PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary sets forth the material terms of this offering, but does not contain all of the information that you should consider before investing in our Class A shares. You should read the entire prospectus carefully, including the section entitled “Risk Factors,” our financial statements and the related notes and management’s discussion and analysis thereof included elsewhere in this prospectus, before making an investment decision to purchase our Class A shares.

Apollo

Founded in 1990, Apollo is a leading global alternative asset manager. We are contrarian, value-oriented investors in private equity, credit-oriented capital markets and real estate, with significant distressed expertise. We have a flexible mandate in the majority of the funds we manage that enables the funds to invest opportunistically across a company’s capital structure. We raise, invest and manage funds on behalf of some of the world’s most prominent pension and endowment funds, as well as other institutional and individual investors. As of December 31, 2009, we had Assets Under Management, or “AUM,” of $53.6 billion in our private equity, capital markets and real estate businesses. Our latest private equity fund, Fund VII, held a final closing in December 2008, raising a total of $14.7 billion. We have consistently produced attractive long-term investment returns in our private equity funds, generating a 39% gross IRR and a 26% net IRR on a compound annual basis from inception through December 31, 2009. A number of our capital markets funds have also performed well since their inception through December 31, 2009.

Apollo is led by our managing partners, Leon Black, Joshua Harris and Marc Rowan, who have worked together for more than 20 years and lead a team of 398 employees, including 135 investment professionals, as of December 31, 2009. This team possesses a broad range of transaction, financial, managerial and investment skills. We have offices in New York, Los Angeles, London, Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai. We operate our private equity, capital markets and real estate businesses in an integrated manner, which we believe distinguishes us from other alternative asset managers. Our investment professionals frequently share information across disciplines, which contributes to our “library” of industry knowledge. We believe that this collaboration, including market insight, management, banking and consultant contacts, as well as investment opportunities, enables us to more successfully invest across a company’s capital structure. This platform and the depth and experience of our investment team have enabled us to deliver strong long-term investment performance in our funds throughout a range of economic cycles. For example, Apollo’s most successful private equity funds (in terms of net IRR), Funds I, II, MIA and Fund V, were initiated during economic downturns. Funds I, II and MIA, which generated a combined gross IRR of 47% and a combined net IRR of 37% on a compound annual basis since inception through the date of the disposition of their final investment on September 30, 2004, were initiated during the economic downturn of 1990 through 1993 and Fund V, which generated a gross IRR of 62% and a net IRR of 46% on a compound annual basis since inception through December 31, 2009, was initiated during the economic downturn of 2001 through late 2003. We began investing our latest private equity fund, Fund VII, in January 2008 in the midst of the current economic downturn. Similarly, with respect to our capital markets business, our flagship Value Funds, which were launched in 2003 and 2006, have also delivered attractive returns since inception across economic cycles.

Our objective is to achieve superior long-term risk-adjusted returns for our fund investors. The majority of our investment funds are designed to invest capital over periods of seven or more years from inception, thereby allowing us to generate attractive long-term returns throughout economic cycles. Our investment approach is value-oriented, focusing on nine core industries in which we have considerable knowledge, and emphasizing downside protection and the preservation of capital. We are frequently contrarian in our investment approach, which is reflected in a number of ways, including:

 

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our willingness to invest in industries that our competitors typically avoid;

 

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the often complex structures we employ in some of our investments, including our willingness to pursue difficult corporate carve-out transactions;

 

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our experience investing during periods of uncertainty or distress in the economy or financial markets when many of our competitors simply reduce their investment activity;

 

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our orientation towards sole sponsored transactions when other firms have opted to partner with others; and

 

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our willingness to undertake transactions that have substantial business, regulatory or legal complexity.

We have successfully applied this investment philosophy over our 20-year history, allowing us to identify what we believe to be attractive investment opportunities, deploy capital across the balance sheet of industry leading, or “franchise,” businesses, and create value throughout economic cycles.

Since the onset of the current global economic crisis, which we believe began in the third quarter of 2007, we have been relying on our deep industry, credit and financial structuring experience, coupled with our strengths as value-oriented, distressed investors, to deploy a significant amount of new capital. As examples of this, from the beginning of the second quarter of 2008 and through December 31, 2009, we have invested approximately $12 billion of capital across our private equity and capital markets funds focused on control distressed and buyout investments, leveraged loan portfolios and mezzanine, non-control distressed and non-performing loans. In addition, from the beginning of the third quarter of 2007 through December 31, 2009, the funds managed by Apollo have acquired approximately $8.5 billion in face value of distressed debt at discounts to par value and purchased over $25 billion in face value of leveraged senior loans at discounts to par value from financial institutions. Since we purchased these leveraged loan portfolios from highly motivated sellers, we were able to secure attractive long-term, low cost financing and select credits of companies well known to Apollo. For the year ended December 31, 2009, the benchmark S&P/LSTA Leveraged Loan Index, which includes a group of securities we believe is similar to those owned by our funds, had a net return of approximately 52%, and the performance of our leveraged loan investments has exceeded this benchmark during this period.

As in prior market downturns, we have been purchasing distressed securities and continue to opportunistically build positions in high quality companies with stressed balance sheets in industries where we have expertise such as cable, chemicals, packaging and transportation. Our approach towards investing in distressed situations often requires us to purchase particular debt securities as prices are declining, since this allows us both to reduce our average cost and accumulate sizable positions which may enhance our ability to influence any restructuring plans and maximize the value of our distressed investments. As a result, our investment approach may produce negative short-term unrealized returns in certain of the funds we manage. However, we concentrate on generating attractive, long-term, risk-adjusted realized returns for our fund investors, and we therefore do not overly depend on short-term results and quarterly fluctuations in the unrealized fair value of the holdings in our funds.

In addition to deploying capital in new investments, we have been depending on our 20 years of experience to enhance value in the current investment portfolio of the funds we manage. We have been relying on our restructuring and capital markets experience to work proactively with our funds’ portfolio company management teams to generate cost and working capital savings, reduce capital expenditures, and optimize capital structures through several means such as debt exchange offers and the purchase of portfolio company debt at discounts to par value. For example, as of December 31, 2009, Fund VI and its underlying portfolio companies purchased or retired approximately $17.2 billion in face value of debt and captured approximately $8.4 billion of discount to par value of debt in portfolio companies such as CEVA Logistics, Harrah’s Entertainment, Realogy and Momentive Performance Materials. In certain situations, such as CEVA Logistics, funds managed by Apollo are the largest owner of the total outstanding debt of the portfolio company. In addition to the attractive return profile

 

associated with these portfolio company debt purchases, we believe that building positions as senior creditors within the existing portfolio companies is strategic to the existing equity ownership positions. Additionally, the portfolio companies of Fund VI have implemented over $2.7 billion of cost savings programs on an aggregate basis from the date we acquired them through December 31, 2009, which we believe will positively impact their operating profitability.

Since the beginning of 2007, we have experienced significant globalization and expansion of our investment management activities. We have grown our global network by opening offices in Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai. Since the beginning of 2007, we have also launched a new private equity fund and a commercial real estate finance company, as well as several new capital markets funds and leveraged investment vehicles with a combined AUM of $32.6 billion as of December 31, 2009. In addition, in order to more fully leverage our long history of investing in the real estate sector, we have hired a senior management team and established a dedicated real estate investment business. Similar to the creation of our real estate business, we expect to continue to grow our company by applying our value-oriented approach across related investment categories which we believe have synergies with our core business and provide attractive opportunities for us to continue to expand our equity base.

We had total AUM of $53.6 billion as of December 31, 2009 consisting of $34.0 billion in our private equity business, $19.1 billion in our capital markets business, and $0.5 billion in our real estate business. See “Risk Factors—Risks Related to Our Businesses—We may not be successful in raising new funds or in raising more capital for certain of our funds.” We have grown our total AUM at a 36.5% compound annual growth rate, or “CAGR,” from December 31, 2004 to December 31, 2009. In addition, we benefit from mandates with long-term capital commitments in both our private equity and capital markets businesses. Our long-lived capital base allows us to invest assets with a long-term focus, which is an important component in generating attractive returns for our investors. We believe our long-term capital also leaves us well-positioned during economic downturns, when the fundraising environment for alternative assets has historically been more challenging than during periods of economic expansion. In addition, our permanent capital vehicles are able to grow organically through continuous investment and reinvestment of capital, which we believe provides us with stability and with a valuable potential source of long-term income. As of December 31, 2009, approximately 90% of our AUM was in funds with a contractual life at inception of seven years or more, and 12% was in permanent capital vehicles with unlimited duration, as highlighted in the chart below:

We expect our growth in AUM to continue over time by creating value in our funds’ existing private equity and capital markets investments, continuing to deploy our available capital in what we believe are attractive investment opportunities, and raising new funds and investment vehicles as market opportunities present themselves. See “Risk Factors—Risks Related to Our Businesses—We may not be successful in raising new funds or in raising more capital for certain of our funds.”

 

Our Businesses

We have three business segments: private equity, capital markets and real estate. We also manage (i) AAA, a publicly listed permanent capital vehicle, which invests substantially all of its capital in or alongside Apollo-sponsored entities, funds, and other investments, and (ii) Palmetto, a separately managed account established to facilitate investments by a third-party institutional investor directly in Apollo-sponsored funds and other transactions. The diagram below summarizes our current businesses:

 

(1)	All data is as of December 31, 2009. The chart does not reflect legal entities or assets managed by former affiliates.

(2)	Includes three funds that are denominated in Euros and translated into U.S. dollars at an exchange rate of €1.00 to $1.43 as of December 31, 2009.

(3)

Includes proceeds from the initial public offering and concurrent private placement by Apollo Commercial Real Estate Finance, Inc., which closed on September 29, 2009, as well as the formation of AGRE CMBS Fund L.P., which raised equity capital during 2009. The proceeds from Apollo Commercial Real Estate Finance Inc.’s initial public offering are net of issuance costs.

As a global alternative asset manager, we earn ongoing management and transaction and advisory fees. We also earn income based on the performance of our funds, and investment income from our investments as general partner and other direct investments. Carried interest from our private equity and certain of our capital markets funds allocates to us a portion of the investment gains that are generated on third-party capital that we invest and typically equals 20% of the returns generated net of fund expenses. Our ability to generate carried interest is an important element of our business and has historically accounted for a significant portion of our income.

Our financial results are highly variable, since carried interest (which generally constitutes a large portion of the income from the funds we manage), and the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. We manage our business and monitor our performance with a focus on long-term performance, an approach that mirrors the investment horizons of the funds we manage and is driven by the investment returns of our funds.

 

Private Equity

Our private equity business had total and fee-generating AUM of $34.0 billion and $28.1 billion as of December 31, 2009, respectively. Our private equity business grew total and fee-generating AUM by a 28.3% and 46.5% CAGR, respectively, from December 31, 2004 through December 31, 2009. From our inception in 1990 through December 31, 2009, our private equity business invested approximately $30.7 billion of equity capital. As of December 31, 2009, our private equity funds had $13.0 billion of uncalled capital commitments, providing us with a significant source of capital for future investment activities. Since inception through December 31, 2009, the returns of our private equity funds have performed in the top quartile for all U.S. buyout funds, as measured by Thomson Financial. Our private equity funds have generated a gross IRR of 39% and a net IRR of 26% on a compound annual basis from inception through December 31, 2009, as compared with a total annualized return of 6% for the S&P 500 Index over the same period. In addition, since our inception, our private equity funds (excluding Fund VII, which closed less than 36 months prior to the valuation date) have achieved a 2.3x average multiple of invested capital. See “—The Historical Investment Performance of Our Funds” for reasons why our historical private equity returns are not indicative of the future results you should expect from our current or future funds or from us.

As a result of our long history of successful private equity investing across market cycles, we believe we have developed a unique set of skills which we rely on to make new investments and to maximize the value of our existing investments. As an example, through our experience with traditional private equity buyouts, we apply a highly disciplined approach towards structuring and executing these types of transactions, the key tenets of which include acquiring companies at below industry average purchase price multiples, and establishing flexible capital structures with long-term debt maturities and few, if any, financial maintenance covenants. We believe our adherence to these tenets has enabled us to construct our private equity portfolios with companies that are well-positioned to withstand market declines and thrive during times of economic recovery, allowing us to deliver attractive long-term returns to investors in our funds.

