APOLLO GLOBAL MANAGEMENT A The following discussion should be read in conjunction withApollo Global Management, Inc.'s condensed consolidated financial statements and the related notes included within this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the section entitled "Risk Factors" in the 2019 Annual Report and quarterly report on Form 10-Q filed with theSEC onMay 11, 2020 . The highlights listed below have had significant effects on many items within our condensed consolidated financial statements and affect the comparison of the current period's activity with those of prior periods. General Our Businesses Founded in 1990, Apollo is a leading global alternative investment manager. We are a contrarian, value-oriented investment manager in credit, private equity and real assets with significant distressed expertise and a flexible mandate in the majority of our funds which enables our 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, endowment and sovereign wealth funds as well as other institutional and individual investors. Apollo is led by ourManaging Partners ,Leon Black ,Joshua Harris andMarc Rowan ,who have worked together for more than 34 years and lead a team of 1,511 employees, including 501 investment professionals, as ofJune 30, 2020 . Apollo conducts its business primarily inthe United States through the following three reportable segments: (i) Credit-primarily invests in non-control corporate and structured debt instruments including performing, stressed and distressed instruments across the capital structure; (ii) Private equity-primarily invests in control equity and related debt instruments, convertible securities and distressed debt instruments; and (iii) Real assets-primarily invests in (i) real estate equity and infrastructure equity for the acquisition and recapitalization of real estate and infrastructure assets, portfolios, platforms and operating companies, (ii) real estate and infrastructure debt including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities and (iii) European performing and non-performing loans, and unsecured consumer loans. These business segments are differentiated based on the varying investment strategies. The performance is measured by management on an unconsolidated basis because management makes operating decisions and assesses the performance of each of Apollo's business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the managed funds. Our financial results vary since performance fees, which generally constitute a large portion of the income we receive from the funds that we manage, as well as the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. As a result, we emphasize long-term financial growth and profitability to manage our business. In addition, the growth in our Fee-Generating AUM during the last year has primarily been in our credit segment driven by continued growth in traditional funds and managed accounts as well as growth in asset management services to the insurance industry and in performing credit products. The average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates. Also, due to the complexity of these new product offerings, the Company has incurred and will continue to incur additional costs associated with managing these products. To date, these additional costs have been offset by realized economies of scale and ongoing cost management. As ofJune 30, 2020 , we had total AUM of$413.6 billion across all of our businesses. More than 90% of our total AUM was in funds with a contractual life at inception of five years or more, and 60% of such AUM was in permanent capital vehicles. - 70-
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The following table presents the gross and net returns for Apollo's credit
segment by category type:
Gross Returns Net Returns
For the For the
Three For the Six Three For the Six
Months Months Months Months
Ended June Ended June Ended June Ended June
Category 30, 2020 30, 2020 30, 2019 30, 2020
Corporate Credit 7.7% (1.1)% 7.2% (1.7)%
Structured Credit 8.9% (7.3)% 8.7% (7.3)%
Direct Origination 2.7% (2.0)% 1.4% (3.5)%
As of December 31, 2017 , Fund IX held its final closing, raising a total of
$23.5 billion in third-party capital and approximately $1.2 billion of
additional capital from Apollo and affiliated investors for total commitments of
$24.7 billion . On December 31, 2013 , Fund VIII held a final closing raising a
total of $17.5 billion in third-party capital and approximately $880 million of
additional capital from Apollo and affiliated investors, and as of June 30,
2020 , Fund VIII had $2.6 billion of uncalled commitments remaining.
Additionally, Fund VII held a final closing in December 2008 , raising a total of
$14.7 billion , and as of June 30, 2020 , Fund VII had $1.8 billion of uncalled
commitments remaining. We have consistently produced attractive long-term
investment returns in our traditional private equity funds, generating a 39%
gross IRR and a 24% net IRR on a compound annual basis from inception through
June 30, 2020 . Apollo's private equity fund appreciation/(depreciation) was
11.7% and (12.4%) for the three and six months ended June 30, 2020 ,
respectively.
For our real assets segment, there was a total gross return of 1.4% and (5.2)%
for the three and six months ended June 30, 2020 , respectively. Included in the
gross return are U.S. Real Estate Fund I and U.S. Real Estate Fund II including
co-investment capital, Asia Real Estate Fund including co-investment capital,
the European Principal Finance funds, and infrastructure equity funds.
For further detail related to fund performance metrics across all of our
businesses, see "-The Historical Investment Performance of Our Funds."
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Holding Company Structure The diagram below depicts our current organizational structure: [[Image Removed: organizationchartrider1q22.jpg]] Note: The organizational structure chart above depicts a simplified version of the Apollo structure. It does not include all legal entities in the structure. Ownership percentages are as ofAugust 5, 2020 . (1) As ofAugust 5, 2020 , the Class A shares represented 9.2% of the total voting
power of the Class A shares, the Class B share and the Class C share, voting
together as a single class, with respect to General Stockholder Matters. As
of
power of the Class A shares and the Class B share with respect to certain
matters upon which they are entitled to vote pursuant to the certificate of
incorporation of
(2) Our
outstanding Class B share. As of
8.2% of the total voting power of the Class A shares, the Class B share and
the Class C share, voting together as a single class, with respect to General
Stockholder Matters, and a de minimus economic interest in
of the Class A shares and the Class B share with respect to certain matters
upon which they are entitled to vote as a single class.
(3)
through estate planning vehicles, limited partner interests in Holdings. Our
Managing Partners' economic interests are represented by their indirect
beneficial ownership, through Holdings, of 36.5% of the limited partner
interests in the Apollo Operating Group .
(4) Holdings owns 40.4% of the limited partner or limited liability company
interests in each
Holdings are exchangeable for Class A shares. Our
their interests in BRH and Holdings, beneficially own 36.5% of the AOG Units.
Our
own 3.8% of the AOG Units.
(5)
turns holds our only outstanding Class C share. The Class C share bestows to
its holder certain management rights over
Class C share represented 82.6% of the total voting power of the Class A
shares, the Class B share and the Class C share, voting together as a single
class, with respect to General Stockholder Matters, and a de minimus economic
interest in
(6) Represents 52.9% of the limited partner or limited liability company
interests in each
intermediate holding companies.
general partner or managing member interests in each
entity.
(7) Represents 6.7% of the limited partner or limited liability company interests
in each
affiliates. AOG Units held by Athene are non-voting equity interests of the
Apollo Operating Group and are not exchangeable for Class A shares. - 72-
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Each of the
Historically, we were a holding company that was qualified as
a partnership for U.S. federal income tax purposes. Our
intermediate holding companies enabled us to maintain our
partnership status and to meet the qualifying income
exception. Effective September 5, 2019 , Apollo Global
Management, LLC converted from a Delaware limited liability
company to a Delaware corporation named Apollo Global
Management, Inc.
• We have historically used multiple managementcompanies to
segregate operations for business, financial and other
reasons. Going forward, we may increase or decrease the
number of our management companies, partnerships or other
entities 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.
Conversion to a C Corporation
Effective September 5, 2019 , Apollo Global Management, LLC converted from a
Delaware limited liability company to a Delaware corporation named Apollo Global
Management, Inc. Prior to the Conversion, a portion of the investment income,
performance allocations and principal investment income we earned was not
subject to corporate-level tax in the United States . Subsequent to the
Conversion, generally all of the income is subject to U.S. corporate income
taxes, which could result in an overall higher income tax expense (or benefit)
in periods subsequent to the Conversion.
Business Environment
As a global investment manager, we are affected by numerous factors, including
the condition of financial markets and the economy. Price fluctuations within
equity, credit, commodity, foreign exchange markets, as well as interest rates,
which may be volatile and mixed across geographies, can significantly impact the
valuation of our funds' portfolio companies and related income we may recognize.
In the U.S. , the S&P 500 Index increased by 20% in the second quarter of 2020,
following a decrease of 20% in the first quarter of 2020. Global equity markets
also appreciated during the quarter, with the MSCI All Country World ex USA
Index increasing 15.6% following a decrease of 23% in the first quarter of 2020.
Conditions in the credit markets also have a significant impact on our business.
Credit markets were positive in the second quarter of 2020, with the BofAML HY
Master II Index increasing by 9.6%, while the S&P/LSTA Leveraged Loan Index
increased 6.6%. The U.S. 10-year Treasury yield fell during the quarter to
0.66%. On March 16, 2020 , the Federal Reserve reduced the benchmark interest
rate, lowering it for the first time this year, to a target range of 0% to
0.25%, down from to a target range of 1.50% to 1.75% at the end of 2019.
