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 Apollo's Lighthouse investment added a new product line to its
offerings. Disagreements over strategy and disappointment with
Lighthouse's performance, however, have prompted the alternative
asset manager to pursue an exit, the people said this week.
As a result, Australian asset manager HFA Holdings Ltd <HFA.AX>,
which owns Lighthouse and received the investment from Apollo, has
asked investment banking boutique Freeman & Co to explore a variety
of options, including an outright sale of Lighthouse, the people
said.
The sources asked not to be identified because the matter is
confidential. Apollo declined to comment while representatives of
Lighthouse, HFA and Freeman & Co did not immediately respond to
requests for comment.
When Apollo announced its alliance with Lighthouse in December 2010,
Apollo Chief Executive Leon Black said he was extremely impressed
with Lighthouse's management team and its business model, which he
described as "highly complementary."
Since then, Lighthouse has struggled to increase its revenue and has
cut investment management costs to boost its bottom line. Shares in
HFA, which derives around 90 percent of its net operating income
from Lighthouse, have been relatively flat in the three years since
Apollo's investment.
The shares ended trading in Sydney on Wednesday at 77.5 Australian
cents, giving HFA a market value of A$92 million.
As part of the deal, Apollo and a co-investor, the South Carolina
Retirement System, received $75 million in HFA notes convertible at
97.66 U.S. cents ($A1.1) per share and initially equivalent to a
39.6 percent stake in HFA, according to a 2011 regulatory filing.
They also received 31.25 million share options with an exercise
price of A$8 per share.
The deal called for Apollo to distribute the investment products and
services of Lighthouse through its global distribution network.
Lighthouse therefore not only supplemented Apollo's private equity,
credit and real estate offerings, but it also allowed it to compete
with fund-of-hedge-funds units of competitors, including Blackstone
Group LP's <BX.N> BAAM and KKR & Co LP's <KKR.N> Prisma.
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Carlyle Group LP <CG.O> entered the fund-of-hedge-funds space just
two months ago, announcing an agreement to buy Diversified Global
Asset Management Corporation.
HFA had close to $8 billion in assets under management as of the
end of September, with just over $7 billion of that managed by
Lighthouse, which is based in Palm Beach Gardens, Florida, and the
remainder managed by Certitude Global Investments, an Australian
multi-asset investment manager.
HFA was set up in 1998 as a provider of absolute return fund
products to retail investors in Australia and was listed on the
Australian stock exchange in 2006. In 2008, it acquired much larger
asset manager Lighthouse for $674.5 million. Certitude is HFA's
heritage Australian fund business.
Lighthouse specializes in offering investors bespoke managed
accounts that assemble individual hedge fund portfolios. It also
offers funds which attract money from more than one investor.
Apollo's assets under management have more than doubled since it
invested in HFA. It managed $112.7 billion as of the end of
September, including $59.4 billion in credit, $42.8 billion in
private equity, and $9.3 billion in real estate.
(Reporting by Jessica Toonkel and Greg
Roumeliotis in New York; editing by Richard Chang)
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