We believe we have a demonstrated ability to quickly adapt to changing market environments and capitalize on market dislocations through our traditional and distressed buyout approach. In prior periods of strained financial liquidity and economic recession, our private equity funds have made attractive private equity investments by buying the debt of quality businesses (which we refer to as “classic” distressed debt), converting that debt to equity, creating value through active management, and ultimately monetizing the investment. This combination of traditional buyout investing with a “distressed option” has been successful throughout prior economic cycles and has allowed our funds to achieve attractive long-term rates of return in different economic and market environments. In addition, during prior economic downturns we have relied on our restructuring experience and worked closely with our funds’ portfolio companies to maximize the value of our funds’ investments. For example, during the economic downturn during 2001-2003, we successfully restructured several of the portfolio companies in Fund IV that were experiencing financial difficulties, and as a result, Fund IV was able to produce a multiple of invested capital of nearly 1.8x. During this same time period, we relied on our credit market expertise to deploy approximately 54% of the capital from Fund V, primarily in distressed for control situations, and this fund generated a gross IRR of 62% and a net IRR of 46% on a compound annual basis as of December 31, 2009. See “—The Historical Investment Performance of Our Funds” for a discussion of the reasons we do not believe our future IRRs will be similar to the IRRs for Fund V.

 

The following charts summarize the breakdown of our funds’ private equity investments by type and industry from our inception through December 31, 2009.

 

Private Equity Investments by Type		Private Equity Investments by Industry

 

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Includes investments in special purpose entities that invest in debt-related securities of companies included in multiple industries.

Capital Markets

Since Apollo’s founding in 1990, we believe our capital markets expertise has served as an integral component of our company’s growth and success. Our credit-oriented capital markets operations commenced in 1990 with the management of a $3.5 billion high-yield bond and leveraged loan portfolio. Since that time, our capital markets activities have grown significantly, and leverage Apollo’s integrated platform and utilize the same disciplined, value-oriented investment philosophy that we employ with respect to our private equity funds. Our capital markets operations are led by James Zelter, who has served as the managing partner of the capital markets business since April 2006. Our capital markets business had total and fee-generating AUM of $19.1 billion and $14.9 billion, respectively, as of December 31, 2009 and grew its total and fee-generating AUM by a 65.1% and 57.3% CAGR, respectively, from December 31, 2004 through December 31, 2009.

Our credit-oriented capital markets funds have been established to capitalize upon the “library” of information which is generated as a result of Apollo’s integrated platform and deep industry expertise. We seek to participate in high margin capital markets businesses where our industry expertise and “library” of information can be used to generate attractive investment returns. As depicted in the chart below, our capital markets activities span a broad range of the credit spectrum, including non-performing loans, distressed debt, mezzanine debt, senior bank loans and “value-oriented” fixed income.

 

The value-oriented fixed income segment of the capital markets spectrum is the most recent investment area for Apollo, and it is characterized by its ability to generate attractive risk-adjusted returns relative to traditional fixed income investments. An example of our value-oriented fixed income investments is Athene Asset Management LLC, or “Athene Asset Management”. We recently established Athene Asset Management, which is substantially owned by a subsidiary of Apollo, to provide asset management services to Athene Life Re Ltd., or “Athene Life Re,” and other third parties. Athene Life Re is an Apollo sponsored vehicle we formed recently to focus on opportunities in the life reinsurance sector. Athene Life Re sources, analyzes and negotiates the acquisition of fixed annuity policies from primary insurance companies. As of December 31, 2009, Athene Asset Management had over $800 million of AUM.

As of December 31, 2009, our capital markets funds included six global distressed and hedge funds with total AUM of $2.4 billion, three mezzanine funds with total AUM of $4.3 billion, four credit opportunity funds with total AUM of $9.3 billion, and a European non-performing loan fund with total AUM of $1.9 billion. Our capital markets segment also includes separately managed accounts and Athene Asset Management.

Global Distressed and Hedge Funds

We currently manage six global distressed and hedge funds with total AUM of $2.4 billion as of December 31, 2009, that primarily invest in North America, Europe and Asia. Our global distressed and hedge funds utilize similar valued-oriented investment philosophies as our private equity business and are focused on capitalizing on our substantial industry and credit knowledge and network of industry relationships.

Our distressed funds employ similar investment strategies, seeking to identify and capitalize on absolute-value driven investment opportunities. Utilizing flexible investment strategies, these funds primarily focus on investments in distressed companies before, during and after a restructuring, as well as undervalued securities with catalysts. Investments are executed primarily through the purchase or sale of senior secured bank debt, second lien debt, high yield debt, trade claims, credit derivatives, preferred stock and equity.

We have been expanding our international presence and have launched new initiatives to capitalize on capital markets-oriented investment opportunities in Europe and Asia. Our Asian credit-oriented hedge fund is an investment vehicle that seeks to generate attractive risk-adjusted returns throughout economic cycles by capitalizing on investment opportunities in the Asian markets, excluding Japan, and targeting event-driven volatility across capital structures, as well as opportunities to develop proprietary platforms.

Our metals trading fund was established recently to leverage Apollo’s long-standing experience in the metals sector and capitalize upon what we perceive to be inefficiencies in metals-related derivatives, securities and resource companies. The fund’s strategy has a long/short directional approach to alpha generation through investments primarily in aluminum, copper, lead, nickel, platinum, palladium, silver, tin, zinc, gold and mining-related securities. This fund began trading on a limited basis in March 2009 with $40 million of capital from Apollo, and we have begun to raise capital from third-party investors for this fund.

Mezzanine Funds

As of December 31, 2009, we managed one U.S. and two European-based mezzanine funds and related investment vehicles with total AUM of $4.3 billion as of December 31, 2009. AIC, a U.S.-based permanent capital vehicle, is a publicly traded, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the “Investment Company Act,” and to be treated for tax purposes as a regulated investment company under the Internal Revenue Code of 1986, as amended, or the “Internal Revenue Code”. AIC raised over $900 million of permanent investment capital through its initial public offering on the NASDAQ in April 2004. Since that time, AIC has successfully completed several secondary offerings and raised approximately

 

$1.7 billion of incremental permanent investment capital. AIC’s primary focus is to generate both current income and capital appreciation primarily through investments in U.S. senior and subordinated loans, other debt securities and private equity. Our European mezzanine funds, which are unregistered private closed-end investment funds, were established to more fully capitalize upon mezzanine and subordinated debt opportunities with a primary focus in Western Europe.

Senior Credit Funds

We manage senior credit funds, which currently comprise four credit opportunity funds, with total AUM of $9.3 billion as of December 31, 2009. We established our credit opportunity funds, which are primarily oriented towards the acquisition of leveraged loans and other performing senior debt, in late 2007 and 2008 with some of our largest investors in order to capitalize upon the supply-demand imbalances in the leveraged finance market. We have been actively investing these funds since they were formed, and together with our private equity funds, as of December 31, 2009 we have deployed approximately $22.0 billion, including leverage, in credit opportunity investments. We believe our credit opportunity funds benefit from the broad range of investment opportunities that arise as a result of our integrated business model and deep industry and credit expertise. As the opportunity set continues to evolve, we expect we will continue to offer the credit opportunity fund series to capitalize primarily upon senior credit opportunities in the market.

Non-Performing Loan Fund

In May 2007, we launched a European non-performing loan fund. Non-performing loans, or “NPLs,” are loans held by financial institutions that are in default of principal or interest payments for 90 days or more. We anticipate substantial growth in the European NPL market as financial institutions face increasing pressure to improve their balance sheets and make new loans. Currently, our European non-performing loan fund has ten investments in the United Kingdom, Spain and Portugal. In December 2009, the fund closed with €1.3 billion ($1.9 billion) in total commitments.

Strategic Investment Vehicles

In addition to the funds described above, we manage two investment vehicles, AAA and Palmetto, which have been established to invest either directly in or alongside our private equity and capital markets funds and certain other transactions that we sponsor and manage.

AP Alternative Assets, L.P. (AAA)

AAA issued approximately $1.9 billion of equity capital in its initial global offering in June 2006 to invest alongside our private equity funds and directly in our capital markets funds and certain other transactions that we sponsor and manage. The common units of AAA, which represent limited partner interests, are listed on Euronext Amsterdam. On June 1, 2007, AAA’s investment vehicle, AAA Investments, entered into a credit facility that provided for a $900 million revolving line of credit, thus increasing the amount of cash that AAA Investments has available for making investments and funding its liquidity and working capital needs. AAA may incur additional indebtedness from time to time, subject to availability in the credit markets, among other things. In connection with AAA’s ongoing liquidity management and deleveraging strategy, the revolving credit facility was permanently reduced to $612.5 million. In October 2009, AAA Investments repaid $225.0 million to the lenders in return for the right for AAA Investments or one of its affiliates to purchase its debt in the future at a discount to par value, subject to certain conditions. In December 2009 and February 2010, AAA Investments purchased $25.0 million and $37.5 million, respectively, of its own debt for a purchase price of 85% of par value.

Since its formation, AAA has allowed us to quickly target certain investment opportunities by capitalizing new investment vehicles formed by Apollo in advance of a lengthier third-party fundraising process. AAA

 

Investments was the initial investor in one of our mezzanine funds, two of our global distressed and hedge funds, and our non-performing loan fund. AAA Investments’ current portfolio also includes private equity co-investments in Fund VI and Fund VII portfolio companies, certain opportunistic investments and temporary cash investments. AAA may also invest in additional funds and other opportunistic investments identified by Apollo Alternative Assets, L.P., the investment manager of AAA. As of December 31, 2009, AAA Investments had total investments of approximately $1.6 billion.

Due to the recent market volatility and significant tightening of the credit markets, particularly during the fourth quarter of 2008 and first quarter of 2009, AAA Investments took certain steps in an effort to ensure that it continues to maintain appropriate cash reserves. As part of this process, beginning in the fourth quarter of 2008 and continuing into the third quarter of 2009, AAA Investments exercised the right to opt-out of new co-investments alongside Fund VI and Fund VII, as permitted by its co-investment agreements. AAA Investments’ opt-out decisions are made on a case-by-case basis taking into consideration reserves and liquidity at the time of the potential co-investment transaction. Beginning in the third quarter of 2009, AAA Investments resumed making co-investments alongside the private equity funds. In the fourth quarter of 2009, the co-investment agreements with Fund VI and Fund VII were amended. The co-investment agreement with Fund VI was amended to provide that no new co-investments will be made, and only follow-on investments that are expected to protect AAA Investments’ interests in its existing portfolio companies will be made going forward. The co-investment agreement with Fund VII was amended to provide that where a follow-on investment is made with Fund VII for reasons other than to protect AAA Investments’ interest in an existing portfolio company, it will be made at the co-investment percentage that has been set by the board of directors of AAA’s managing general partner for the relevant year (or, if lower, at the percentage necessary to ensure that AAA Investments and Fund VII continue to hold the relevant portfolio company in the same proportions as it is then owned by each of them). The board of directors of AAA’s managing general partner continues to set the Fund VII co-investment percentage for new co-investments at the beginning of each calendar year.

Separately Managed Account

Palmetto is a separately managed account, or “SMA,” for a single investor. As of December 31, 2009, the capital commitments to Palmetto were $759.0 million, which included a capital commitment of $750 million from one institutional investor that is a large state pension fund, and $9.0 million of current commitments from Apollo. Palmetto was established to facilitate investments by such third-party investor directly in our private equity and capital markets funds and certain other transactions that we sponsor and manage. As of December 31, 2009, Palmetto had committed approximately $415 million for investments primarily in our European non-performing loan fund, our private equity funds and SVF.

Institutional investors are expressing increasing levels of interest in SMAs, since these accounts can provide investors with greater levels of transparency, liquidity, and control over their investments as compared to more traditional investment funds. Consequently, we expect our AUM through SMAs to continue to grow over time. For example, in 2009 we established two new SMAs that invest alongside SVF and from which we earn fees.