Foreign exchange rates can materially impact the valuations of our investments
and those of our funds that are denominated in currencies other than the U.S.
dollar. Relative to the U.S. dollar, the Euro appreciated 1.81% during the
second quarter, after depreciating by 1.6% in the first quarter of 2020, while
the British pound depreciated 0.10% in the second quarter of 2020, after
depreciating 6.4% in the first quarter of 2020. The price of crude oil
appreciated by 91.7% during the quarter ended June 30, 2020 .
In terms of economic conditions in the U.S. , the Bureau of Economic Analysis
reported real GDP decreased at an annual rate of 32.9%, in the second quarter of
2020, following a decrease of 5.0% in the first quarter of 2020. As of June
2020 , the International Monetary Fund estimated that the U.S. economy will
contract by 8.0% in 2020 and expand by 4.5% in 2021. The U.S. Bureau of Labor
Statistics reported that the U.S. unemployment rate increased to 11.1% as of
June 30, 2020 , due to the impacts of the COVID-19 pandemic on the labor force.
Regardless of the market or economic environment at any given time, Apollo
relies on its contrarian, value-oriented approach to consistently invest capital
on behalf of its fund investors by focusing on opportunities that management
believes are often overlooked by other investors. As such, Apollo's global
integrated investment platform deployed $7.2 billion and $12.4 billion of
capital through the funds it manages during the three and six months ended
June 30, 2020 , respectively. We believe Apollo's expertise in credit and its
focus on nine core industry sectors, combined with more than 30 years of
investment experience, has allowed Apollo to respond quickly to changing
environments. Apollo's core industry sectors include chemicals, manufacturing
and industrial, natural resources, consumer and retail, consumer services,
business services, financial services, leisure, and media/
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telecom/technology. Apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods. In general, institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment, and we believe the business environment remains generally accommodative to raise larger successor funds, launch new products, and pursue attractive strategic growth opportunities, such as continuing to grow the assets of our permanent capital vehicles. As such, Apollo had$89.2 billion and$96.5 billion of capital inflows during the three and six months endedJune 30, 2020 , respectively. While Apollo continues to attract capital inflows, it also continues to generate realizations for fund investors. Apollo returned$1.4 billion and$3.5 billion of capital and realized gains to the investors in the funds it manages during the three and six months endedJune 30, 2020 , respectively. Managing Business Performance We believe that the presentation of Segment DE supplements a reader's understanding of the economic operating performance of each of our segments. Segment Distributable Earnings and Distributable Earnings Segment DE is the key performance measure used by management in evaluating the performance of Apollo's credit, private equity and real assets segments. See note 17 to the condensed consolidated financial statements for more details regarding the components of Segment DE. DE represents Segment DE less estimated current corporate, local and non-U.S. taxes as well as the current payable under Apollo's tax receivable agreement. DE is net of preferred dividends, if any, to the Series A and Series B preferred stockholders. DE excludes the impacts of the remeasurement of deferred tax assets and liabilities which arises from changes in estimated future tax rates. The economic assumptions and methodologies that impact the implied income tax provision are similar to those methodologies and certain assumptions used in calculating the income tax provision for Apollo's condensed consolidated statements of operations underU.S. GAAP. Management believes that excluding the remeasurement of the tax receivable agreement and deferred taxes from Segment DE and DE, respectively, is meaningful as it increases comparability between periods. Remeasurement of the tax receivable agreement and deferred taxes are estimates that may change due to changes in the interpretation of tax law. We believe that Segment DE is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance. This measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in "-Overview of Results of Operations" that have been prepared in accordance withU.S. GAAP. See note 17 to the condensed consolidated financial statements for more details regarding management's consideration of Segment DE. Fee Related Earnings and Fee Related EBITDA Fee Related Earnings, or "FRE", is derived from our segment reported results and refers to a component of Segment DE that is used as a supplemental performance measure. See note 17 to the condensed consolidated financial statements for more details regarding the components of FRE. Fee related EBITDA is a non-U.S. GAAP measure derived from our segment reported results and is used to assess the performance of our operations as well as our ability to service current and future borrowings. Fee related EBITDA represents FRE plus amounts for depreciation and amortization. "Fee related EBITDA +100% of net realized performance fees" represents Fee related EBITDA plus realized performance fees less realized profit sharing expense. We use Segment DE, DE, FRE and Fee related EBITDA as measures of operating performance, not as measures of liquidity. These measures should not be considered in isolation or as a substitute for net income or other income data prepared in accordance withU.S. GAAP. The use of these measures without consideration of their relatedU.S. GAAP measures is not adequate due to the adjustments described above. Operating Metrics We monitor certain operating metrics that are common to the alternative investment management industry. These operating metrics include Assets Under Management, capital deployed and uncalled commitments. - 74-
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Assets Under Management
The tables below present Fee-Generating and Non-Fee-Generating AUM by segment:
As of June 30, 2020
Credit Private Equity Real Assets Total
(in millions)
Fee-Generating $ 254,332 $ 43,840 $ 31,606 $ 329,778
Non-Fee-Generating 46,122 29,461 8,245 83,828
Total Assets Under Management
$ 413,606 As of June 30, 2019 Credit Private Equity Real Assets Total (in millions) Fee-Generating$ 163,089 $ 47,082 $ 25,965 $ 236,136 Non-Fee-Generating 38,127 30,066 7,533 75,726
Total Assets Under Management
$ 311,862 As of December 31, 2019 Credit Private Equity Real Assets Total (in millions) Fee-Generating$ 172,893 $ 43,826 $ 29,727 $ 246,446 Non-Fee-Generating 42,637 32,962 9,060 84,659
Total Assets Under Management
The table below presents AUM with Future Management Fee Potential, which is a component of Non-Fee-Generating AUM, for each of Apollo's three segments.
As of As of As of
June 30, 2020 June 30, 2019 December 31, 2019
(in millions)
Credit $ 8,404 $ 7,860 $ 10,898
Private Equity 7,858 9,570 9,441
Real Assets 2,051 2,159 2,208
Total AUM with Future Management
22,547
Fee Potential
The following tables present the components of Performance Fee-Eligible AUM for each of Apollo's three segments:
As of June 30, 2020
Credit Private Equity Real Assets Total
(in millions)
Performance Fee-Generating AUM(1)
3,768 $ 39,969
AUM Not Currently Generating
Performance Fees 31,861 12,158 1,342 45,361
Uninvested Performance Fee-Eligible
AUM 8,571 26,160 4,734 39,465
Total Performance Fee-Eligible
AUM(2) $ 58,618 $ 56,333 $ 9,844 $ 124,795
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As of June 30, 2019
Credit Private Equity Real Assets Total
(in millions)
Performance Fee-Generating AUM(1)
2,792 $ 62,220
AUM Not Currently Generating
Performance Fees 7,487 6,263 2,624 16,374
Uninvested Performance Fee-Eligible
AUM 7,581 32,257 4,309 44,147
Total Performance Fee-Eligible
AUM(2) $ 50,669 $ 62,347 $ 9,725 $ 122,741
As of December 31, 2019
Credit Private Equity Real Assets Total
(in millions)
Performance Fee-Generating AUM(1)
5,179 $ 66,646
AUM Not Currently Generating
Performance Fees 6,889 8,112 589 15,590
Uninvested Performance Fee-Eligible
AUM 9,922 30,084 4,676 44,682
Total Performance Fee-Eligible
AUM(2) $ 55,371 $ 61,103 $
10,444
(1) Performance Fee-Generating AUM of
as of
above the hurdle rates or preferred returns and has been deferred to future
periods when the fees are probable to not be significantly reversed.
(2) Effective as of
includes only capital commitments. Prior period performance fee-eligible AUM
has been conformed to reflect this change in presentation.
The following table presents AUM Not Currently Generating Performance Fees for funds that have invested capital for more than 24 months as ofJune 30, 2020 and the corresponding appreciation required to reach the preferred return or high watermark in order to generate performance fees: Appreciation Required to Invested AUM Not Achieve Currently Generating Investment Period Active Performance Strategy / Fund Performance Fees > 24 Months Fees(1) (in millions) Credit: Corporate Credit $ 22,008 $ 19,850 5% Structured Credit 3,494 3,494 22% Direct Origination 4,043 3,935 4% Advisory and Other 2,316 2,442 1% Total Credit 31,861 29,721 7% Private Equity: Fund VIII 5,264 5,264 10% ANRP II 1,379 1,379 30% Hybrid Capital 2,035 2,035 93% Other PE 3,480 2,466 39% Total Private Equity 12,158 11,144 34% Real Assets: Total Real Assets 1,342 650 > 250bps Total $ 45,361 $ 41,515
(1) All investors in a given fund are considered in aggregate when calculating
the appreciation required to achieve performance fees presented above.
Appreciation required to achieve performance fees may vary by individual
investor. Funds with an investment period less than 24 months are "N/A".
