Private equity firm Apollo Management cut more than $1.9 billion of costs out of its portfolio companies after the financial crisis, according to a letter sent to its investors on Thursday.

It also invested heavily in buying debt of the companies it has stakes in -- to the extent that its portfolio companies now control over $10 billion of their debt.

Apollo's letter, from founder Leon Black, said Apollo acted swiftly in the dark days of the downturn to optimize the capital structures of its portfolio companies. The letter said it cut debt at gaming company Harrah's Entertainment and reduced leverage at real estate firm Realogy.

The letter, obtained by Reuters on Friday, said the firm has been a contrarian investor during the crisis, investing some $9 billion across its private equity funds since the start of the second quarter of 2008.

An Apollo spokesman declined to comment on the letter.

Private equity firms have strayed from their traditional business of leveraged buyouts since the credit crisis halted access to easy financing. They have instead focused on investment strategies such as buying distressed debt and minority stakes in firms.

Apollo's letter said it has focused on investing in leveraged senior loans, buying debt in companies such as Intelsat.

It has also bought distressed debt, where some of its largest positions are in companies including cable operator Charter Communications, chemical firm LyondellBasell Industries and transport firm Swift Transportation.

Apollo also gave an update on valuations of the funds' investments at the end of September.

Its most recent fund, with $15 billion raised in 2008, is marked at 120 percent of cost, up from a low of 55 percent of cost, the letter said.

Its two credit opportunities funds -- I and II -- created mainly to invest in large portfolios of levered loans, were valued at 122 percent and 100 percent of cost, respectively.

PAY-TO-PLAY CONTROVERSY

Apollo is one of the private equity firms swept up in the controversy over placement agents -- third party businesses which help funds raise money from investors such as pension funds.

A review of pay-to-play schemes at public retirement systems has spread across the nation. And Calpers, the biggest U.S. public pension fund, said earlier in October it is probing fees paid by outside money managers to win its business.

Calpers is looking at its own relations with consultants, probing more than $50 million in fees paid by Apollo and others to a firm headed by a former Calpers board member.

Black said in the letter that Apollo felt it handled its placement agent relationships in an appropriate and ethical manner and said there was nothing innately improper in using placement agents for fund-raising.

Some details of the investor letter were reported on Thursday by the Wall Street Journal.

(Reporting by Megan Davies; Editing by Richard Chang)

Investment