Real Estate

We have assembled a dedicated team to pursue real estate investment opportunities, which we expect will benefit from Apollo’s long-standing history of investing in real estate-related sectors such as hotels and lodging, leisure, and logistics. Our real estate group, which includes seven investment professionals as of December 31, 2009, is led by Joseph Azrack, who joined Apollo in 2008 with 30 years of real estate investment management experience, serving most recently as President and CEO of Citi Property Investors.

We believe our dedicated real estate platform will benefit from, and contribute to, Apollo’s integrated platform, which will further expand Apollo’s deep real estate industry knowledge and relationships, and also provide structuring expertise. For example, we recently formed ACREFI Management, LLC, an indirect

 

subsidiary of Apollo Global Management, LLC, that serves as the manager for Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI), or “ARI,” a newly organized commercial real estate finance company that has been formed primarily to originate, invest in, acquire, and manage senior performing commercial real estate mortgage loans, commercial mortgage backed securities, or “CMBS,” commercial real estate corporate debt and loans and other real estate-related investments in the United States. On September 29, 2009, ARI completed the initial public offering of 10 million shares of its common stock, at a price to the public of $20.00 per share, for gross proceeds of $200 million, and a concurrent private placement of 500,000 shares of its common stock to Apollo and certain of its affiliates at a price per share equal to the initial public offering price. The proceeds to ARI from the initial public offering and the concurrent private placement, net of related issuance costs, were approximately $208 million.

In addition to ARI, we may seek to serve as the manager or sponsor a series of real estate funds that focus on other opportunistic investments in distressed debt and equity recapitalization transactions, including corporate real estate, distress for control situations, and the acquisition and recapitalization of real estate portfolios, platforms, and operating companies, including non-performing and deeply discounted loans.

In December 2009, we launched AGRE CMBS Fund L.P., a real estate investment vehicle formed to invest principally in CMBS and leverage those investments by borrowing from the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility, or “TALF.”

Competitive Strengths

Over our 20-year history, we have grown to be one of the largest alternative asset managers in the world, which we attribute to the following competitive strengths:

 

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Our Investment Process and Approach to Investing Have Delivered a Strong Track Record. Our track record of generating attractive long-term risk-adjusted private equity fund returns is a key differentiating factor for our fund investors and, we believe, will allow us to continue to expand our AUM and capitalize new investment vehicles. See “—The Historical Investment Performance of Our Funds” for reasons why our historical returns are not indicative of the future results you should expect from our current or future funds or from us. Some of the elements that have enabled us to generate these attractive returns include:

 

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Our flexibility to invest throughout market cycles and across the capital structure—We have consistently invested capital on behalf of our investors throughout economic cycles by focusing on opportunities that we believe are often overlooked by other investors. We believe that our expertise in capital markets, focus on core industry sectors and investment experience allows us to respond quickly to changing environments. Our private equity funds have had success investing in buyouts and credit opportunities during both expansionary and recessionary economic periods.

 

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Our deep industry expertise and focus on complex transactions—We have substantial expertise in nine core industry sectors and our funds have invested in over 300 companies since inception. Our core industry sectors are chemicals; commodities; consumer and retail; distribution and transportation; financial and business services; manufacturing and industrial; media and leisure; packaging and materials; and satellite and wireless. We believe that situational and structural complexity often hides compelling value that competitors may lack the inclination or ability to uncover, and that our industry expertise and comfort with complexity help drive our performance.

 

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Our investment edge creates proprietary investment opportunities—We believe our industry expertise allows us to create strategic platforms and approach new investments as a strategic buyer with synergies, cross-selling opportunities and economies of scale advantages over other purely financial sponsors. Our funds have been the sole financial sponsor in 16 of their last 18 private equity portfolio company transactions.

 

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Our collaboration with portfolio company management teams—We possess two decades of experience working with management teams to help create significant long-term value for the portfolio companies of our funds. We believe we add value to our funds’ investments by working closely with the portfolio company management teams in a number of ways, such as generating cost and working capital savings and optimizing capital structures. For example, as of December 31, 2009, Fund VI and its underlying portfolio companies purchased or retired approximately $17.2 billion of debt and captured approximately $8.4 billion of discount to par value of debt. In addition, from the date of acquisition through December 31, 2009, Fund VI portfolio companies have implemented over $2.7 billion of cost savings programs on an aggregate basis, which we believe will positively impact their operating profitability.

 

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Our Integrated Business Model. Generally, we operate our global franchise as an integrated investment platform with a free flow of information across our businesses. Each of our businesses contributes to and draws from what we refer to as our “library” of information and experience, thereby providing investment opportunities and intellectual capital to the other businesses, which we believe enables our funds to successfully invest across a company’s capital structure. See “Risk Factors—Risks Related to Our Businesses—Possession of material, non-public information could prevent Apollo funds from undertaking advantageous transactions; our internal controls could fail; we could determine to establish information barriers.”

 

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Our Strong, Longstanding Investor Relationships. We manage capital for hundreds of investors in our private equity funds, which include many of the world’s most prominent pension funds, university endowments, financial institutions and individuals. Most of our private equity investors are invested in multiple Apollo private equity funds, and many have invested in one or more of our capital markets funds, including as seed investors in new strategies. We believe that our deep investor relationships have facilitated the growth of our existing businesses and will assist us with the launch of new businesses and investment offerings, thereby increasing our fee-generating AUM.

 

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Long-Term Capital Base. A significant portion of our $53.6 billion of AUM as of December 31, 2009 was long-term in nature. As of December 31, 2009, approximately 90% of our AUM was in funds with a contractual life at inception of seven years or more, including 12% that was in permanent capital vehicles with unlimited duration. Our long-lived capital base allows us to invest assets with a long-term focus, which we believe is an important component in generating attractive returns for our investors. We believe our long-term capital also leaves us well-positioned during economic downturns, when the fundraising environment for alternative assets has historically been more challenging than during periods of economic expansion. In addition, our permanent capital vehicles are able to grow organically through continuous investment and reinvestment of capital, which we believe provides us with stability and with a valuable potential source of long-term income and the ability to invest in growth opportunities throughout economic cycles.

 

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The Continuity of Our Strong Management Team and Reputation. Our managing partners actively participate in the oversight of the investment activities of our funds, have worked together for more than 20 years and lead a team of 135 investment professionals as of December 31, 2009 who possess a broad range of transaction, financial, managerial and investment skills. We have developed a strong reputation in the market as an investor and partner who can make significant contributions to a business or investing decision, and we believe the longevity of our management team is a key competitive advantage.

 

•

Alignment of Interests with Investors in Our Funds and Shareholders. Fundamental to our business model is the alignment of interests of our professionals with those of the investors in our funds, and with those of our shareholders. From our inception through December 31, 2009, our professionals have committed or invested an estimated $1.0 billion of their own capital to our funds. In addition, our practice is to allocate a portion of the management fees and incentive income payable by our funds to

 

our professionals, which we believe serves to incentivize those employees to generate superior risk-adjusted investment returns. Also, the majority of our employees own restricted share units, or “RSUs,” which vest over time, and our managing partners and contributing partners will own         % of the company after giving effect to the IPO (as defined below in “—Recent Developments”). We expect to continue to increase the equity ownership held by our employees over time through additional grants of RSUs in lieu of cash compensation. We believe that the alignment of interests with our shareholders and fund investors helps us to raise new funds, continue to execute our growth strategy and deliver earnings to our shareholders.

Growth Strategy

Our growth and investment returns have been supported by an institutionalized and strategic organizational structure designed to promote teamwork, industry specialization, longevity of capital, compliance and regulatory excellence and internal systems and processes. Our ability to grow our AUM and revenues depends on our performance and on our ability to attract new capital and fund investors, which we have done successfully over the last 20 years.

The following are key elements of our growth strategy:

 

•

continuing to achieve long-term returns in our funds;

 

•

continuing our commitment to our fund investors;

 

•

raising additional investment capital for our current businesses;

 

•

expanding into new investment strategies, markets and businesses; and

 

•

capitalize upon the benefits of being a public company, including the pursuit of complementary and strategic acquisitions.

We cannot assure you that our funds or our current businesses will be successful in raising the capital described above or that any capital they do raise will be on terms favorable to us or consistent with terms of capital that they have previously raised. See “Risk Factors—Risks Related to Our Businesses—We may not be successful in raising new funds or in raising more capital for certain of our funds” and “Risk Factors—Risks Related to Our Business—Changes in the debt financing markets have negatively impacted the ability of our funds and their portfolio companies to obtain attractive financing for their investments and have increased the cost of such financing if it is obtained, which could lead to lower-yielding investments and potentially decreasing our net income” for a more detailed discussion of the risks.

Performance Results

Our revenues and other income consist principally of (i) management fees, which are based upon a percentage of the committed or invested capital (in the case of our private equity funds and certain of our capital markets funds), adjusted assets (in the case of AAA), gross invested capital or fund net asset value (in the case of the rest of our capital markets funds) and stockholders’ equity (in the case of ARI), (ii) transaction and advisory fees received from private equity and certain capital markets portfolio companies in respect of business and transaction consulting services that we provide, as well as advisory services provided to a capital markets fund, (iii) income based on the performance of our funds, which consists of allocations, distributions or fees from our private equity funds, AAA and our capital markets funds, and (iv) investment income from our investments as general partner and other direct investments primarily in the form of net gains from investment activities as well as interest and dividend income. Carried interest from our private equity funds and certain of our capital markets funds entitles us to an allocation of a portion of the income and gains from that fund and is as much as 20% of

 

the net realized income and gains that are achieved by the funds net of fund expenses, generally subject to an annual preferred return for the limited partners of 8% with a “catch-up” allocation to us thereafter. The general partner of each of the funds accrues for its portion of carried interest at each balance sheet date for any changes in value of the funds’ underlying investments. For example, if one of our private equity funds were to exceed the preferred return threshold and generate $100 million of profits net of allocable fees and expenses from a given investment, our carried interest would entitle us to receive as much as $20 million of these net profits less appropriate compensation expense for our investment professionals.

Carried interest from most of our capital markets funds is as much as 20% of either the fund’s income and gain or the yearly appreciation of the fund’s net asset value. For such capital markets funds, we accrue carried interest on both realized and unrealized gains, subject to any applicable hurdles and high-water marks. Certain of our capital markets funds are subject to a preferred return. Our ability to generate carried interest is an important element of our business and has historically accounted for a very significant portion of our income. For the year ended December 31, 2009, management fees, transaction and advisory fees, and carried interest income represented 42%, 6% and 52%, respectively, of our $966.7 million of revenues. See our consolidated and combined financial statements included elsewhere in this prospectus.

In considering the performance information contained in this prospectus, prospective Class A shareholders should bear in mind that such performance information is not indicative of the possible performance of our Class A shares. An investment in our Class A shares is not an investment in any of the Apollo funds, and the assets and revenues of our funds are not directly available to us. As a result of the deconsolidation of most of our funds, we will not be consolidating those funds in our financial statements for periods after either August 1, 2007 or November 30, 2007.

Management further evaluates our segments based on our management and incentive business within each segment. Our management business is generally characterized by the predictability of its financial metrics, including revenues and expenses. This business includes management fee revenues, advisory and transaction revenues, carried interest income from certain of our mezzanine funds, and expenses exclusive of profit sharing, which we believe are more stable in nature. The financial performance of our incentive business, which is dependent upon quarterly mark-to-market unrealized valuations in accordance with accounting principles generally accepted in the United States of America, or “U.S. GAAP,” guidance applicable to fair value measurements, includes carried interest income and profit sharing expense in connection with our investment funds, and is generally less predictable and more volatile in nature.

For more information regarding the financial performance of our segments, refer to “—Summary Historical and Other Data,” which includes our statement of operations information and our supplemental performance measure, ENI, for our management and incentive business, as well as further reconciliation of ENI to Adjusted ENI to identify non-recurring or unusual items for the years ended December 31, 2009, 2008 and 2007.