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The components of Fee-Generating AUM by segment are presented below:
As of June 30, 2020
Private Real
Credit Equity Assets Total
(in millions)
Fee-Generating AUM based on capital
commitments $ 2,559 $ 26,849 $ 5,063 $ 34,471
Fee-Generating AUM based on invested
capital 2,135 15,528 2,299 19,962
Fee-Generating AUM based on
gross/adjusted assets 223,902 992 23,059 247,953
Fee-Generating AUM based on NAV 25,736 471 1,185 27,392
Total Fee-Generating AUM $ 254,332 $ 43,840 (1) $ 31,606 $ 329,778 (1) The weighted average remaining life of the traditional private equity funds
as of
As of June 30, 2019
Private Real
Credit Equity Assets Total
(in millions)
Fee-Generating AUM based on capital
commitments $ 3,284 $ 26,849 $ 5,405 $ 35,538
Fee-Generating AUM based on invested
capital 1,249 19,101 1,837 22,187
Fee-Generating AUM based on
gross/adjusted assets 136,378 700 17,832 154,910
Fee-Generating AUM based on NAV 22,178 432 891 23,501
Total Fee-Generating AUM $ 163,089 $ 47,082 (1) $ 25,965 $ 236,136
(1) The weighted average remaining life of the private equity funds as at June
30, 2019 was 83 months.
As of December 31, 2019
Private
Credit Equity Real Assets Total
(in millions)
Fee-Generating AUM based on capital
commitments $ 3,921 $ 26,849 $ 4,932 $ 35,702
Fee-Generating AUM based on invested
capital 1,372 15,743 2,273 19,388
Fee-Generating AUM based on
gross/adjusted assets 144,028 814 21,403 166,245
Fee-Generating AUM based on NAV 23,572 420 1,119 25,111
Total Fee-Generating AUM $ 172,893 $ 43,826 (1) $ 29,727 $ 246,446 (1) The weighted average remaining life of the traditional private equity funds
as of December 31, 2019 was 80 months.
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The following table presents total AUM and Fee-Generating AUM amounts for our credit segment by category type:
Total AUM Fee-Generating AUM
As of As of As of As of
June 30, December 31, June 30, December 31,
2020 2019 2019 2020 2019 2019
(in millions)
Corporate Credit
52,735 47,969 43,651 45,453
Direct Origination 24,407 18,190 24,234 21,868 16,277 22,031
Advisory and Other 74,299 27,851 27,902 68,840 14,234 12,808
Total $ 300,454 $ 201,216 $ 215,530 $
254,332
Investment Management Agreement - ISG
Apollo, through its consolidated subsidiary, ISG, provides asset management
services to Athene with respect to assets in the Athene Accounts, including
asset allocation services, direct asset management services, asset and liability
matching management, mergers and acquisitions, asset diligence, hedging and
other asset management services and receives management fees for providing these
services. The Company, through ISG, also provides sub-allocation services with
respect to a portion of the assets in the Athene Accounts. See note 15 to the
condensed consolidated financial statements for more details regarding the fee
rates of the investment management and sub-allocation fee arrangements with
respect to the assets in the Athene Accounts.
The following table presents the aggregate Athene Sub-Allocated Total AUM by
asset class:
As of
June 30, As of December 31,
2020 2019 2019
(in millions)
Core Assets $ 45,350 $ 31,052 $ 32,346
Core Plus Assets 36,181 30,102 30,132
Yield Assets 55,529 44,457 48,552
High Alpha 5,799 4,238 5,051
Cash, Treasuries, Equity and Alternatives 22,250 9,181 14,220
Total (1) $ 165,109 $ 119,030 $ 130,301
(1) Includes
related to Athene Co-Invest Reinsurance Affiliate 1A Ltd. and
Apollo/Athene Dedicated Investment Program ("ADIP") as of
Investment Advisory and Sub-Advisory Agreements - ISGI
Apollo, through ISGI, provides investment advisory services with respect to
certain assets in certain portfolio companies of Apollo funds and sub-advises
the Athora Accounts and broadly refers to "Athora Sub-Advised" assets as those
assets in the Athora Accounts which the Company explicitly sub-advises as well
as those assets in the Athora Accounts which are invested directly in funds and
investment vehicles Apollo manages. The Company refers to the portion of the
Athora AUM that is not Athora Sub-Advised AUM as "Athora Non-Sub Advised" AUM.
See note 15 to the condensed consolidated financial statements for more details
regarding the fee arrangements with respect to the assets in the Athora
Accounts.
The following table presents Athora Sub-Advised and Athora Non-Sub-Advised AUM:
As of As of
June 30, December 31,
2020 2019 2019
(in millions)
Sub-Advised AUM $ 4,514 $ 3,596 $ 3,877
Non-Sub-Advised AUM 55,640 10,080 10,019
Total AUM $ 60,154 $ 13,676 $ 13,896
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The following table presents total AUM and Fee-Generating AUM amounts for our
private equity segment:
Total AUM Fee-Generating AUM
As of As of As of As of
June 30, December 31, June 30, December 31,
2020 2019 2019 2020 2019 2019
(in millions)
Private Equity Funds $ 59,685 $ 61,771 $ 62,139 $ 35,910 $ 39,578 $ 36,947
Hybrid Capital 9,089 9,217 9,113 4,020 3,405 2,961
Natural Resources 4,527 6,160 5,536 3,910 4,099 3,918
Total $ 73,301 $ 77,148 $ 76,788 $ 43,840 $ 47,082 $ 43,826
The following table presents total AUM and Fee-Generating AUM amounts for our
real assets segment:
Total AUM Fee-Generating AUM
As of As of As of As of
June 30, December 31, June 30, December 31,
2020 2019 2019 2020 2019 2019
(in millions)
Real Estate $ 30,890 $ 24,441 $ 29,401 $ 24,837 $ 19,035 $ 22,890
Principal Finance 6,732 6,996 7,181 5,018 5,207 5,102
Infrastructure 2,229 2,061 2,205 1,751 1,723 1,735
Total $ 39,851 $ 33,498 $ 38,787 $ 31,606 $ 25,965 $ 29,727 The following tables summarize changes in total AUM for each of Apollo's three segments:
For
the Three Months Ended
2020 2019
Credit Private Equity Real Assets Total Credit Private Equity Real Assets Total
Change in Total AUM(1):
Beginning of Period
85,347 1,768 2,122 89,237 5,905 751 1,790 8,446
Outflows(3) (5,788 ) (51 ) (283 ) (6,122 ) (2,917 ) (101 ) (173 ) (3,191 )
Net Flows 79,559 1,717 1,839 83,115 2,988 650 1,617 5,255
Realizations (653 ) (536 ) (224 ) (1,413 ) (486 ) (1,381 ) (333 ) (2,200 )
Market Activity(2)(4) 11,803 4,451 139 16,393 5,045 554 214 5,813
End of Period $ 300,454 $ 73,301 $ 39,851 $
413,606
(1) At the individual segment level, inflows include new subscriptions,
commitments, capital raised, other increases in available capital, purchases,
acquisitions, and portfolio company appreciation. Outflows represent
redemptions, other decreases in available capital and portfolio company
depreciation. Realizations represent fund distributions of realized proceeds.
Market activity represents gains (losses), the impact of foreign exchange
rate fluctuations and other income.
(2) For the three months ended
mark-to-market changes and investment income of Athene, which had previously
been reported as inflows. Prior period numbers have been recast to conform to
the current presentation.
(3) Outflows for Total AUM include redemptions of
during the three months ended
(4) Includes foreign exchange impacts of
million for credit, private equity and real assets, respectively, during the
three months ended
million,
assets, respectively, during the three months ended June 30, 2019 .
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For the Six Months Ended June 30,
2020 2019
Credit Private Equity Real Assets Total Credit Private Equity Real Assets Total
(in millions)
Change in Total AUM(1):
Beginning of Period $ 215,530 $ 76,788 $ 38,787 $ 331,105 $ 174,378 $ 75,086 $ 30,795 $ 280,259
Inflows(2) 91,616 2,249 2,629 96,494 23,140 2,844 3,396 29,380
Outflows(3) (6,626 ) (61 ) (517 ) (7,204 ) (5,218 ) (140 ) (399 ) (5,757 )
Net Flows 84,990 2,188 2,112 89,290 17,922 2,704 2,997 23,623
Realizations (1,165 ) (1,704 ) (590 ) (3,459 ) (720 ) (2,552 ) (668 ) (3,940 )
Market Activity(2)(4) 1,099 (3,971 ) (458 ) (3,330 ) 9,636 1,910 374 11,920
End of Period $ 300,454 $ 73,301 $ 39,851 $
413,606
(1) At the individual segment level, inflows include new subscriptions,
commitments, capital raised, other increases in available capital, purchases,
acquisitions and portfolio company appreciation. Outflows represent
redemptions, other decreases in available capital and portfolio company
depreciation. Realizations represent fund distributions of realized proceeds.
