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Apollo has moved a fast-growing unit focused on complex lending out of its prized buyout division, in the latest sign of a shift towards private credit and away from a business that built it into a $900bn behemoth.
The shake-up, which has not been previously reported, began earlier this year and was announced at a town hall this week, according to people familiar with the matter and a presentation seen by the Financial Times.
Matt Nord, formerly co-head of private equity at Apollo, will helm the newly separated group known as hybrid capital, which crafts complex debt structures that are often attached to minority equity investments.
Reed Rayman, a rising star who was behind Apollo’s lucrative takeovers in 2021 of Yahoo and AOL, was appointed deputy head of hybrid investing alongside veteran Apollo credit investor Chris Lahoud.
The move highlights how chief executive Marc Rowan is pinning Apollo’s future on lending to businesses, a strategy that has transformed the group into a formidable challenger to the world’s biggest banks.
It also comes as Rowan, who was elevated to CEO in 2021 after the exit of its billionaire co-founder Leon Black, has told Apollo’s employees and shareholders that splashy corporate buyouts are no longer a growth driver.
“Private equity is an amazing asset class. It’s just not a growth business,” Rowan said at an investor conference on Wednesday.
He added: “I think the growth you will see in our equity business will come in two places. One will be hybrid, and the second will be a reimagination of what private equity is as an industry.”
David Sambur, Apollo’s veteran dealmaker, will be the sole head of its $127bn private equity business, which also includes real estate deals and second-hand fund stakes.
Nord will remain co-head of Apollo’s flagship PE funds alongside Sambur, but will be less involved with the unit’s day-to-day operations.
Apollo declined to comment.
Rowan has positioned Apollo to be a lender to companies at the centre of the artificial intelligence and energy infrastructure boom that require complex financings suited for private capital groups with locked-up capital and not regulated banks funded with flightier deposits.
By offering companies such as Intel customised borrowings, Apollo has been able to appeal to groups that need financing that does not resemble a traditional bond or common equity. For example, in the chipmaker’s transaction, Apollo designed an off-balance sheet joint-venture that allowed it to raise cash that still resembled a high-rated loan.
Rowan has presented these lending commitments as opportunities for Apollo’s traditional private equity dealmakers to underwrite large, complex investments, but outside of the mould of traditional buyouts — a crowded marketplace with little differentiation among buyout firms.
Apollo’s prominent recent hybrid deals include financing a takeover of members club Soho House and the carve-out of a large unit of waste management group GFL Environmental. The division has also worked with large companies such as Keurig Dr Pepper.
Nord and Rayman were also part of a recent partnership with venture firm 8VC to invest several billions of dollars of hybrid investments into what Apollo has called the “next wave of American industrial innovation”.
In recent years, Apollo’s hybrid business has earned far higher returns than its traditional buyouts. Since the beginning of 2024, hybrid deals earned nearly 20 per cent returns annualised, while recent buyouts earned less than 8 per cent, according to company filings.
However, Apollo continues to believe its private equity business will see a good reception from investors as it raises a new flagship corporate buyout fund. The group is seeking to raise $25bn for its newest buyout fund, an increase from a predecessor fund that raised $20bn, according to people briefed on the matter.
This year’s Data Center World Power show, held in San Antonio, Texas, produced an unexpected star turn: an industrial-scale gas turbine created from the retrofitted engine of a decommissioned passenger aircraft.
The high level of interest in this unconventional mini power plant — manufactured by power services group ProEnergy and which can produce enough dispatchable electricity to power up to 40,000 homes — illustrates the significant supply difficulties affecting the global power industry.
In the face of growing demand from megawatt-hungry artificial intelligence, coupled with an upward trend in consumer electricity use, global power demand is growing at almost 4 per cent per year.
Efforts by power producers to meet this rising demand have created a race to secure key components such as electric cables, switchgears, and turbines, leading to complaints of significant backlogs across a host of critical industries, says Fabricio Sousa, president of energy advisory firm, Worley Consulting.
Companies can wait up to five years to procure a large transformer or gas turbine, he notes, making supply shortages “one of the defining constraints” of AI’s acceleration. “We have a dynamic situation where demand is running at a sprint and supply at a marathon pace,” he says.