The Private Offering Transactions and the Strategic Investors Transaction

On August 8, 2007, in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, or the “Securities Act,” we sold 27,000,000 Class A shares, at an initial offering price of $24 per share, to (i) Goldman, Sachs & Co., J.P. Morgan Securities Inc. and Credit Suisse (USA) LLC, which we refer to as the “initial purchasers,” for their resale to qualified institutional buyers that are also qualified purchasers in reliance upon Rule 144A under the Securities Act, and (ii) accredited investors, with the initial purchasers acting as placement agents, in a private placement, as defined in Rule 501(a) under the Securities Act. The initial purchasers exercised their over-allotment option and on September 5, 2007, we sold an additional 2,824,540 Class A shares to the initial purchasers at the price of $24 per share. We refer to this exempt sale of Class A shares to the initial purchasers and to accredited investors as the “Rule 144A Offering.” We entered into a

 

registration rights agreement with the initial purchasers in the Rule 144A Offering, pursuant to which we undertook to register under the Securities Act the Class A shares sold in the Rule 144A Offering. A portion of the Class A shares offered by this prospectus are the shares sold in the Rule 144A Offering. See “Registration Rights.”

In connection with the Rule 144A Offering, on July 16, 2007, we entered into a purchase agreement with Credit Suisse Securities (USA) LLC, one of the Rule 144A Offering initial purchasers, pursuant to which Credit Suisse Management LLC, or the “CS Investor,” purchased from us in a private placement that closed concurrently with the Rule 144A Offering an aggregate of $180 million of the Class A shares at a price per share of $24, or 7,500,000 Class A shares. Pursuant to a shareholders agreement we entered into with the CS Investor, the CS Investor agreed not to sell its Class A shares for a period of one year from August 8, 2007, the closing date of the Rule 144A Offering. We entered into a registration rights agreement with the CS Investor in connection with the private placement transaction pursuant to which we undertook to register under the Securities Act the Class A shares sold therein. A portion of the Class A shares offered by this prospectus are the shares sold in the private placement transaction. See “Registration Rights.” We refer to our sale of Class A shares to the CS Investor as the “Private Placement” and to the Private Placement and the Rule 144A Offering collectively as the “Private Offering Transactions.”

On July 13, 2007, we sold securities to the California Public Employees’ Retirement System, or “CalPERS,” and an affiliate of the Abu Dhabi Investment Authority, or “ADIA,” in return for a total investment of $1.2 billion. We refer to CalPERS and ADIA as the “Strategic Investors.” Upon completion of the Private Offering Transactions, the securities that we sold to the Strategic Investors converted into non-voting Class A shares. We refer to the foregoing issuance of securities, our use of proceeds from that sale and the conversion of such securities into non-voting Class A shares as the “Strategic Investors Transaction.” Pursuant to a lenders rights agreement we have entered into with the Strategic Investors, the Strategic Investors have agreed not to sell any of their Class A shares for a period of two years after the date on which the shelf registration statement of which this prospectus forms a part becomes effective, or the “shelf effectiveness date,” subject to limited exceptions. Thereafter, the amount of Class A shares they may sell is subject to a limit that increases with each year. See “Certain Relationships and Related Party Transactions—Lenders Rights Agreement—Transfer Restrictions.” The Strategic Investors are two of the largest alternative asset investors in the world and have been significant investors with us in multiple funds covering a variety of strategies. In total, from our inception through the date hereof, the Strategic Investors have invested or committed to invest approximately $7.6 billion of capital in us and our funds. The Strategic Investors have been significant supporters of our integrated platform, with one or both having invested in multiple private equity and capital markets funds. The Strategic Investors have no obligation to invest further in our funds, and any future investments by the Strategic Investors in our funds or other alternative investment categories will likely depend on the performance of each Strategic Investor’s overall investment portfolio and other investment opportunities available to them. In connection with our sale of securities to the Strategic Investors, we granted to each of them the option, exercisable until July 13, 2010, to invest or commit to invest up to 10% of the aggregate dollar amount invested or committed by investors in the initial closing of any privately placed fund that we offer to third-party investors, subject to limited exceptions. The Strategic Investors have no obligation to exercise this option.

Structure and Formation of the Company

Apollo Global Management, LLC is a holding company whose primary assets are 100% of the general partner interests in each limited partnership included in the Apollo Operating Group, which is described below under “—Holding Company Structure.” After giving effect to the IPO (as defined below in “—Recent Developments”),         % of the limited partner interests of the Apollo Operating Group entities will be held by Apollo Global Management, LLC through intermediate holding companies, and the remaining         % of the limited partner interests of the Apollo Operating Group entities will be owned directly by Holdings, an entity

 

100% owned, directly or indirectly, by our managing partners and contributing partners. The limited partner interests that the company and Holdings own in the Apollo Operating Group entities represent the company’s and Holdings’ economic interests in the Apollo Operating Group. With limited exceptions, the Apollo Operating Group owns each of the operating entities included in our historical consolidated and combined financial statements as described below under “—Our Assets.”

Apollo Global Management, LLC is owned by its Class A and Class B shareholders. Holders of our Class A shares and Class B share vote as a single class on all matters presented to the shareholders, although the Strategic Investors do not have voting rights in respect of any of their Class A shares. We have issued to BRH Holdings GP, Ltd., or “BRH,” a single Class B share solely for purposes of granting voting power to BRH. BRH is the general partner of Holdings and is a Cayman Islands exempted company owned and controlled by our managing partners. The Class B share does not represent an economic interest in Apollo Global Management, LLC. The voting power of the Class B share, however, increases or decreases with corresponding changes in Holdings’ economic interest in the Apollo Operating Group.

Our shareholders vote together as a single class on the limited set of matters on which shareholders have a vote. Such matters include a proposed sale of all or substantially all of our assets, certain mergers and consolidations, certain amendments to our operating agreement and an election by our manager to dissolve the company.

We intend to continue to employ our current management structure with strong central control by our managing partners and to maintain our focus on achieving successful growth over the long term. This desire to preserve our existing management structure is one of the principal reasons why upon listing of our Class A shares on the New York Stock Exchange, if achieved, we have decided to avail ourselves of the “controlled company” exception from certain of the NYSE governance rules. This exception eliminates the requirements that we have a majority of independent directors on our board of directors and that we have a compensation committee and a nominating and corporate governance committee composed entirely of independent directors. It is also the reason that the managing partners chose to have a manager that manages all of our operations and activities, with only limited powers retained by the board of directors, as long as the Apollo control condition, which is discussed below under “—Our Manager,” is satisfied.

We refer to the formation of the Apollo Operating Group described below under “—Holding Company Structure,” “—Our Manager,” “—Our Assets” and “—Equity Interests Retained by Our Managing Partners and Contributing Partners,” the deconsolidation of most Apollo funds described below under “—Deconsolidation of Apollo Funds” and the borrowing under the AMH credit facility and the related distribution to our managing partners described below under “—Distribution to Our Managing Partners Prior to the Private Offering Transactions,” collectively, as the “Reorganization.”

Prior to the Reorganization, our business was conducted through a number of entities as to which there was no single holding entity but that were separately owned by our managing partners. In order to facilitate the Rule 144A Offering, which closed in August 2007, we effected the Reorganization to form a new holding company structure. Additional entities were formed during 2008 to create our current holding company structure.

 

The diagram below depicts our current organizational structure after giving effect to the IPO (as defined below)⁽¹⁾ (see “Our Structure” for a more detailed diagram and see “—Recent Developments” for a discussion of the IPO).

 

(1)

Adjusted numbers giving effect to the IPO assume that              Class A shares are offered and sold by Apollo Global Management, LLC, and the net proceeds thereof are contributed to the Apollo Operating Group, thereby increasing the economic interest held by our Class A shareholders, taken as a whole, in the Apollo Operating Group from             % to             %.

(2)

After giving effect to the IPO, investors in the Rule 144A Offering and investors in the IPO (together, the “Public Investors”) will hold         % of the Class A shares, the CS Investor will hold         % of the Class A shares, and the Strategic Investors will hold         % of the Class A shares. After giving effect to the IPO, the Class A shares held by Public Investors will represent         % of the total voting power of our shares entitled to vote and         % of the economic interests in the Apollo Operating Group. After giving effect to the IPO, Class A shares held by the CS Investor will represent         % of the total voting power of our shares entitled to vote and         % of the economic interests in the Apollo Operating Group. Class A shares held by the Strategic Investors do not have voting rights and after giving effect to the IPO, will represent         % of the economic interests in the Apollo Operating Group. Such Class A shares will become entitled to vote upon transfers by a Strategic Investor in accordance with the agreements entered into in connection with the Strategic Investors Transaction.

 

(3)

Our managing partners own BRH, which in turn holds our only outstanding Class B share. After giving effect to the IPO, the Class B share will represent         % of the total voting power of our shares entitled to vote but no economic interest in Apollo Global Management, LLC. Our managing partners’ economic interests are instead represented by their indirect ownership, through Holdings, of         % of the limited partner interests in the Apollo Operating Group after giving effect to the IPO.

(4)	Through BRH Holdings, L.P., our managing partners own limited partner interests in Holdings.

(5)

After giving effect to the IPO, will represent         % of the limited partner interests in each Apollo Operating Group entity. The Apollo Operating Group units held by Holdings are exchangeable for Class A shares, as described below under “—Equity Interests Retained by Our Managing Partners and Contributing Partners.” Our managing partners, through their interests in BRH and Holdings, will own         % of the Apollo Operating Group units after giving effect to the IPO. Our contributing partners, through their ownership interests in Holdings, will own         % of the Apollo Operating Group units after giving effect to the IPO.

(6)	BRH is the sole member of AGM Management, LLC, our manager. The management of Apollo Global Management, LLC is vested in our manager as provided in our operating agreement. See “Description of Shares—Operating Agreement” for a description of the authority that our manager exercises.

(7)

After giving effect to the IPO, will represent         % of the limited partner interests in each Apollo Operating Group entity, held through intermediate holding companies. Apollo Global Management, LLC also indirectly owns 100% of the general partner interests in each Apollo Operating Group entity.

Holding Company Structure

Apollo Global Management, LLC, through three intermediate holding companies (APO Corp., APO Asset Co., LLC and APO (FC), LLC), will own         % of the economic interests of, and operates and controls all of the businesses and affairs of, the Apollo Operating Group and its subsidiaries after giving effect to the IPO. Holdings will own the remaining         % of the economic interests in the Apollo Operating Group after giving effect to the IPO. Apollo Global Management, LLC consolidates the financial results of the Apollo Operating Group and its consolidated subsidiaries. Holdings’ ownership interest in the Apollo Operating Group is reflected as Non-Controlling Interests in Apollo Global Management, LLC’s consolidated financial statements.

The “Apollo Operating Group” consists of the following partnerships: Apollo Principal Holdings I, L.P. (a Delaware limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings II, L.P. (a Delaware limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings III, L.P. (a Cayman Islands exempted limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings IV, L.P. (a Cayman Islands exempted limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings V, L.P. (a Delaware limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings VI, L.P. (a Delaware limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings VII, L.P. (a Cayman Islands exempted limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings VIII, L.P. (a Cayman Islands exempted limited partnership that is a partnership for U.S. Federal income tax purposes), Apollo Principal Holdings IX, L.P. (a Cayman Islands exempted limited partnership that is a partnership for U.S. Federal income tax purposes), and Apollo Management Holdings, L.P. (a Delaware limited partnership that is a partnership for U.S. Federal income tax purposes). Apollo Global Management, LLC conducts all of its material business activities through the Apollo Operating Group.