Market activity represents gains (losses), the impact of foreign exchange
rate fluctuations and other income.
(2) For the six months ended
mark-to-market changes and investment income of Athene, which had previously
been reported as inflows. Prior period numbers have been recast to conform to
the current presentation.
(3) Outflows for Total AUM include redemptions of
during the six months ended
(4) Includes foreign exchange impacts of
during the six months ended
and real assets, respectively, during the six months ended
Three Months EndedJune 30, 2020 Total AUM was$413.6 billion atJune 30, 2020 , an increase of$98.1 billion , or 31.1%, compared to$315.5 billion atMarch 31, 2020 . The net increase was primarily due to client transactions which increased insurance assets under management and market activity of$16.4 billion . More specifically, the net increase was due to: • Net flows of$83.1 billion primarily related to:
• a
primarily consisting of (i) an increase in AUM in the advisory and other
category, (ii) an increase in AUM as Athene closed its reinsurance
transaction with
billion of AUM, and (iii) subscriptions across the corporate credit funds
we manage of $8.9 billion , primarily due to an additional $6 billion of
new commitments for Apollo Strategic Origination Partners , a new
origination platform expected to provide approximately $12 billion in
financings over the next three years;
• a
segment primarily consisting of net segment transfers of
offset by a
• a
segment consisting primarily of an increase in subscriptions of $1.5
billion related to the private equity funds we manage.
• Market activity of
in the funds we manage in the credit segment, primarily related to the market
activity of Athene, (ii)
in the private equity segment, primarily related to Fund VIII, as well as
(iii)
segment.
• Realizations of
•
consisting of distributions from the corporate credit funds; and
•
primarily consisting of distributions from Fund VIII, Fund VII and Fund
IX.
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Six Months EndedJune 30, 2020 Total AUM was$413.6 billion atJune 30, 2020 , an increase of$82.5 billion , or 24.9%, compared to$331.1 billion atDecember 31, 2019 . The net increase was primarily due to client transactions which increased insurance assets under management. More specifically, the net increase was due to: • Net flows of$89.3 billion primarily related to:
• an
primarily consisting of (i) an increase in AUM in the advisory and other
category, (ii) an increase in AUM as Athene closed its reinsurance
transaction with
billion of AUM, and (iii) subscriptions across the corporate credit funds
we manage of
new commitments for Apollo Strategic Origination Partners , a new
origination platform expected to provide approximately $12 billion in
financings over the next three years;
• a
segment primarily consisting of (i) subscriptions across the traditional
private equity funds we manage of $1.5 billion , and (ii) an increase in
leverage of $0.7 billion ; and
• a
segment primarily consisting of (i) net segment transfers of
and (ii) subscriptions of
• Market activity of
depreciation in the funds we manage in the private equity segment, primarily
related to Fund VIII, as well as (ii)
funds we manage in the real assets segment, offset by (iii)
appreciation in the funds we manage in the credit segment, primarily related
to the market activity of Athene.
• Realizations of
•
primarily consisting of distributions of
respectively;
•
consisting of distributions from the corporate credit and direct
origination funds; and
•
primarily consisting of distributions from the real estate and principal
finance funds.
The following tables summarize changes in Fee-Generating AUM for each of
Apollo's three segments:
For the Three Months Ended June 30,
2020 2019
Credit Private Equity Real Assets Total Credit Private Equity Real Assets Total
Change in Fee-Generating AUM(1):
Beginning of Period
80,745 829 2,535 84,109 4,549 1,190 1,467 7,206
Outflows(3) (5,664 ) (977 ) (278 ) (6,919 ) (2,672 ) (206 ) (473 ) (3,351 )
Net Flows 75,081 (148 ) 2,257 77,190 1,877 984 994 3,855
Realizations (75 ) (203 ) (134 ) (412 ) (177 ) (317 ) (164 ) (658 )
Market Activity(4) 11,064 215 71 11,350 4,530 43 102 4,675
End of Period
(1) At the individual segment level, inflows include new subscriptions,
commitments, capital raised, other increases in available capital, purchases,
acquisitions and portfolio company appreciation. Outflows represent
redemptions, other decreases in available capital and portfolio company
depreciation. Realizations represent fund distributions of realized proceeds.
Market activity represents gains (losses), the impact of foreign exchange
rate fluctuations and other income.
(2) For the three months ended
mark-to-market changes and investment income of Athene, which had previously
been reported as inflows. Prior period numbers have been recast to conform to
the current presentation.
(3) Outflows for Fee-Generating AUM include redemptions of
billion during the three months ended
(4) Includes foreign exchange impacts of
million for credit, private equity and real assets, respectively, during the
three months ended
million,
assets, respectively, during the three months ended June 30, 2019 .
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For the Six Months Ended June 30,
2020 2019
Credit Private Equity Real Assets Total Credit Private Equity Real Assets Total
(in millions)
Change in Fee-Generating AUM(1):
Beginning of Period $ 172,893 $ 43,826 $ 29,727 $ 246,446 $ 144,071 $ 46,633 $ 23,663 $ 214,367
Inflows(2) 88,256 1,445 2,726 92,427 14,377 1,323 2,947 18,647
Outflows(3) (7,006 ) (1,022 ) (677 ) (8,705 ) (4,300 ) (433 ) (483 ) (5,216 )
Net Flows 81,250 423 2,049 83,722 10,077 890 2,464 13,431
Realizations (470 ) (546 ) (202 ) (1,218 ) (279 ) (511 ) (285 ) (1,075 )
Market Activity(4) 659 137 32 828 9,219 70 123 9,412
End of Period
(1) At the individual segment level, inflows include new subscriptions,
commitments, capital raised, other increases in available capital, purchases,
acquisitions and portfolio company appreciation. Outflows represent
redemptions, other decreases in available capital and portfolio company
depreciation. Realizations represent fund distributions of realized proceeds.
Market activity represents gains (losses), the impact of foreign exchange
rate fluctuations and other income.
(2) For the six months ended
mark-to-market changes and investment income of Athene, which had previously
been reported as inflows. Prior period numbers have been recast to conform to
the current presentation.
(3) Outflows for Fee-Generating AUM include redemptions of
billion during the six months ended
(4) Includes foreign exchange impacts of
during the six months ended
and real assets, respectively, during the six months ended
Three Months EndedJune 30, 2020 Total Fee-Generating AUM was$329.8 billion atJune 30, 2020 , an increase of$88.1 billion or 36.5%, compared to$241.7 billion atMarch 31, 2020 . The net increase was primarily due to: • Net flows of$77.2 billion primarily related to:
• a
primarily consisting of (i) an increase in AUM in the advisory and other
category, (ii) an increase in AUM as Athene closed its reinsurance
transaction with
billion of AUM, and (iii) subscriptions across the corporate credit funds
we manage of
• a
segment primarily consisting of (i) net segment transfers of
and (ii)
related to the commencement of
period; these increases were offset by
capital reduction, primarily related to certain real estate funds we
manage.
• Market activity of $11.4 billion primarily related to a $11.1 billion
increase related to funds we manage in the credit segment, primarily as a
result of the market activity of Athene.
Six Months Ended June 30, 2020
Total Fee-Generating AUM was $329.8 billion at June 30, 2020 , an increase of
$83.3 billion or 33.8%, compared to $246.4 billion at December 31, 2019 . The net
increase was primarily due to net flows of $83.7 billion primarily related to:
• an $81.3 billion increase related to funds we manage in the credit segment
primarily consisting of (i) an increase in AUM in the advisory and other
category, (ii) an increase in AUM as Athene closed its reinsurance
transaction with
billion of AUM, and (iii) subscriptions across the corporate credit funds
we manage of
• a
segment primarily consisting of net segment transfers of
fee-generating capital deployment, primarily related to the commencement
of U.S. Real Estate Fund III's investment period.
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Capital Deployed and Uncalled Commitments
Capital deployed is the aggregate amount of capital that has been invested
during a given period by our commitment-based funds, SIAs that have a defined
maturity date and funds and SIAs in our real estate debt strategy. Uncalled
commitments, by contrast, represents unfunded capital commitments that certain
of Apollo's funds and SIAs have received from fund investors to fund future or
current fund investments and expenses.
Capital deployed and uncalled commitments are indicative of the pace and
magnitude of fund capital that is deployed or will be deployed, and which
therefore could result in future revenues that include management fees,
transaction fees and performance fees to the extent they are fee-generating.
Capital deployed and uncalled commitments can also give rise to future costs
that are related to the hiring of additional resources to manage and account for
the additional capital that is deployed or will be deployed. Management uses
capital deployed and uncalled commitments as key operating metrics since we
believe the results measure our fund's investment activities.
