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Apollo Global Q3 earnings rise 6% on direct lending bonanza

FILE PHOTO: Marc Rowan takes part in a panel discussion in Beverly Hills

By Chibuike Oguh

NEW YORK (Reuters) -Apollo Global Management Inc reported a 6% year-on-year increase in its third-quarter net income on Wednesday, as strong growth in fee revenue driven by direct lending more than offset a steep drop in asset sales from its private equity business.

Apollo agreed last week to acquire a large chunk of Credit Suisse's securitized-products group alongside bond manager PIMCO, a deal that is expected to significantly boost the private equity firm's debt origination capabilities, Chief Executive Marc Rowan said during an earnings call on Wednesday.

"This is a product set that is primarily investment grade that fits extraordinarily well into our requirements for both our retirement services business and the third-party business we are building," Rowan said.

Apollo's shares rose 3.8% to $59.34 per share, outperforming the broader market, which was trading down.

The New York-based firm said its adjusted net income rose to $800.5 million in the three months to Sept. 30, up from $752.6 million a year ago. It resulted in adjusted net income per share of $1.33, slightly above the average analyst estimate of $1.23, according to Refinitiv data.

Apollo said its fee-related earnings reached a record $364.6 million, as income from transaction and advisory fees for arranging private debt financings jumped 60% to a record $104.6 million. The firm has capitalized on the jittery debt markets by providing more debt for leveraged buyouts than many risk-averse banks are willing to.

Spread-related earnings, which Apollo generates by investing the capital of its retirement services provider Athene, was $578.1 million, reflecting higher profit from rising interest rates.

Apollo's income from its private equity business fell sharply by 91% to $50.1 million, as the firm cashed out on fewer assets from its portfolio because of the market downturn. Its flagship private equity funds depreciated 0.3%, while its corporate credit funds gained 0.9%.

By contrast, Blackstone Inc and KKR & Co Inc reported 0.3% and 4% declines, respectively, in their private equity funds during the quarter.

Under generally accepted accounting principles, Apollo reported a $876 million net loss, compared with a net income of $249 million a year ago owing to investment losses and Athene's insurance liabilities.

Apollo made $37 billion worth of investments, raised $34 billion of new capital, and retained $51 billion of unspent capital during the quarter. Its assets under management reached a record $523 billion and it declared a dividend of 39.84 cents per share.

(Reporting by Chibuike Oguh in New York; Editing by Rashmi Aich and Emelia Sithole-Matarise)