Each of the Apollo Operating Group partnerships holds interests in different businesses or entities organized in different jurisdictions. Apollo Principal Holdings I, L.P. holds certain of our domestic general partners of our private equity funds and our domestic co-invest vehicles of our private equity funds as well as the domestic general partner of one of our real estate funds; Apollo Principal Holdings VI, L.P. holds certain of our domestic general partners of our private equity funds and our domestic co-invest vehicles of our private equity funds and certain of our capital markets funds; Apollo Principal Holdings II, L.P. holds certain of our domestic general partners of capital markets funds; Apollo Principal Holdings III, L.P. and Apollo Principal Holdings VII, L.P. generally hold our foreign general partners of private equity funds, including the foreign general partner of AAA Investments, our private equity foreign co-invest vehicles, one of our capital markets foreign co-invest vehicles, and one of our capital markets domestic co-invest vehicles; Apollo Principal Holdings IV, L.P. holds our foreign general partners of capital markets funds; Apollo Principal Holdings VIII, L.P. holds two capital markets foreign

 

co-invest vehicles; Apollo Principal Holdings IX, L.P. holds the domestic general partners of certain of our capital markets funds; and AMH holds the management companies for our private equity funds (including AAA), our capital markets funds and our real estate funds.

Our structure is designed to accomplish a number of objectives, the most important of which are as follows:

 

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We are a holding company that is qualified as a partnership for U.S. Federal income tax purposes. Our intermediate holding companies enable us to maintain our partnership status and to meet the qualifying income exception. See also “Material Tax Considerations—Material U.S. Federal Tax Considerations—Taxation of the Company—Taxation of Apollo” for a discussion of the qualifying income exception.

 

•

We have historically used multiple management companies to segregate operations for business, financial and other reasons. Going forward, we may increase or decrease the number of our management companies or partnerships within the Apollo Operating Group, based on our views regarding the appropriate balance between (a) administrative convenience and (b) continued business, financial, tax and other optimization.

Our Manager

Our operating agreement provides that so long as the Apollo Group (as defined below) beneficially owns at least 10% of the aggregate number of votes that may be cast by holders of outstanding voting shares, our manager, which is 100% owned by BRH, will conduct, direct and manage all activities of Apollo Global Management, LLC. We refer to the Apollo Group’s beneficial ownership of at least 10% of such voting power as the “Apollo control condition.” So long as the Apollo control condition is satisfied, our manager will manage all of our operations and activities and will have discretion over significant corporate actions, such as the issuance of securities, payment of distributions, sales of assets, making certain amendments to our operating agreement and other matters, and our board of directors will have no authority other than that which our manager chooses to delegate to it. See “Description of Shares.”

For purposes of our operating agreement, the “Apollo Group” means (i) our manager and its affiliates, including their respective general partners, members and limited partners, (ii) Holdings and its affiliates, including their respective general partners, members and limited partners, (iii) with respect to each managing partner, such managing partner and such managing partner’s “group” (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended, the “Exchange Act”), (iv) any former or current investment professional of or other employee of an “Apollo employer” (as defined below) or the Apollo Operating Group (or such other entity controlled by a member of the Apollo Operating Group), (v) any former or current executive officer of an Apollo employer or the Apollo Operating Group (or such other entity controlled by a member of the Apollo Operating Group) and (vi) any former or current director of an Apollo employer or the Apollo Operating Group (or such other entity controlled by a member of the Apollo Operating Group). With respect to any person, “Apollo employer” means Apollo Global Management, LLC or such other entity controlled by Apollo Global Management, LLC or its successor as may be such person’s employer.

Holders of our Class A shares and Class B share have no right to elect our manager, which is controlled by our managing partners through BRH. Although our manager has no business activities other than the management of our businesses, conflicts of interest may arise in the future between us and our Class A shareholders, on the one hand, and our managing partners, on the other. The resolution of these conflicts may not always be in our best interests or those of our Class A shareholders. We describe the potential conflicts of interest in greater detail under “Risk Factors—Risks Related to Our Organization and Structure—Potential conflicts of interest may arise among our manager, on the one hand, and us and our shareholders on the other hand. Our manager and its affiliates have limited fiduciary duties to us and our shareholders, which may permit them to favor their own interests to the detriment of us and our shareholders.” We will reimburse our manager and its

 

affiliates for all costs incurred in managing and operating us, and our operating agreement provides that our manager will determine the expenses that are allocable to us. Our operating agreement does not limit the amount of expenses for which we will reimburse our manager and its affiliates.

Our Assets

Prior to the Private Offering Transactions, our managing partners contributed to the Apollo Operating Group their interests in each of the entities included in our historical consolidated and combined financial statements, but excluding the “excluded assets” described under “Our Structure—Reorganization—Excluded Assets.” As discussed further below, the managing partners received partnership interests in Holdings (representing an indirect ownership interest of an equivalent number of Apollo Operating Group units) in respect of the interests they contributed to the Apollo Operating Group.

Certain assets were not contributed to the Apollo Global Management, LLC structure as these assets were either at the end of their life (e.g., general partners of Funds I, II and III) or these assets were owned by the managing partners and the contributing partners. The managing partners chose which assets were to be included in the Apollo Global Management, LLC structure. Except for the general partners of Funds I, II and III, none of the excluded assets were included in the combined financial statements of the Apollo Operating Group prior to the Reorganization. As a result of the Reorganization, the general partner interests were treated as distributions to the managing partners and other Reorganization adjustments in the “Statements of Changes in Shareholders’ Equity and Partners’ Capital.” See our consolidated and combined financial statements included elsewhere in this prospectus.

The following is a condensed list of excluded assets from the Reorganization (for a more detailed description, see “Our Structure—Reorganization—Excluded Assets”);

 

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our managing partners’ personal investments or co-investments in our funds (subject to certain limitations);

 

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amounts owed to any managing partners pursuant to any Apollo deferral or waiver programs or carried interest earned but held in escrow;

 

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our managing partners’ interests in Apollo Real Estate, Ares and the general partners of Funds I, II and III;

 

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compensation and benefits paid or given to the managing partners consistent with the terms of their employment agreements (as described below under “Management—Executive Compensation—Employment Non-Competition and Non-Solicitation Agreements with Managing Partners”);

 

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director options issued prior to January 1, 2007 by any of our funds’ portfolio companies;

 

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an entity partially owned by our managing partners (without any economics) that has 100% voting control over the investment of Fund VI in Harrah’s Entertainment, Inc.; and

 

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other miscellaneous, non-core assets.

In addition, prior to the Private Offering Transactions, our contributing partners contributed to the Apollo Operating Group a portion of their rights to receive a portion of the management fees and incentive income that are earned from management of our funds, or “points.” We refer to such contributed points as “partner- contributed interests.” In return for a contribution of points, each contributing partner received an interest in Holdings (representing an indirect, unit-for-unit ownership interest of an equivalent number of Apollo Operating Group units).

Prior to the exchange, the points held by each managing partner and contributing partner were designated values based upon the estimated 2007 cash flows of each entity that was contributed to the Apollo Operating

 

Group and from which such partner was to receive management fees and incentive income. The 2007 estimated cash flow of the entities contributed was agreed between the managing partners and the contributing partners to be the best proxy for measuring the total value of the interests that were contributed by each partner to the Apollo Operating Group. As such, the partnership interests in Holdings that were granted to each managing partner and contributing partner correspond to the aggregate value of the points such partner contributed. Specifically, for purposes of determining the number of Apollo Operating Group units each managing partner and contributing partner was to receive, the aggregate value of the points contributed by a given partner was divided by the aggregate value of all points contributed by all of the managing partners and contributing partners to determine a percentage of the ownership such partner had in the Apollo Operating Group prior to the completion of the Private Offering Transactions and the Strategic Investors Transaction (for each managing partner and contributing partner, his or her “AOG Ownership Percentage”). In order to achieve the offering size targeted in the Private Offering Transactions within the proposed offering price range per Class A share, the managing partners also determined the aggregate amount of units that the Apollo Operating Group should issue and have outstanding immediately prior to the completion of the Private Offering Transactions and Strategic Investors Transaction. This aggregate amount of Apollo Operating Group units was then allocated to each managing partner and contributing partner based upon their respective AOG Ownership Percentage. For example, if a partner contributed points constituting an AOG Ownership Percentage of 10% of the aggregate value of all points contributed to the Apollo Operating Group, such partner received 10% of the aggregate amount of Apollo Operating Group units issued and outstanding prior to the completion of the Private Offering Transactions and Strategic Investors Transaction.

Each contributing partner continues to own directly those points that such contributing partner did not contribute to the Apollo Operating Group or sell to the Apollo Operating Group in connection with the Strategic Investors Transaction. Each contributing partner remained entitled (on an individual basis and not through ownership interests in Holdings) to receive payments in respect of his partner-contributed interests with respect to fiscal year 2007 based on the date his partner-contributed interests were contributed or sold as described below under “—Distributions to Our Managing Partners and Contributing Partners Related to the Reorganization.” The Strategic Investors similarly received a pro rata portion of our net income prior to the date of the Private Offering Transactions for our fiscal year 2007, calculated in the same manner as for the managing partners and contributing partners, as described in more detail under “Our Structure—Strategic Investors Transaction.” In addition, we issued points in Fund VII, and intend to issue points in future funds, to our contributing partners and other of our professionals.

As a result of these contributions and the contributions of our managing partners, the Apollo Operating Group and its subsidiaries generally are entitled to:

 

•

all management fees payable in respect of all our current and future funds as well as transaction and other fees that may be payable by these funds’ portfolio companies (other than fees that certain of our professionals have a right to receive, as described below);

 

•

50% – 66% (depending on the particular fund investment) of all incentive income earned from the date of contribution in relation to investments by our current private equity and capital markets funds (with the remainder of such incentive income continuing to be held by certain of our professionals);

 

•

all incentive income earned from the date of contribution in relation to investments made by our future private equity and capital markets funds, other than the percentage we determine to allocate to our professionals, as described below; and

 

•

all returns on current or future investments of our own capital in the funds we sponsor and manage.

With respect to our existing funds that are currently investing, as well as any future funds that we may sponsor, we intend to continue to allocate a portion of the management fees, transaction and advisory fees and incentive income earned in relation to these funds to our professionals, including the contributing partners, in

 

order to better align their interests with our own and with those of the investors in these funds. Our current estimate is that approximately 20% to 40% of management fees, 20% of transaction and advisory fees and 34% to 50% of incentive income earned in relation to our funds will be allocated to our investment professionals, although these percentages may fluctuate up or down over time. When apportioning incentive income to our professionals, we typically cause our general partners in the underlying funds to issue these professionals limited partner interests, thereby causing our percentage ownership of the limited partner interests in these general partners to fluctuate. Our managing partners will not directly receive any allocations of management fees, transaction and advisory fees or incentive income, and all of their rights to receive such fees and incentive income earned in relation to our actively investing funds and future funds will be solely through their ownership of Apollo Operating Group units, until July 13, 2012.

The income of the Apollo Operating Group (including management fees, transaction and advisory fees and incentive income) benefits Apollo Global Management, LLC to the extent of its equity interest in the Apollo Operating Group. See “Business—Fees, Carried Interest, Redemption and Termination.”

Equity Interests Retained by Our Managing Partners and Contributing Partners

In exchange for the contribution of assets described above and after giving effect to the Strategic Investor Transactions, Holdings (which is owned by BRH and the contributing partners) received 80.0% of the limited partnership units in the Apollo Operating Group. We use the terms “Apollo Operating Group unit” or “unit in/of Apollo Operating Group” to refer to a limited partnership unit in each of the Apollo Operating Group partnerships. We refer to the managing partners’ and contributing partners’ contribution of assets to the Apollo Operating Group and Holdings’ receipt of Apollo Operating Group units in exchange therefor as the “Apollo Operating Group Formation.”