Capital Deployed
The following table summarizes the capital deployed for funds and SIAs with a
defined maturity date by segment:
For the Three Months Ended June 30 , For the
Six Months Ended
2020 2019 2020 2019
(in millions)
Credit(1) $ 2,900 $ 2,087 $ 6,287 $ 3,343
Private Equity 3,935 $ 2,540 5,608 5,655
Real Assets 413 821 554 1,076
Total capital deployed $ 7,248 $ 5,448 $
12,449
(1) Prior period numbers were recast to include
("Accord") and other defined maturity date funds.
Uncalled Commitments
The following table summarizes the uncalled commitments by segment:
As of As of
June 30, 2020 December 31, 2019
(in millions)
Credit $ 22,492 $ 11,591
Private Equity 32,262 36,346
Real Assets 5,891 5,736
Total uncalled commitments(1) $ 60,645 $ 53,673
(1) As of
respectively, represented the amount of capital available for investment or
reinvestment subject to the provisions of the applicable limited partnership
agreements or other governing agreements of the funds, partnerships and
accounts we manage. These amounts exclude uncalled commitments which can only
be called for fund fees and expenses.
The Historical Investment Performance of Our Funds
Below 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 in respect of which the general partner
interest has not been contributed to us.
When considering the data presented below, 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 common stock.
An investment in our Class A common stock is not an investment in any of the
Apollo funds, and the assets and revenues of our funds are not directly
available to us. 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
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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 of our Class A shares. 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. There can be no assurance that any Apollo fund will continue to achieve the same results in the future. Finally, our private equity IRRs have historically varied greatly from fund to fund. For example, Fund VI generated a 12% gross IRR and a 9% net IRR since its inception throughJune 30, 2020 , while Fund V generated a 61% gross IRR and a 44% net IRR since its inception throughJune 30, 2020 . 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, including risks of the industries and businesses in which a particular fund invests. See "Item 1A. 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 and our Preferred shares" in the 2019 Annual Report and "Item 1A. Risk Factors-The current, and uncertain future, impact of the COVID-19 outbreak is expected to continue to impact our business, financial condition and results of operations" in the quarterly report on Form 10-Q filed with theSEC onMay 11, 2020 . - 84-
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Investment Record The following table summarizes the investment record by segment of Apollo's significant commitment-based funds that have a defined maturity date in which investors make a commitment to provide capital at the formation of such funds and deliver capital when called as investment opportunities become available. The funds included in the investment record table below have greater than$500 million of AUM and/or form part of a flagship series of funds. All amounts are as ofJune 30, 2020 , unless otherwise noted: Total Vintage Committed Invested Realized Gross Net ($ in millions) Year Total AUM Capital Capital
Value Remaining Cost Unrealized Value Total Value IRR IRR
Private Equity:
Fund IX 2018 $ 24,343 $ 24,729 $ 5,571 $ 621 $ 5,175 $ 5,542 $ 6,163 16 % (8 )%
Fund VIII 2013 17,586 18,377 16,017 9,587 10,224 13,596 23,183 13 9
Fund VII 2008 2,939 14,677 16,461 31,539 2,459 967 32,506 33 24
Fund VI 2006 647 10,136 12,457 21,132 405 3 21,135 12 9
Fund V 2001 260 3,742 5,192 12,721 120 2 12,723 61 44
Fund I, II, III, IV
& MIA(2) Various 13 7,320 8,753 17,400 - - 17,400 39 26
Traditional Private
Equity Funds(3) $ 45,788 $ 78,981 $ 64,451 $ 93,000 $ 18,383 $ 20,110 $ 113,110 39 % 24
ANRP II 2016 2,291 3,454 2,647 1,384 1,984 1,477 2,861 6 (2 )
ANRP I 2012 349 1,323 1,149 1,011 618 139 1,150 - (4 )
AION 2013 609 826 689 327 442 503 830 9 2
Hybrid Value Fund 2019 3,396 3,238 1,897 130 1,833 1,970 2,100 NM1 NM1
Total Private
Equity $ 52,433 $ 87,822 $ 70,833 $ 95,852 $ 23,260 $ 24,199 $ 120,051
Credit:
FCI III 2017 $ 2,734 $ 1,906 $ 2,544 $ 1,267 $ 1,890 $ 1,973 $ 3,240 23 % 17 %
FCI II 2013 2,260 1,555 2,894 1,940 1,689 1,588 3,528 8 5
FCI I 2012 - 559 1,516 1,975 - - 1,975 11 8
SCRF IV (6) 2017 2,048 2,502 4,534 2,417 2,151 1,891 4,308 (6 ) (7 )
SCRF III 2015 - 1,238 2,110 2,428 - - 2,428 18 14
SCRF II 2012 - 104 467 528 - - 528 15 12
SCRF I 2008 - 118 240 357 - - 357 33 26
Accord IIIB 2020 1,768 1,761 408 85 352 331 416 NM1 NM1
Accord III 2019 961 886 2,184 1,850 586 567 2,417 NM1 NM1
Accord II(7) 2018 - 781 801 821 - - 821 16 12
Accord I(7) 2017 - 308 111 113 - - 113 10 5
Total Credit $ 9,771 $ 11,718 $ 17,809 $ 13,781 $ 6,668 $ 6,350 $ 20,131
Real Assets:
European Principal
Finance Funds
EPF III(4) 2017 $ 4,737 $ 4,513 $ 2,802 $ 1,068 $ 1,993 $ 2,419 $ 3,487 21 % 10 %
EPF II(4) 2012 1,349 3,442 3,408 4,319 658 583 4,902 14 9
EPF I(4) 2007 234 1,455 1,912 3,217 - 8 3,225 23 17
U.S. RE Fund III 2020 442 442 31 - 31 31 31 NM1 NM1
U.S. RE Fund II(5) 2016 1,127 1,243 878 480 629 700 1,180 14 11
U.S. RE Fund I(5) 2012 230 649 632 791 147 143 934 13 10
Asia RE Fund(5) 2017 678 719 434 206 281 368 574 18 13
Infrastructure
Equity Fund 2018 1,107 897 801 218 658 824 1,042 NM1 NM1
Total Real Assets $ 9,904 $ 13,360 $ 10,898 $ 10,299 $ 4,397 $ 5,076 $ 15,375 (1) Data has not been presented as the fund's effective date is less than 24
months prior to the period indicated and such information was deemed not
meaningful.
(2) The general partners and managers of Funds I, II and MIA, as well as the
general partner of Fund III, were excluded assets in connection with the 2007
Reorganization. As a result, Apollo did not receive the economics associated
with these entities. The investment performance of these funds, combined with
Fund IV, is presented to illustrate fund performance associated with Apollo's
Managing Partners and other investment professionals.
(3) Total IRR is calculated based on total cash flows for all funds presented.
(4) Funds are denominated in Euros and historical figures are translated into
(5)
million and
respectively, which are included in the figures in the table. A co-invest
entity within
into
(6) Remaining cost for certain of our credit funds may include physical cash
called, invested or reserved for certain levered investments.
(7) Gross and Net IRR have been presented for these funds as they have a defined
maturity date of less than 24 months and have substantially liquidated.
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Credit
The following table presents the gross and net returns for Apollo's credit
segment by category type:
Gross Returns Net Returns
For the Three For the Six For the Three For the Six
Months Ended Months Ended Months Ended Months Ended
Category June 30, 2020 June 30, 2020 June 30, 2020 June 30, 2020
Corporate Credit 7.7 % (1.1 )% 7.2 % (1.7 )%
Structured Credit 8.9 (7.3 ) 8.7 (7.3 )
Direct Origination 2.7 (2.0 ) 1.4 (3.5 )
Private Equity
The following table summarizes the investment record for distressed investments
made in our traditional private equity fund portfolios, since the Company's
inception. All amounts are as of June 30, 2020 :
Total Invested
Capital Total Value Gross IRR
(in millions)
Distressed for Control $ 7,795 $ 18,685 29 %
Non-Control Distressed 5,558 8,693 71
Total 13,353 27,378 49
Corporate Carve-outs, Opportunistic Buyouts
and Other Credit(1) 51,098 85,732 21
Total $ 64,451 $ 113,110 39 %
(1) Other Credit is defined as investments in debt securities of issuers other
than portfolio companies that are not considered to be distressed.
