The private equity owners of Harrah’s have written off about $500m on their investment in the world’s largest casino group less than two years after acquiring the owner of Caesar’s Palace in Las Vegas for $28bn.

Apollo Global Management, which bought Harrah’s with its rival TPG Capital in December 2006, published the decision in the second-quarter results of its Amsterdam-listed feeder fund, Apollo Alternative Assets.

The writedown is only a paper loss for the private equity groups, who intend to own Harrah’s for several more years, but it emphasises how conditions have shifted against many of the biggest buy-out deals completed before the credit crunch.

AAA cut the fair value for its share of Apollo’s stake in Harrah’s to $134.3m, down by a quarter from its valuation at March 31 and almost 19 per cent lower than its initial cost of $165.6m.

Apollo invested $1.325bn in Harrah’s, a similar amount to TPG. The rest of the $3bn of equity in Harrah’s is owned by its management and other co-investors.

The writedown on Harrah’s contributed to AAA’s third consecutive quarterly drop in net asset value, which fell $37m, or $0.41 per share, to $1.97bn, or $20.32 per share.

Shares in AAA rose $0.50 to $11 in Amsterdam, but were close to a 50 per cent discount to the fair value of its investments, intensifying investors’ pessimism.

Barry Giarraputo, chief financial officer of AAA, suggested Apollo was considering following the lead of its rival Kohlberg Kravis Roberts by delisting its Amsterdam feeder fund as part of a planned initial public offering in New York.

“All of us at Apollo appreciate the discomfort that this discount causes,” said Mr Giarraputo. “We don’t have any definitive plans [but] we are continually evaluating alternatives to our present structure to improve shareholder value and liquidity.”

Harrah’s – owner of the Rio, Flamingo, Paris Las Vegas and Imperial Palace casinos on the Las Vegas strip – suffered a poor first quarter. It slid into the red with a net loss of $187.8m in the January-March period, as revenues fell 2.1 per cent to $2.6bn.

The writedown on Harrah’s is the latest in a series of setbacks for Apollo, which is already reeling from the bankruptcy of Linens ’n Things, the home goods retailer.

Several other Apollo investments are also struggling, including: Realogy, the US real estate broker; Countrywide, the UK estate agent chain; Momentive Performance Materials, the silicon products group; and Claire’s Stores, the fashion retailer.