Our managing partners, through their interests in BRH and Holdings, will own     % of the Apollo Operating Group units and, through their ownership of BRH, the Class B share that we have issued to BRH, in each case after giving effect to the IPO. Our managing partners have entered into an agreement, which we refer to as the “Agreement Among Managing Partners,” providing that each managing partner’s interest in the Apollo Operating Group units that he holds indirectly through his interest in BRH and Holdings is subject to vesting. Each of Messrs. Harris and Rowan vests in his interest in the Apollo Operating Group units in 60 equal monthly installments, and Mr. Black vests in his interest in the Apollo Operating Group units in 72 equal monthly installments. Although the Agreement Among Managing Partners was entered into on July 13, 2007, for purposes of its vesting provisions, our managing partners are credited for their employment with us since January 1, 2007. In the event that a managing partner terminates his employment with us for any reason, he will be required to forfeit the unvested portion of his Apollo Operating Group units to the other managing partners. The number of Apollo Operating Group units that must be forfeited upon termination depends on the cause of the termination. See “Certain Relationships and Related Party Transactions—Agreement Among Managing Partners.” However, this agreement may be amended and the terms and conditions of the agreement may be changed or modified upon the unanimous approval of the managing partners. We, our shareholders (other than the Strategic Investors, as set forth under “Certain Relationships and Related Party Transactions—Lenders Rights Agreement—Amendments to Managing Partner Transfer Restrictions”) and the Apollo Operating Group have no ability to enforce any provision of this agreement or to prevent the managing partners from amending the agreement or waiving any of its obligations.

Pursuant to a shareholders agreement that we entered into with our managing partners prior to the Private Offering Transactions, which we refer to as the “Managing Partners Shareholders Agreement,” no managing partner may voluntarily effect transfers of the interests in Apollo Operating Group units that such managing partner owns through BRH and Holdings or Class A shares into which such Apollo Operating Group units are exchanged, or his “Equity Interests,” for a period of two years after the shelf effectiveness date, subject to certain

 

exceptions, including an exception for certain transactions entered into by one or more managing partners the results of which are that the managing partners no longer exercise control over us or the Apollo Operating Group or no longer hold at least 50.1% of the economic interests in us or the Apollo Operating Group. The transfer restrictions applicable to Equity Interests held by our managing partners and the exceptions to such transfer restrictions are described in more detail under “Certain Relationships and Related Party Transactions—Managing Partner Shareholders Agreement—Transfer Restrictions.” Our managing partners and contributing partners also were granted demand, piggyback and shelf registration rights through Holdings which are exercisable six months after the shelf effectiveness date.

Our contributing partners, through their interests in Holdings, will own     % of the Apollo Operating Group units after giving effect to the IPO. Pursuant to the agreements by which our contributing partners contributed their partner-contributed interests to the Apollo Operating Group and received interests in Holdings, which we refer to as the “Roll-Up Agreements,” no contributing partner may voluntarily effect transfers of his Equity Interests for a period of two years after the shelf effectiveness date. The transfer restrictions applicable to Equity Interests held by our contributing partners are described in more detail under “Certain Relationships and Related Party Transactions—Roll-Up Agreements.”

Subject to certain procedures and restrictions (including the vesting schedules applicable to our managing partners and any applicable transfer restrictions and lock-up agreements described above), upon 60 days’ written notice prior to a designated quarterly date, each managing partner and contributing partner will have the right to cause Holdings to exchange the Apollo Operating Group units that he owns through his partnership interest in Holdings for Class A shares, to sell such Class A shares at the prevailing market price (or at a lower price that such managing partner or contributing partner is willing to accept) and to distribute the net proceeds of such sale to such managing partner or contributing partner. We have reserved for issuance 240,000,000 Class A shares, corresponding to the number of existing Apollo Operating Group units held indirectly through Holdings by our managing partners and contributing partners. Upon receipt of the notice described above, APO Corp., one of our intermediate holding companies, will purchase from us the number of Class A shares that are exchangeable for the Apollo Operating Group units to be surrendered by the managing partner or contributing partner. To effect the exchange, a managing partner or contributing partner, through Holdings, must then simultaneously exchange one Apollo Operating Group unit, being an equal limited partner interest in each Apollo Operating Group entity, for each Class A share received from our intermediate holding companies. As a managing partner or contributing partner exchanges his Apollo Operating Group units, our interest in the Apollo Operating Group units will be correspondingly increased and the voting power of the Class B share will be correspondingly decreased. If and when any managing partner or contributing partner, through Holdings, exchanges an Apollo Operating Group unit for a Class A share of Apollo Global Management, LLC, the relative economic ownership positions of the exchanging managing partner or contributing partner and of the other equity owners of Apollo (whether held at Apollo Global Management, LLC or at the Apollo Operating Group) will not be altered. We considered whether this redemption feature results in accounting implications under U.S. GAAP which requires securities with redemption features that are not solely within the control of the issuer to be classified outside of permanent equity. The extent of our obligation is to (i) exchange physical Class A shares for Apollo Operating Group units and (ii) sell the shares at the prevailing market price on behalf of the holder. We never have any future cash obligations to the unit holders. Specifically, in the event we are unable to sell the Class A shares, we are not required to provide liquidity to the holders of Apollo Operating Group units in any manner. Rather, in the event that we were unable to sell the Class A shares, the transaction would essentially be unwound and the Class A shares would be converted back to Apollo Operating Group units. Based on U.S. GAAP and the terms of this feature, we are deemed to control settlement by delivery of our own shares, and as noted above, we have reserved for issuance a sufficient number of shares to settle any contracts. As such, Non-Controlling Interest is reported in the consolidated and combined financial statements of the company within shareholders’ equity, separately from the total Apollo Global Management, LLC shareholders’ equity.

 

Deconsolidation of Apollo Funds

Certain of our private equity and capital markets funds have historically been consolidated into our financial statements, due to our controlling interest in certain funds notwithstanding that we have only a non-controlling equity interest in these funds. Consequently, our pre-Reorganization financial statements do not reflect our ownership interest at fair value in these funds, but rather reflect on a gross basis the assets, liabilities, revenues, expenses and cash flows of our funds. We amended the governing documents of most of our funds to provide that a simple majority of the funds’ unaffiliated investors have the right to liquidate that fund. These amendments, which became effective on either August 1, 2007 or November 30, 2007, deconsolidated these funds that have historically been consolidated in our financial statements. Accordingly, we no longer reflect the share that other parties own in total assets and Non-Controlling Interests in these respective funds. The deconsolidation of these funds will present our financial statements in a manner consistent with how Apollo evaluates its business and the related risks. Accordingly, we believe that deconsolidating these funds will provide investors with a better understanding of our business.

Tax Considerations

We believe that under current law, Apollo Global Management, LLC is treated as a partnership and not as a corporation for U.S. Federal income tax purposes. An entity that is treated as a partnership for U.S. Federal income tax purposes is not a taxable entity and incurs no U.S. Federal income tax liability. Instead, each partner is required to take into account its allocable share of items of income, gain, loss and deduction of the partnership in computing its U.S. Federal income tax liability, regardless of whether cash distributions are then made. Investors in this offering will be deemed to be limited partners of Apollo Global Management, LLC for U.S. Federal income tax purposes. Accordingly, an investor will generally be required to pay U.S. Federal income taxes with respect to the income and gain of Apollo Global Management, LLC that is allocated to such investor, even if Apollo Global Management, LLC does not make cash distributions. See “Material Tax Considerations—Material U.S. Federal Tax Considerations” for a summary discussing certain U.S. Federal income tax considerations related to the purchase, ownership and disposition of our Class A shares as of the date of this offering.

The U.S. Federal income tax law that determines the tax consequences of an investment in Class A shares is under review and is potentially subject to adverse legislative, judicial or administrative change, possibly on a retroactive basis, including possible changes that would result in the treatment of our long-term capital gains as ordinary income, that would cause us to become taxable as a corporation and/or have other adverse effects. On December 9, 2009, the House of Representatives passed H.R. 4213, the Tax Extenders Act of 2009. If enacted, this bill would preclude us from qualifying for treatment as a partnership for U.S. Federal income tax purposes under the publicly traded partnership rules and could change the character of portions of our income from capital gain to ordinary income. Such legislation does provide a transition rule that could defer corporate treatment for 10 years. If this or any similar legislation or regulation were to be enacted and apply to us, we would incur a substantial increase in our tax liability and it could well result in a reduction in the value of our Class A shares. See “Risk Factors—Risks Related to Taxation—The U.S. Federal income tax law that determines the tax consequences of an investment in Class A shares is under review and is potentially subject to adverse legislative, judicial or administrative change, possibly on a retroactive basis, including possible changes that would result in the treatment of our long-term capital gains as ordinary income, that would cause us to become taxable as a corporation and/or have other adverse effects,” “Risk Factors—Risks Related to Our Organization and Structure—Members of the U.S. Congress have introduced and the House of Representatives has passed legislation that would, if enacted, preclude us from qualifying for treatment as a partnership for U.S. Federal income tax purposes under the publicly traded partnership rules. If this or any similar legislation or regulation were to be enacted and apply to us, we would incur a substantial increase in our tax liability and it could well result in a reduction in the value of our Class A shares” and “Material Tax Considerations—Material U.S. Federal Tax Considerations—Administrative Matters—Possible New Legislation or Administrative or Judicial Action.”

 

Distribution to Our Managing Partners Prior to the Private Offering Transactions

On April 20, 2007, AMH, one of the entities in the Apollo Operating Group, entered into a credit facility, or the “AMH credit facility,” under which AMH borrowed a $1.0 billion variable-rate term loan. We used these borrowings to make a $986.6 million distribution to our managing partners and to pay related fees and expenses. This distribution was a distribution of prior undistributed earnings, and an advance on possible future earnings, of AMH. As a result, this distribution caused the managing partners’ accumulated equity basis in AMH to become negative. As of the date hereof, the AMH credit facility is guaranteed by Apollo Management, L.P.; Apollo Capital Management, L.P.; Apollo International Management, L.P.; Apollo Principal Holdings II, L.P.; Apollo Principal Holdings IV, L.P.; Apollo Principal Holdings V, L.P.; Apollo Principal Holdings IX, L.P.; and AAA Holdings, L.P. and matures on April 20, 2014. It is secured by (i) a first priority lien on substantially all assets of AMH and the guarantors and (ii) a pledge of the equity interests of each of the guarantors, in each case subject to customary carveouts.

Distributions to Our Managing Partners and Contributing Partners Related to the Reorganization

We made distributions to our managing partners and contributing partners that represented all of the undistributed earnings generated by the businesses contributed to the Apollo Operating Group prior to July 13, 2007. For this purpose, income attributable to carried interest on private equity funds related to either carry-generating transactions that closed prior to July 13, 2007 or carry-generating transactions in respect of which a definitive agreement was executed, but that did not close, prior to July 13, 2007 were treated as having been earned prior to that date. Undistributed earnings of the contributed businesses through the date of the Reorganization that were attributable to the managing partners and contributing partners for the sold portion of their interest were $238.4 million and $148.6 million, respectively, and were recorded in the consolidated and combined financial statements as a component of due to affiliates and profit sharing payable, respectively. There were no undistributed earnings that were attributable to the managing partners and contributing partners for the sold portion of their interest at the December 31, 2009 and 2008 balance sheet dates.

In addition, we have also entered into a tax receivable agreement with our managing partners and contributing partners which requires us to pay them 85% of any tax savings received by APO Corp. from our step-up in tax basis. In our consolidated and combined financial statements, the item due to affiliates includes $514.0 million and $516.6 million that was payable to our managing partners and contributing partners in connection with the tax receivable agreement as of December 31, 2009 and 2008, respectively.

As part of the Reorganization, the managing partners and the contributing partners received the following:

 

•

Apollo Operating Group units having a fair value per unit of $24 and $20 issued to the managing partners and contributing partners respectively on issuance date with a total approximate value of $5.6 billion (subject to five- or six-year vesting);

 

•

$1.2 billion in cash in July 2007, excluding any potential contingent consideration;

 

•

In January 2008 and April 2008, a preliminary and final distribution related to a contingent consideration of $37.7 million. The determination of the amount and timing of the distribution were based on net income with discretionary adjustments, all of which were determined by Apollo Management Holdings GP, LLC, the general partner of AMH. Included in the distribution were AAA restricted depositary units, or “RDUs,” valued at approximately $12.7 million and a distribution of interests in Apollo VIF Co-Investors, LLC in settlement of deferred compensation units in Apollo Value Investment Offshore Fund, Ltd. of approximately $0.8 million; and

 

•

The fair value of carried interest related to the sale of portfolio companies where definitive sales contracts were executed but had not closed at July 13, 2007. We accrued an estimated payment of approximately $387.0 million at December 31, 2007, of which $200.2 million was distributed during

 

the year ended December 31, 2008. The definitive sales contract in respect of which the remaining $186.8 million was accrued was terminated during the fourth quarter of 2008 and, as a result, no amounts were accrued at December 31, 2009 and 2008.