The following tables provide additional detail on the composition of the Fund VIII and Fund VII private equity portfolios based on investment strategy. Amounts for Fund I, II, III, IV, V, VI and IX are included in the table above but not presented below as their remaining value is less than$100 million , the fund has been liquidated or the fund commenced investing capital less than 24 months prior toJune 30, 2020 and such information was deemed not meaningful. All amounts are as ofJune 30, 2020 : Fund VIII(1)Total Invested Capital Total Value (in millions) Corporate Carve-outs $ 2,706$ 5,919 Opportunistic Buyouts 12,744 16,495 Distressed(2) 567 769 Total $ 16,017$ 23,183 Fund VII(1)Total Invested Capital Total Value (in millions) Corporate Carve-outs $ 2,539$ 3,505 Opportunistic Buyouts 4,339 10,593 Distressed/Other Credit(2) 9,583 18,408 Total $ 16,461$ 32,506
(1) Committed capital less unfunded capital commitments for Fund VIII and Fund
VII were
capital commitments from limited partners to invest in such funds less
capital that is available for investment or reinvestment subject to the
provisions of the applicable limited partnership agreement or other governing
agreements.
(2) The distressed investment strategy includes distressed for control,
non-control distressed and other credit.
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During the recovery and expansionary periods of 1994 through 2000 and late 2003 through the first half of 2007, our private equity funds invested or committed to invest approximately$13.7 billion primarily in traditional and corporate partner buyouts. During the recessionary periods of 1990 through 1993, 2001 through late 2003 and the recessionary and post recessionary periods (beginning the second half of 2007 throughJune 30, 2020 ), our private equity funds have invested$59.0 billion , of which$20.8 billion was in distressed buyouts and debt investments when the debt securities of quality companies traded at deep discounts to par value. Our average entry multiple for Fund VIII, VII and VI was 5.7x, 6.1x and 7.7x, respectively, as ofJune 30, 2020 . Our average entry multiple for a private equity fund is the average of the total enterprise value over an applicable adjusted earnings before interest, taxes, depreciation and amortization, which may incorporate certain adjustments based on the investment team's estimates and we believe captures the true economics of our funds' investments in portfolio companies. The average entry multiple of actively investing funds may include committed investments not yet closed.Permanent Capital The following table summarizes the investment record for our permanent capital vehicles by segment, excluding Athene-related and Athora-related assets managed or advised by ISG and ISGI: Total Returns(1) For the Three For the Six For the Three For the Six Months Ended Months Ended Months Ended Months Ended IPO Year(2) Total AUM June 30, 2020 June 30, 2020 June 30, 2019 June 30, 2019 Credit: (in millions) MidCap(3) N/A $ 8,552 4 % - % 5 % 8 % AIF 2013 320 12 (14 ) 3 % 12 % AFT 2011 350 9 (15 ) 3 % 8 % AINV/Other(4) 2004 4,551 49 (39 ) 7 % 35 % Real Assets: ARI 2009 6,978 37 % (41 )% 4 % 16 % Total$ 20,751
(1) Total returns are based on the change in closing trading prices during the
respective periods presented taking into account dividends and distributions,
if any, as if they were reinvested without regard to commission.
(2) An initial public offering ("IPO") year represents the year in which the
vehicle commenced trading on a national securities exchange.
(3) MidCap is not a publicly traded vehicle and therefore IPO year is not
applicable. The returns presented are a gross return based on NAV. The net
returns based on NAV were 1% and 3% for the three months ended
and
(4) Total AUM is as of
recent financial information on AINV. Included within Total AUM of AINV/Other
is
from which Apollo earns investment-related service fees, but for which Apollo
does not provide management or advisory services. Total returns exclude
performance related to this AUM.
SIAs
As ofJune 30, 2020 , Apollo managed approximately$28 billion of total AUM in SIAs, which include capital deployed from certain SIAs across Apollo's credit, private equity and real assets funds. Overview of Results of Operations Revenues Advisory and Transaction Fees, Net. As a result of providing advisory services with respect to actual and potential credit, private equity, and real assets investments, we are entitled to receive fees for transactions related to the acquisition and, in certain instances, disposition of portfolio companies as well as fees for ongoing monitoring of portfolio company operations and directors' fees. We also receive advisory fees for advisory services provided to certain credit funds. In addition, monitoring fees are generated on certain structured portfolio company investments. Under the terms of the limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such advisory and transaction fees, net of applicable broken deal costs ("Management Fee Offset"). Such amounts are presented as a reduction to advisory and transaction fees, net, in the condensed consolidated statements of operations (see note 2 to our condensed consolidated financial statements for more detail on advisory and transaction fees, net). The Management Fee Offsets are calculated for each fund as follows: - 87-
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• 65%-100% for certain credit funds, gross advisory,
transaction and other special fees;
• 65%-100% for private equity funds, gross advisory,
transaction and other special fees; and
• 65%-100% for certain real assets funds, gross advisory,
transaction and other special fees.
Management Fees. The significant growth of the assets we manage has had a
positive effect on our revenues. Management fees are typically calculated based
upon any of "net asset value," "gross assets," "adjusted par asset value,"
"adjusted costs of all unrealized portfolio investments," "capital commitments,"
"invested capital," "adjusted assets," "capital contributions," or
"stockholders' equity," each as defined in the applicable limited partnership
agreement and/or management agreement of the unconsolidated funds.
Performance Fees. The general partners of our funds are entitled to an incentive
return of normally up to 20% of the total returns of a fund's capital, depending
upon performance of the underlying funds and subject to preferred returns and
high water marks, as applicable. Performance fees, categorized as performance
allocations, are accounted for as an equity method investment, and effectively,
the performance fees for any period are based upon an assumed liquidation of the
funds' assets at the reporting date, and distribution of the net proceeds in
accordance with the funds' allocation provisions. Performance fees categorized
as incentive fees, which are not accounted as an equity method investment, are
deferred until fees are probable to not be significantly reversed. Prior to the
adoption of the new revenue recognition guidance, incentive fees were recognized
on an assumed liquidation basis. The majority of performance fees are comprised
of performance allocations.
As of June 30, 2020 , approximately 53% of the value of our funds' investments on
a gross basis was determined using market-based valuation methods (i.e.,
reliance on broker or listed exchange quotes) and the remaining 47% was
determined primarily by comparable company and industry multiples or discounted
cash flow models. For our credit, private equity and real assets segments, the
percentage determined using market-based valuation methods as of June 30, 2020
was 71%, 18% and 21%, respectively. See "Item 1A. Risk Factors-Risks Related to
Our Businesses-Our funds' performance, and our performance, may be adversely
affected by the financial performance of our funds' portfolio companies and the
industries in which our funds invest" in the 2019 Annual report for a discussion
regarding certain industry-specific risks that could affect the fair value of
our private equity funds' portfolio company investments.
In our private equity funds, the Company does not earn performance fees until
the investors in the fund have achieved cumulative investment returns on
invested capital (including management fees and expenses) in excess of an 8%
hurdle rate. Additionally, certain of our credit and real assets funds have
various performance fee rates and hurdle rates. Certain of our credit and real
assets funds allocate performance fees to the general partner in a similar
manner as the private equity funds. In our private equity, certain credit and
real assets funds, so long as the investors achieve their priority returns,
there is a catch-up formula whereby the Company earns a priority return for a
portion of the return until the Company's performance fees equate to its
incentive fee rate for that fund; thereafter, the Company participates in
returns from the fund at the performance fee rate. Performance fees, categorized
as performance allocations, are subject to reversal to the extent that the
performance fees distributed exceed the amount due to the general partner based
on a fund's cumulative investment returns. The Company recognizes potential
repayment of previously received performance fees as a general partner
obligation representing all amounts previously distributed to the general
partner that would need to be repaid to the Apollo funds if these funds were to
be liquidated based on the current fair value of the underlying funds'
investments as of the reporting date. The actual general partner obligation,
however, would not become payable or realized until the end of a fund's life or
as otherwise set forth in the respective limited partnership agreement of the
fund.
