $120 billion Oaktree Capital Group.
Investors have been crowding in, raising costs and
making it harder to find good deals. “There’s no
doubt we’re at later stages of the cycle,” Zelter
says. “I wouldn’t want to be investing today
unless I had a large, diverse platform.” Like
Apollo’s.—Sonali Basak, Davide Scigliuzzo, and
Sabrina WillmerTHE BOTTOM LINE General Electric once built a giant financial
business. As the conglomerate falters, Apollo is picking up what it
thinks are the choicest pieces.○ Assets under
management in Apollo’s
credit business$193b