The Historical Investment Performance of Our Funds

In this “Prospectus Summary” and elsewhere in this prospectus, we present information relating to the historical performance of our funds, including certain legacy Apollo funds that do not have a meaningful amount of unrealized investments and the general partners of which have not been contributed to Apollo Global Management, LLC.

When considering the data presented in this prospectus, you should note that the historical results of our funds are not indicative of the future results that you should expect from such funds, from any future funds we may raise or from your investment in our Class A shares. An investment in our Class A shares is not an investment in any of the Apollo funds, and the assets and revenues of our funds are not directly available to us. As a result of the deconsolidation of most of our funds, we will not be consolidating those funds in our financial statements for periods after either August 1, 2007 or November 30, 2007. The historical and potential future returns of the funds we manage are not directly linked to returns on our Class A shares. Therefore, you should not conclude that continued positive performance of the funds we manage will necessarily result in positive returns on an investment in our Class A shares. However, poor performance of the funds that we manage would cause a decline in our revenue from such funds, and would therefore have a negative effect on our performance and in all likelihood the value in our Class A shares. There can be no assurance that any Apollo fund will continue to achieve the same results as historically achieved.

Moreover, the historical returns of our funds should not be considered indicative of the future results you should expect from such funds or from any future funds we may raise, in part because:

 

•

market conditions during previous periods were significantly more favorable for generating positive performance, particularly in our private equity business, than the market conditions we have experienced for the last two years and may continue to experience for the foreseeable future;

 

•

our funds’ returns have benefited from investment opportunities and general market conditions that currently do not exist and may not repeat themselves, and there can be no assurance that our current or future funds will be able to avail themselves of profitable investment opportunities;

 

•

our private equity funds’ rates of return, which are calculated on the basis of net asset value of the funds’ investments, reflect unrealized gains and unrealized losses, which gains and losses may never be realized;

 

•

our funds’ returns have historically benefited from investment opportunities and general market conditions that may not repeat themselves, including the availability of debt capital on attractive terms, and we may not be able to achieve the same returns or profitable investment opportunities or deploy capital as quickly;

 

•

the historical returns that we present in this prospectus derive largely from the performance of our earlier private equity funds, whereas future fund returns will depend increasingly on the performance of our newer funds, which may have little or no investment track record;

 

•

Fund VI and Fund VII are several times larger than our previous private equity funds, and we may not be able to deploy this additional capital as profitably as our prior funds;

 

•

the attractive returns of certain of our funds have been driven by the rapid return of invested capital, which has not occurred with respect to all of our funds and we believe is less likely to occur in the future;

 

•

our track record with respect to our capital markets and real estate funds is relatively short as compared to our private equity funds;

 

•

in recent years, there has been increased competition for private equity investment opportunities resulting from the increased amount of capital invested in private equity funds and periods of high liquidity in debt markets, which may result in lower returns for the funds; and

 

•

our newly established funds may generate lower returns during the period that they take to deploy their capital.

Finally, our private equity IRRs have historically varied greatly from fund to fund. For example, Fund IV has generated a 11% gross IRR and 8% net IRR since inception through December 31, 2009, while Fund V has generated a 62% gross IRR and 46% net IRR since inception through December 31, 2009. Accordingly, the IRR going forward for any current or future fund may vary considerably from the historical IRR generated by any particular fund, or for our private equity funds as a whole. Future returns will also be affected by the applicable risks described elsewhere in this prospectus, including risks of the industries and businesses in which a particular fund invests. See “Risk Factors—Risks Related to Our Businesses—The historical returns attributable to our funds should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our Class A shares.”

Recent Developments

On January 22, 2010, the company announced that Kenneth Vecchione will be departing the company to pursue other interests. Mr. Vecchione ceased to serve as the company’s Chief Financial Officer effective January 22, 2010, and he is continuing to support the company in transitioning his role until his final departure date, which will be no later than March 31, 2010. The company has initiated a search for a permanent successor to Mr. Vecchione. In the interim, Barry Giarraputo, the company’s Chief Accounting Officer and Controller, was appointed Chief Financial Officer effective January 22, 2010.

We are planning to sell              Class A shares in an initial public offering of our Class A shares (referred to as the “IPO”) for net proceeds of approximately $             million based on the midpoint of the estimated offering price range of $             to $            . The primary purpose of the IPO is to facilitate shareholder liquidity upon listing on the NYSE. We plan to use the net proceeds we receive from the Class A shares offered in the IPO for general corporate purposes and to fund growth initiatives. In addition, certain of our existing shareholders may sell an aggregate of              Class A shares in the IPO. However, we will not receive any of the proceeds from the sale of Class A shares by the selling shareholders participating in the IPO. None of the Strategic Investors or our affiliates, managing partners or employees will participate in the IPO as selling shareholders. The registration statement of which this prospectus forms a part also includes a prospectus for the IPO.

Investment Risks

An investment in our Class A shares involves a high degree of risk. Some of the more significant challenges and risks include those associated with our susceptibility to conditions in the global financial markets and global economic conditions, the volatility of our revenue, net income and cash flow, our dependence on our managing partners and other key investment professionals, our ability to retain and motivate our existing investment professionals and recruit, retain and motivate new investment professionals in the future and risks associated with adverse changes in tax law and other legislative or regulatory changes. See “Risk Factors” for a discussion of the factors you should consider before investing in our Class A shares.

Our Corporate Information

Apollo Global Management, LLC was formed in Delaware on July 3, 2007. Our principal executive offices are located at 9 West 57th Street, New York, New York 10019, and our telephone number is (212) 515-3200.

 

The Offering

 

Shares Offered for Resale by the Selling Shareholders in this Offering

Class A shares

 

Shares to be Offered for Sale by Apollo Global Management, LLC in the IPO

Class A shares

 

Shares to be Offered for Sale by Selling Shareholders in the IPO

Class A shares

Shares Outstanding After Giving Effect to the IPO:

 

Class A Shares

Class A shares

 

Class B Shares

1 Class B share

Shares Held by Our Managing Partners After Giving Effect to the IPO:

 

Class A Shares

None

 

Class B Share

Our managing partners indirectly hold the single Class B share that we have issued to BRH, representing       % of the total voting power of our shares entitled to vote.

Apollo Operating Group Units Held After Giving Effect to the IPO:

 

By Us

or       % of the total Apollo Operating Group units

 

Indirectly By Our Managing Partners and Contributing Partners

240,000,000 or       % of the total Apollo Operating Group units

Voting:

 

Class A Shares

One vote per share (except that Class A shares held by the Strategic Investors and their affiliates do not have any voting rights).

 

Class B Share

Initially, 240,000,000 votes. In the event that a managing partner or contributing partner, through Holdings, exercises his right to exchange the Apollo Operating Group units that he owns through his partnership interest in Holdings for Class A shares, the voting power of the Class B share will be proportionately reduced.

 

Voting Rights

Holders of our Class A shares (other than the Strategic Investors and their affiliates, who have no voting rights) and our Class B share vote together as a single class on all matters submitted to our shareholders for their vote or approval. So long as the Apollo control condition is satisfied, however, our manager manages all of our operations and activities and exercises substantial control over extraordinary matters and other structural changes. You will have only limited voting rights

 

on matters affecting our businesses and will have no right to elect our manager, which is owned and controlled by our managing partners. Moreover, our managing partners, through their ownership of BRH, will hold       % of the total combined voting power of our shares entitled to vote after giving effect to the IPO, and thus are able to exercise control over all matters requiring shareholder approval. See “Description of Shares.”

 

Use of Proceeds

We will not receive any proceeds from the sale of the Class A shares pursuant to this prospectus.

 

Cash Dividend Policy

Our intention is to distribute to our Class A shareholders on a quarterly basis substantially all of our net after-tax cash flow from operations in excess of amounts determined by our manager to be necessary or appropriate to provide for the conduct of our businesses, to make appropriate investments in our businesses and our funds, to comply with applicable law, to service our indebtedness or to provide for future distributions to our Class A shareholders for any one or more of the ensuing four quarters. Our quarterly dividend is determined based on available cash flow from our management companies as well as any special activities which provide excess cash flow from our private equity or capital markets funds. Items such as the sale of a portfolio company, dividends from portfolio companies and interest income from the funds debt investments typically provide excess cash flows for distribution. In light of the continued turmoil in the global financial markets, we have been taking steps to ensure that we continue to maintain appropriate reserves to invest in new businesses and to meet obligations that may arise should the markets deteriorate further. Because we will not know what our actual available cash flow from operations will be for any year until sometime after the end of such year, we expect that a fourth quarter dividend payment, if any, will be adjusted to take into account actual net after-tax cash flow from operations for that year. From time to time, management may also declare special quarterly distributions based on investment realizations. Our Class B shareholder is not entitled to any dividends.

 

The declaration, payment and determination of the amount of our quarterly dividend will be at the sole discretion of our manager. We cannot assure you that any dividends, whether quarterly or otherwise, will or can be paid. See “Cash Dividend Policy” for a discussion of the factors our manager is likely to consider in regard to our payment of cash dividends.

Because we are a holding company that owns intermediate holding companies, the funding of each dividend, if declared, will occur in three steps, as follows:

 

•

first, we will cause one or more entities in the Apollo Operating Group to make a distribution to all of its partners, including our wholly-owned subsidiaries APO Corp., APO (FC), LLC and APO Asset Co., LLC (as applicable), and Holdings, on a pro rata basis;

 

•

second, we will cause our intermediate holding companies, APO Corp., APO (FC), LLC and APO Asset Co., LLC (as applicable), to distribute to us, from their net after-tax proceeds, amounts equal to the aggregate dividend we have declared; and

 

•

third, we will distribute the proceeds received by us to our Class A shareholders on a pro rata basis.

If Apollo Operating Group units are issued to other parties, such as employees, such parties would be entitled to a portion of the distributions from the Apollo Operating Group as partners described above.

In addition, the partnership agreements of the Apollo Operating Group partnerships provide for cash distributions, which we refer to as “tax distributions,” to the partners of such partnerships if the general partners of such partnerships determine that the taxable income of the relevant partnership will give rise to taxable income for its partners. Generally, these tax distributions will be computed based on our estimate of the net taxable income of the relevant partnership allocable to a partner multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. Federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of our income). The Apollo Operating Group partnerships will make tax distributions only to the extent distributions from such partnerships for the relevant year were otherwise insufficient to cover such tax liabilities and all such distributions will be made to all partners on a pro rata basis based upon their respective interests in the applicable partnership. On January 8, 2009, we declared a special tax distribution amounting to $0.05 per Class A share. The distribution was paid on January 15, 2009 to Class A shareholders of record on January 12, 2009. No such tax distribution will necessarily be required to be distributed by us for future periods, and there can be no assurance that we will pay cash dividends on the Class A shares in an amount sufficient to cover any tax liability arising from the ownership of Class A shares.

 

Managing Partners’ and Contributing Partners’ Exchange Rights

Subject to certain procedures and restrictions (including the vesting schedules applicable to our managing partners and any applicable transfer restrictions and lock-up agreements), at any time and from time to time, each managing partner and contributing partner has the right to cause Holdings to exchange Apollo Operating Group units for Class A shares to sell such Class A shares at the prevailing market price (or at a lower price that such managing partner or contributing partner is willing to accept) and to distribute the net proceeds of such sale to such managing partner or contributing partner. We have reserved for issuance 240,000,000 Class A shares, corresponding to the number of existing Apollo Operating Group units held by our managing partners and contributing partners. To effect an exchange, a

 

managing partner or contributing partner, through Holdings, must simultaneously exchange one Apollo Operating Group unit, being an equal limited partner interest in each Apollo Operating Group entity, for each Class A share received. As a managing partner or contributing partner exchanges his Apollo Operating Group units, our interest in the Apollo Operating Group units will be correspondingly increased and the voting power of the Class B share will be correspondingly reduced. If and when any managing partner or contributing partner, through Holdings, exchanges an Apollo Operating Group unit for a Class A share of Apollo Global Management, LLC, the relative economic ownership positions of the exchanging managing partner or contributing partner and of the other equity owners of Apollo (whether held at Apollo Global Management, LLC or at the Apollo Operating Group) will not be altered. See “Our Structure—Reorganization—Holding Company Structure” for further discussion of our Reorganization structure.