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The table below presents an analysis of Apollo's (i) performance fees receivable
on an unconsolidated basis and (ii) realized and unrealized performance fees for
Apollo's combined segments:
As of
June 30, 2020 For the Three Months Ended June 30, 2020 For the Six Months Ended June 30, 2020
Performance Fees
Receivable on an Total Total
Unconsolidated Unrealized
Realized Performance Unrealized Realized Performance
Basis Performance Fees Performance Fees Fees Performance Fees Performance Fees Fees
(in thousands)
Credit:
Corporate Credit (1) $ 114,427 $ 85,541 $ 4,359 $ 89,900 $ 96,527 $ 16,341 $ 112,868
Structured Credit 130,427 14,022 - 14,022 (60,215 ) 13,846 (46,369 )
Direct Origination 47,108 4,797 3,440 8,237 (16,969 ) 5,877 (11,092 )
Total Credit 291,962 104,360 7,799 112,159 19,343 36,064 55,407
Total Credit, net of
profit sharing
payable/expense 23,938 57,059 3,440 60,499 9,597 6,148 15,745
Private Equity:
Fund VIII (2) 203,530 745,109 - 745,109 (512,001 ) - (512,001 )
Fund VII(1)(2) 17 43,535 61 43,596 (114,233 ) 471 (113,762 )
Fund VI(2) 17,649 (12 ) 77 65 (90 ) 609 519
Fund IV and V (1) - (57 ) - (57 ) (161 ) - (161 )
ANRP I and II(1)(2) 203 184 33 217 (21,418 ) 260 (21,158 )
Hybrid Value Fund(2) 29,189 29,189 - 29,189 29,189 - 29,189
Other(1)(3) 7,125 (314 ) 3,378 3,064 (114,789 ) 3,352 (111,437 )
Total Private Equity 257,713 817,634 3,549 821,183 (733,503 ) 4,692 (728,811 )
Total Private Equity, net
of profit sharing
payable/expense 140,007 517,910 - 517,910 (458,551 ) (304 ) (458,855 )
Real Assets:
Principal Finance(1) 88,602 (10,878 ) 907 (9,971 ) (126,233 ) 35,025 (91,208 )
U.S. RE Fund I and II(1) 12,288 (7,532 ) - (7,532 ) (21,525 ) 4,624 (16,901 )
Infrastructure Equity
Fund 19,237 (514 ) 2,022 1,508 1,048 2,022 3,070
Other(1)(3) 6,473 4,371 - 4,371 (28,315 ) - (28,315 )
Total Real Assets 126,600 (14,553 ) 2,929 (11,624 ) (175,025 ) 41,671 (133,354 )
Total Real Assets, net of
profit sharing
payable/expense 41,292 (8,001 ) - (8,001 ) (103,076 ) - (103,076 )
Total $ 676,275 $ 907,441 $ 14,277 $ 921,718 $ (889,185 ) $ 82,427 $ (806,758 )
Total, net of profit
sharing
payable(4)/expense $ 205,237 $ 566,968 $ 3,440 $ 570,408 $ (552,030 ) $ 5,844 $ (546,186 ) (1) As of
certain real asset funds had
respectively, in general partner obligations to return previously distributed
performance fees. The fair value gain on investments and income at the fund
level needed to reverse the general partner obligations for certain credit
funds, certain private equity funds and certain real assets funds was
million,
2020.
(2) As of
109%, 40%, 34%, 25% and 69% of the fund's unreturned capital, respectively,
which were below the required escrow ratio of 115%. As a result, these funds
are required to place in escrow current and future performance fee
distributions to the general partner until the specified return ratio of 115%
is met (at the time of a future distribution) or upon liquidation. As of
had
sharing, in escrow. As of
performance fees, or
million net of profit sharing, in escrow. Realized performance fees currently
distributed to the general partner are limited to potential tax distributions
and interest on escrow balances per these funds' partnership agreements.
Performance fees receivable as of
for the three and six months ended
escrow balances that is not subject to contingent repayment.
(3) Other includes certain SIAs.
(4) There was a corresponding profit sharing payable of
and contingent consideration obligations of
The general partners of certain of our credit funds accrue performance fees,
categorized as performance allocations, when the fair value of investments
exceeds the cost basis of the individual investors' investments in the fund,
including any allocable share of expenses incurred in connection with such
investments, which we refer to as "high water marks." These high water marks are
applied on an individual investor basis. Certain of our credit funds have
investors with various high water marks, the achievement of which is subject to
market conditions and investment performance.
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Performance fees from our private equity funds and certain credit and real assets funds are subject to contingent repayment by the general partner in the event of future losses to the extent that the cumulative performance fees distributed from inception to date exceeds the amount computed as due to the general partner at the final distribution. These general partner obligations, if applicable, are included in due to related parties on the condensed consolidated statements of financial condition. The following table summarizes our performance fees since inception for our combined segments throughJune 30, 2020 :
Performance Fees Since Inception(1)
Maximum
Performance Fees
Total Undistributed and Subject to
Undistributed by Distributed by Fund
Distributed by Fund and
Fund and Recognized and Recognized(2) Recognized(3) Obligation(3) Reversal(4)
(in millions)
Credit:
Corporate Credit $ 114.5 $ 1,187.8 $ 1,302.3 $ 1.0 $ 128.5
Structured Credit 130.4 170.5 300.9 - 130.4
Direct Origination 47.1 45.4 92.5 - 45.5
Total Credit 292.0 1,403.7 1,695.7 1.0 304.4
Private Equity:
Fund VIII 203.5 818.6 1,022.1 - 743.9
Fund VII - 3,132.0 3,132.0 211.9 188.7
Fund VI 17.7 1,663.9 1,681.6 - 0.7
Fund IV and V - 2,053.1 2,053.1 30.7 0.3
ANRP I and II 0.2 104.6 104.8 32.0 -
Hybrid Value Fund 29.2 - 29.2 - 29.2
Other 7.1 730.6 737.7 76.7 45.4
Total Private Equity 257.7 8,502.8 8,760.5 351.3 1,008.2
Real Assets:
Principal Finance 88.6 407.3 495.9 15.8 248.2
U.S. RE Fund I and II 12.3 32.4 44.7 11.1 27.0
Infrastructure Equity Fund 19.2 2.1 21.3 - 20.2
Other(5) 6.5 36.6 43.1 7.6 14.7
Total Real Assets 126.6 478.4 605.0 34.5 310.1
Total $ 676.3 $ 10,384.9 $ 11,061.2 $ 386.8 $ 1,622.7 (1) Certain funds are denominated in Euros and historical figures are translated
into
Certain funds are denominated in pound sterling and translated into
dollars at an exchange rate of £1.00 to
(2) Amounts in "Distributed by Fund and Recognized" for the Citi Property
Investors ("CPI"),
are presented for activity subsequent to the respective acquisition dates.
Amounts exclude certain performance fees from business development companies
and
Redding Ridge.
(3) Amounts were computed based on the fair value of fund investments on
2020. Performance fees have been allocated to and recognized by the general
partner. Based on the amount allocated, a portion is subject to potential
reversal or, to the extent applicable, has been reduced by the general
partner obligation to return previously distributed performance fees at
general partner obligation would not take place until the final disposition
of the fund's investments based on contractual termination of the fund.
(4) Represents the amount of performance fees that would be reversed if remaining
fund investments became worthless on
potential reversal of performance fees include amounts undistributed by a
fund (i.e., the performance fees receivable), as well as a portion of the
amounts that have been distributed by a fund, net of taxes and not subject to
a general partner obligation to return previously distributed performance
fees, except for those funds that are gross of taxes as defined in the
respective funds' governing documents.
(5) Other includes certain SIAs.