Factors other than just rising demand are also at play. The most obvious are tariff-induced disruptions to global trade in key components, particularly into the US. China’s rapid deployment of renewable energy infrastructure is also absorbing equipment otherwise destined for export.
But experts say the supply gap is not equal for all industries. The renewable energy sector, for instance, remains comparatively free of bottlenecks, thanks in large part to significant investment in manufacturing capacity and falling production costs over recent years.
“When it comes to batteries, electric vehicles, wind turbines, solar panels, hydrogen electrolysers, all of this stuff, the market is actually heavily oversupplied right now,” says Antoine Vagneur-Jones, head of trade and supply chains at BloombergNEF.
Data centres are also comparatively shielded from the effects of supply constraints because of the market leverage that their greater spending power affords them. Even so, buyers that succeed in procuring critical components can expect to pay over the odds.
According to data collected by BloombergNEF, equipment shortages contributed to a 71 per cent increase in the US producer price index of power and distribution transformers between 2020-2024.
In response, many manufacturers are increasing production. Hitachi Energy recently committed to invest more than $1bn to expand its production of electrical grid infrastructure in the US. Mitsubishi Heavy Industries, ABB, Siemens and GE Vernova are among others to have made similar scaling up pledges.
Building up more regional capacity represents another strategy adopted by manufacturers. Global energy technology specialist Schneider Electric, for example, operates a “multi-hub approach” in which it splits operations equally between France, Hong Kong and North America.
“This means we’re able to respond quickly and flexibly to shifting needs, supporting projects in regions where electrification and renewables are accelerating fastest,” says Frédéric Godemel, Schneider’s executive vice-president of energy management.
Even so, BloombergNEF’s Vagneur-Jones remains sceptical that such moves are enough to cover current backlogs, let alone meet future orders. Manufacturers could bet bigger, he says, but past experience is leading them to “play it very carefully” when it comes to scaling up.
“Back in 2017-18, they announced lots of new facilities in the expectation that gas demand was going to go up and thus demand for their equipment, but it didn’t and they got burned pretty badly,” he explains.
As a consequence, large-scale power users with the financial resources, such as data centres, are choosing to invest in their own on-site electricity generation. But, if getting hold of gas turbines is proving hard, what are the alternatives?
The list is long but complex to navigate. One possibility is smaller gas turbines, for instance. They benefit from a shorter wait time but, compared with their larger equivalents, their power output is lower and more expensive.
Another option being explored by data centres are combustion-style reciprocating engines. Again, these are comparatively easy to procure and deploy, but design limitations such as lower rotational speed and scaling challenges mean they are unsuitable as a primary power source.
Many alternatives are less than ideal. Some, like fuel cells, which create electricity from electrochemical processes rather than combustion, are too expensive. Others, such as geothermal or small-scale nuclear, remain experimental or take too long to install.
One possible exception is renewable power supported by battery storage, suggests Mike Hemsley, deputy director at the Energy Transitions Commission, a coalition of leaders in the clean energy sector. Even then, however, intermittency issues, low market penetration, and the high (albeit falling) cost of battery storage systems still present hurdles.
“The best alternative is probably a mix of solar plus wind plus batteries, together with a grid connection maybe and perhaps also some natural gas if you can get it,” he concludes.
Another way to ease supply-side pressures involves redesigning products. One cause of supply delays and high costs is the scarcity of rare earth metals and other raw materials that go into electrical equipment. Swapping in more readily accessible alternatives could present a way around this, as efforts to make electric cables from aluminium rather than copper illustrate.
In the attempts to resolve current supply problems, advocates of clean energy fear that moves by power producers to revert to fossil fuel-based solutions could stall the greening of the grid.
Claus Wattendrup, UK country manager of renewable power group Vattenfall, is adamant that such an eventuality can and should be avoided. What equipment manufacturers are lacking, he suggests, is a clear commitment by governments to press ahead with the energy sector’s electrification.
“For suppliers, consistent and growing demand is essential to justify investment in new manufacturing capacity,” he says. “But without the certainty that comes from stable policy frameworks and predictable deployment, the industry risks losing momentum.”
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