Any exchange of the Apollo Operating Group units generally is expected to result in increases in the tax basis of the tangible and intangible assets of APO Corp. that would not otherwise have been available. These increases in tax basis are expected to increase (for tax purposes) the depreciation and amortization deductions available to APO Corp. and therefore reduce the amount of tax that APO Corp. would otherwise be required to pay in the future. APO Corp. has entered into a tax receivable agreement with Holdings whereby it agrees to pay to Holdings 85% of the amount of actual cash savings, if any, in U.S. Federal, state and local income taxes that APO Corp. realizes as a result of these increases in tax basis. In the event that other of our current or future subsidiaries become taxable as corporations and acquire Apollo Operating Group units in the future, or if we become taxable as a corporation for U.S. Federal income tax purposes, we expect that each will become subject to a tax receivable agreement with substantially similar terms. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

NYSE Listing

We intend to apply for our Class A shares to be listed on the NYSE under the symbol “        .” The listing is subject to approval of our application.

 

Risk Factors

Please read the section entitled “Risk Factors” beginning on page 36 for a discussion of some of the factors you should carefully consider before deciding to invest in our Class A shares.

 

References in this section to the number of our Class A shares outstanding, and the percent of our voting rights held, exclude:

 

•

240,000,000 Class A shares issuable upon exchange of the Apollo Operating Group units and interests in our Class B share by Holdings on behalf of our managing partners and contributing partners;

 

•

interests granted or reserved under our equity incentive plan, consisting of:

 

•

20,477,101 restricted share units, or “RSUs,” (net of forfeited awards) that were granted during the year ended December 31, 2007, subject to vesting, to certain employees and consultants;

 

•

an additional 10,181,229 RSUs (net of forfeited awards) that were granted during the year ended December 31, 2008, subject to vesting, to certain employees and consultants;

 

•

1,371,685 RSUs (net of forfeited awards) that were granted during the year ended December 31, 2009, subject to vesting, to certain employees; and

 

•

effective as of January 1, 2009, 78,706,931 Class A shares were reserved for issuance under the equity incentive plan. Under certain circumstances, the plan is subject to automatic increases annually. As of December 31, 2009, 46,676,916 Class A shares remained available for issuance pursuant to our equity incentive plan.

 

Summary Historical and Other Data

The following summary historical consolidated and combined financial and other data of Apollo Global Management, LLC should be read together with “Our Structure,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated and combined financial statements and related notes included elsewhere in this prospectus.

We derived the summary historical consolidated and combined statements of operations data of Apollo Global Management, LLC for the years ended December 31, 2009, 2008 and 2007 and the summary historical consolidated and combined statements of financial condition data as of December 31, 2009 and 2008 from our consolidated and combined financial statements, which are included elsewhere in this prospectus.

We derived the summary consolidated and combined statements of financial condition data as of December 31, 2007 from our audited consolidated and combined financial statements which are not included in this prospectus.

The summary historical financial data are not indicative of our expected future operating results. In particular, after undergoing the Reorganization on July 13, 2007 and providing liquidation rights to investors of most of the funds we manage on either August 1, 2007 or November 30, 2007, Apollo Global Management, LLC no longer consolidates in its financial statements the majority of the funds that have historically been consolidated in our financial statements.

 

		Year Ended December 31,
		2009				2008				2007(e)
		(in thousands)
Statement of Operations Data
Revenues:
Advisory and transaction fees from affiliates		$	56,075			$	145,181			$	150,191
Management fees from affiliates			406,257				384,247				192,934
Carried interest income (loss) from affiliates			504,396				(796,133	)			294,725
Total Revenues			966,728				(266,705	)			637,850
Expenses:
Compensation and benefits			1,495,010				843,600				1,450,330
Interest expense			50,252				62,622				105,968
Interest expense—beneficial conversion feature			—				—				240,000
Professional fees			33,889				76,450				81,824
Litigation settlement(a)			—				200,000				—
General, administrative and other			61,066				71,789				36,618
Placement fees			12,364				51,379				27,253
Occupancy			29,625				20,830				12,865
Depreciation and amortization			24,299				22,099				7,869
Total Expenses			1,706,505				1,348,769				1,962,727
Other Income (Loss):
Net gains (losses) from investment activities			510,935				(1,269,100	)			2,279,263
Gain from repurchase of debt(b)			36,193				—				—
Dividend income from affiliates			—				—				238,609
Interest income			1,450				19,368				52,500
Income (loss) from equity method investments			83,113				(57,353	)			1,722
Other income (loss)			41,410				(4,609	)			(36	)
Total Other Income (Loss)			673,101				(1,311,694	)			2,572,058
(Loss) Income Before Income Tax (Provision) Benefit			(66,676	)			(2,927,168	)			1,247,181
Income tax (provision) benefit			(28,714	)			36,995				(6,726	)
Net (Loss) Income			(95,390	)			(2,890,173	)			1,240,455
Net (income) loss attributable to Non-Controlling Interests in Consolidated Entities(c)			(460,226	)			1,176,116				(2,088,655	)
Net loss attributable to Non-Controlling Interests in Apollo Operating Group(d)			400,440				801,799				278,549
Net Loss attributable to Apollo Global Management, LLC		$	(155,176	)		$	(912,258	)		$	(569,651	)
Dividends Declared per Class A share		$	0.05			$	0.56			$	—

 

		As of December 31,
		2009			2008			2007
		(in thousands)
Statement of Financial Condition Data
Total Assets		$	3,385,197		$	2,474,532		$	5,115,642
Total Debt Obligations			933,834			1,026,005			1,057,761
Total Shareholders’ Equity			1,299,110			325,785			2,408,329
Non-Controlling Interests			1,603,146			822,843			2,312,286
Operating Metrics (non-U.S. GAAP):
Assets Under Management (in millions):
Private Equity		$	34,002		$	29,094		$	30,237
Capital Markets			19,112			15,108			10,533
Real Estate			495			—			—
Total AUM		$	53,609		$	44,202		$	40,770

 

		Year Ended December 31,
		2009			2008				2007
Economic Net Income (Loss)(f)		$	581,022		$	(610,950	)		$	152,846
Adjusted Economic Net Income (Loss)(f)			542,374			(332,794	)			486,681
Private equity dollars invested(g)			3,475,500			8,079,099				3,638,326

 

 

(a)

Litigation settlement charge was incurred in connection with an agreement with Huntsman to settle certain claims related to Hexion’s now terminated merger agreement with Huntsman. During the year ended December 31, 2009, there were $37.5 million in insurance reimbursements received in connection with the litigation settlement, which was included in other income (loss) during the same period.

 

(b)	During April and May 2009, the company repurchased a combined total of $90.9 million of face value of debt for $54.7 million and recognized a net gain of $36.2 million which is included in other income in the consolidated and combined statements of operations.

 

(c)	Reflects Non-Controlling Interests attributable to AAA and the remaining interests held by certain former employees in the net income (loss) of our capital markets management companies.

 

(d)

Reflects the Non-Controlling Interests in the net income (loss) of the Apollo Operating Group relating to the units held by our managing and contributing partners post-Reorganization. This amount is calculated by applying the ownership percentage of 71.1% subsequent to the Reorganization and prior to the share repurchase during February 2009, and 71.5% thereafter to the consolidated net income (loss) of the Apollo Operating Group before an income tax provision and after allocations to the Non-Controlling Interests in consolidated funds and other Non-Controlling Interests in certain of the Apollo Operating Group entities.

 

(e)	Significant impacts to the statement of operations for 2007 are due to (i) the Reorganization, (ii) the deconsolidation of certain funds and (iii) the Strategic Investors Transaction.

Some of the significant impacts of the above items are as follows:

 

•

Revenue from affiliates increased due to the deconsolidation of certain funds.

 

•

Compensation and benefits, including non-cash charges related to equity-based compensation increased due to amortization of Apollo Operating Group units, RDUs and RSUs.

 

•

Interest expense increased as a result of conversion of debt on which the Strategic Investors had a beneficial conversion feature. Additionally, interest expense increased related to the AMH credit facility obtained in April 2007.

 

•

Professional fees increased due to Apollo Global Management, LLC’s formation and ongoing requirements.

 

•

Net gain from investment activities increased due to increased activity in our consolidated funds through the date of deconsolidation.

 

•

Non-Controlling Interests changed significantly due to the formation of Holdings and reflects net losses attributable to Holdings post-Reorganization.

 

(f)

Economic Net Income, or “ENI,” is a key performance measure used by management in evaluating the performance of our segments, as the amount of management fees, advisory and transaction fees and carried interest income are indicative of the company’s performance. In arriving at adjusted ENI, or “Adjusted ENI,” the company removes items from ENI which management believes are non-recurring or related to events which are unusual such as costs associated with raising a new fund, registering its Class A shares, the Reorganization, securities offerings and gains or losses on debt repurchases. ENI and Adjusted ENI are measures of profitability and have certain limitations in that they do not take into account certain items included under U.S. GAAP. ENI represents segment income (loss), which excludes the impact of non-cash charges related to equity-based compensation, income taxes and Non-Controlling Interests. Adjusted ENI represents ENI excluding certain non-recurring items. In addition, segment data excludes the assets, liabilities and operating results of the Apollo funds that are included in the consolidated and combined financial statements. We believe that ENI and Adjusted ENI are helpful to an understanding of our business and that investors should review the same supplemental financial measures that management use to analyze our segment performance. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Managing Business Performance” for a more comprehensive explanation as to how ENI and Adjusted ENI are used to manage and evaluate our business.

 

Below is a reconciliation of the Net Loss attributable to Apollo Global Management, LLC for the years ended December 31, 2009 through 2007 to ENI and ENI to Adjusted ENI for such periods:

 

 

(*)

Note: All adjustments relate to the management business.

(1)

Occurred as part of the conversion of debt issued to our Strategic Investors. This item is specific to our Reorganization.

(2)

Represents the unamortized debt issuance costs that were associated with the convertible notes, which were written off on the conversion date and are included as a component of interest expense during 2007. This item is specific to our Reorganization.

(3)

Represents the interest expense that was incurred on the convertible notes prior to their mandatory conversion, and are included as a component of interest expense during 2007. This item is specific to our Reorganization.

(4)

Occurred as a result of a litigation settlement related to Hexion’s now-terminated merger agreement with Huntsman.

(5)

Related to insurance proceeds received from the litigation settlement referenced in note (4).

(6)

Resulted from the company’s acquisition of a portion of the AMH credit facility. This repurchase may not recur in the future.

(7)

Costs incurred in connection with raising a new fund, which are generally infrequent.

(8)

Costs incurred to register the Class A shares in connection with this offering.

(9)

Costs incurred in connection with the initial public offering of ARI’s common stock, registration of the Class A shares, our Reorganization and formation of new funds.

(g)	Private equity dollars invested represents the aggregate amount of newly funded or committed capital invested by our private equity funds during a reporting period.

 

Note:

As a result of the adoption of U.S. GAAP guidance applicable to Non-Controlling Interests, the presentation and disclosure of all periods presented were impacted as follows: (1) Non-Controlling Interests were reclassified as a separate component of shareholders’ equity on our consolidated and combined statements of financial condition, (2) net (loss) income was adjusted to include the net (loss) income attributed to the Non-Controlling Interests on our consolidated and combined statements of operations, (3) the primary components of Non-Controlling Interests are now separately presented in the company’s consolidated and combined financial statements to clearly distinguish the interest in the Apollo Operating Group and the interest held by limited partners in AAA from the interests of the company, and (4) profits and losses are allocated to Non-Controlling Interests in proportion to their ownership interests regardless of their basis.