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Expenses
Compensation and Benefits. Our most significant expense is compensation and benefits expense. This consists of fixed salary, discretionary and non-discretionary bonuses, profit sharing expense associated with the performance fees earned from credit, private equity, and real assets funds and compensation expense associated with the vesting of non-cash equity-based awards. Our compensation arrangements with certain partners and employees contain a significant performance-based incentive component. Therefore, as our net revenues increase, our compensation costs rise. Our compensation costs also reflect the increased investment in people as we expand geographically and create new funds. In addition, certain professionals and selected other individuals have a profit sharing interest in the performance fees earned in relation to our private equity, certain credit and real assets funds in order to better align their interests with our own and with those of the investors in these funds. Profit sharing expense is part of our compensation and benefits expense and is generally based upon a fixed percentage of credit, private equity and real assets performance fees. Profit sharing expense can reverse during periods when there is a decline in performance fees that were previously recognized. Profit sharing amounts are normally distributed to employees after the corresponding investment gains have been realized and generally before preferred returns are achieved for the investors. Therefore, changes in our unrealized performance fees have the same effect on our profit sharing expense. Profit sharing expense increases when unrealized performance fees increases. Realizations only impact profit sharing expense to the extent that the effects on investments have not been recognized previously. If losses on other investments within a fund are subsequently realized, the profit sharing amounts previously distributed are normally subject to a general partner obligation to return performance fees previously distributed back to the funds. This general partner obligation due to the funds would be realized only when the fund is liquidated, which generally occurs at the end of the fund's term. However, indemnification obligations also exist for realized gains with respect to Fund IV, Fund V and Fund VI, which, although ourManaging Partners andContributing Partners would remain personally liable, may indemnify ourManaging Partners andContributing Partners for 17.5% to 100% of the previously distributed profits regardless of the fund's future performance. See note 15 to our condensed consolidated financial statements for further information regarding the Company's indemnification liability. Each Managing Partner receives$100,000 per year in base salary for services rendered to us. Additionally, ourManaging Partners can receive other forms of compensation. In addition, AHL Awards (as defined in note 13 to our condensed consolidated financial statements) and other equity-based compensation awards have been granted to the Company and certain employees, which amortize over the respective vesting periods. The Company grants equity awards to certain employees, including RSUs, restricted Class A shares and options, that generally vest and become exercisable in quarterly installments or annual installments depending on the contract terms over a period of three to six years. In some instances, vesting of an RSU is also subject to the Company's receipt of performance fees, within prescribed periods, sufficient to cover the associated equity-based compensation expense. See note 13 to our condensed consolidated financial statements for further discussion of equity-based compensation. Other Expenses. The balance of our other expenses includes interest, placement fees, and general, administrative and other operating expenses. Interest expense consists primarily of interest related to the the 2024 Senior Notes, the 2026 Senior Notes, the 2029 Senior Notes, the 2030 Senior Notes, the 2039 Senior Secured Guaranteed Notes, the 2048 Senior Notes and the 2050 Subordinated Notes as discussed in note 11 to our condensed consolidated financial statements. Placement fees are incurred in connection with our capital raising activities. General, administrative and other expenses includes occupancy expense, depreciation and amortization, professional fees and costs related to travel, information technology and administration. Occupancy expense represents charges related to office leases and associated expenses, such as utilities and maintenance fees. Depreciation and amortization of fixed assets is normally calculated using the straight-line method over their estimated useful lives, ranging from two to sixteen years, taking into consideration any residual value. Leasehold improvements are amortized over the shorter of the useful life of the asset or the expected term of the lease. Intangible assets are amortized based on the future cash flows over the expected useful lives of the assets. Other Income (Loss)Net Gains (Losses) from Investment Activities. Net gains (losses) from investment activities include both realized gains and losses and the change in unrealized gains and losses in our investment portfolio between the opening reporting date and the closing reporting date. Net unrealized gains (losses) are a result of changes in the fair value of unrealized investments and reversal of unrealized gains (losses) due to dispositions of investments during the reporting period. Significant judgment and estimation goes into the assumptions that drive these models and the actual values realized with respect to investments could be materially different from values obtained based on the use of those models. The valuation methodologies applied impact the reported value of investment company holdings and their underlying portfolios in our condensed consolidated financial statements. - 91-
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Net Gains (Losses) from Investment Activities of Consolidated Variable Interest Entities. Changes in the fair value of the consolidated VIEs' assets and liabilities and related interest, dividend and other income and expenses subsequent to consolidation are presented within net gains (losses) from investment activities of consolidated variable interest entities and are attributable to Non-Controlling Interests in the condensed consolidated statements of operations. Other Income (Losses), Net. Other income (losses), net includes gains (losses) arising from the remeasurement of foreign currency denominated assets and liabilities, remeasurement of the tax receivable agreement liability and other miscellaneous non-operating income and expenses. Income Taxes. Prior to the Conversion, certain entities in theApollo Operating Group operated as partnerships forU.S. federal income tax purposes. As a result, these members of theApollo Operating Group were not subject toU.S. federal income taxes. However, certain of these entities were subject toNew York City unincorporated business taxes ("NYC UBT") and certain non-U.S. entities were subject to non-U.S. corporate income taxes. EffectiveSeptember 5, 2019 ,Apollo Global Management, LLC converted from aDelaware limited liability company to aDelaware corporation namedApollo Global Management, Inc. Subsequent to the Conversion, generally all of the income is subject toU.S. corporate income taxes, which could result in an overall higher income tax expense (or benefit) in periods subsequent to the Conversion. Significant judgment is required in determining the provision for income taxes and in evaluating income tax positions, including evaluating uncertainties. We recognize the income tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained upon examination, including resolutions of any related appeals or litigation, based on the technical merits of the positions. The tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If a tax position is not considered more likely than not to be sustained, then no benefits of the position are recognized. The Company's income tax positions are reviewed and evaluated quarterly to determine whether or not we have uncertain tax positions that require financial statement recognition or de-recognition. Deferred tax assets and liabilities are recognized for the expected future tax consequences, using currently enacted tax rates, of differences between the carrying amount of assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Non-Controlling Interests For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than Apollo. The aggregate of the income or loss and corresponding equity that is not owned by the Company is included in Non-Controlling Interests in the condensed consolidated financial statements. The Non-Controlling Interests relating toApollo Global Management, Inc. primarily include the 40.4% and 50.2% ownership interest in theApollo Operating Group held by theManaging Partners andContributing Partners through their limited partner interests in Holdings as ofJune 30, 2020 and 2019, respectively. Additionally, as ofJune 30, 2020 , Athene holds a 6.7% Non-Controlling Interest in theApollo Operating Group as a result of the Transaction Agreement. Non-Controlling Interests also include limited partner interests in certain consolidated funds and VIEs. The authoritative guidance for Non-Controlling Interests in the condensed consolidated financial statements requires reporting entities to present Non-Controlling Interest as equity and provides guidance on the accounting for transactions between an entity and Non-Controlling Interests. According to the guidance, (1) Non-Controlling Interests are presented as a separate component of stockholders' equity on the Company's condensed consolidated statements of financial condition, (2) net income (loss) includes the net income (loss) attributable to the Non-Controlling Interest holders on the Company's condensed consolidated statements of operations, (3) the primary components of Non-Controlling Interest are separately presented in the Company's condensed consolidated statements of changes in stockholders' equity to clearly distinguish the interests in theApollo Operating Group and other ownership interests in the consolidated entities and (4) profits and losses are allocated to Non-Controlling Interests in proportion to their ownership interests regardless of their basis. - 92-
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Results of Operations Below is a discussion of our condensed consolidated results of operations for the three and six months endedJune 30, 2020 and 2019. For additional analysis of the factors that affected our results at the segment level, see "-Segment Analysis" below: For the Three Months Ended June 30, Amount Percentage For the Six Months Ended June 30, Amount Percentage 2020 2019 Change Change 2020 2019 Change Change Revenues: (in thousands) (in thousands) Management fees$ 409,953 $ 388,215 $ 21,738 5.6 %$ 806,557 $ 768,241 $ 38,316 5.0 % Advisory and transaction fees, net 61,957 31,124 30,833 99.1 98,920 50,693 48,227 95.1 Investment income (loss): Performance allocations 924,599 176,862 747,737 422.8 (809,724 ) 428,359 (1,238,083 ) NM Principal investment income (loss) 111,621 39,602 72,019 181.9 (76,228 ) 65,627 (141,855 ) NM Total investment income (loss) 1,036,220 216,464 819,756 378.7 (885,952 ) 493,986 (1,379,938 ) NM Incentive fees 205 776 (571 ) (73.6 ) 19,724 1,436 18,288 NM Total Revenues 1,508,335 636,579 871,756 136.9 39,249 1,314,356 (1,275,107 ) (97.0 ) Expenses: Compensation and benefits: Salary, bonus and benefits 151,019 123,669 27,350 22.1 290,288 242,832 47,456 19.5 Equity-based compensation 59,420 44,662 14,758 33.0 111,542 89,739 21,803 24.3 Profit sharing expense 375,959 68,278 307,681 450.6 (260,039 ) 191,725 (451,764 ) NM Total compensation and benefits 586,398 236,609 349,789 147.8 141,791 524,296 (382,505 ) (73.0 ) Interest expense 32,291 23,302 8,989 38.6 63,533 42,410 21,123 49.8 General, administrative and other 83,729 81,839 1,890 2.3 168,251 153,501 14,750 9.6 Placement fees 359 775 (416 ) (53.7 ) 768 335 433 129.3 Total Expenses 702,777 342,525 360,252 105.2 374,343 720,542 (346,199 ) (48.0 ) Other Income (Loss): Net gains (losses) from investment activities 268,667 45,060 223,607 496.2 (995,884 ) 63,889 (1,059,773 ) NM Net gains (losses) from investment activities of consolidated variable interest entities 57,862 4,631 53,231 NM (108,058 ) 14,097 (122,155 ) NM Interest income 3,994 8,710 (4,716 ) (54.1 ) 11,928 15,786 (3,858 ) (24.4 ) Other income (loss), net 3,327 6,603 (3,276 ) (49.6 ) (13,180 ) 6,693 (19,873 ) NM Total Other Income (Loss) 333,850 65,004 268,846 413.6 (1,105,194 ) 100,465 (1,205,659 ) NM Income (Loss) before income tax (provision) benefit 1,139,408 359,058 780,350 217.3 (1,440,288 ) 694,279 (2,134,567 ) NM Income tax (provision) benefit (140,323 ) (16,897 ) (123,426 ) NM 155,530 (36,551 ) 192,081 NM Net Income (Loss) 999,085 342,161 656,924 192.0 (1,284,758 ) 657,728 (1,942,486 ) NM Net income (loss) attributable to Non-Controlling Interests (552,756 ) (177,338 ) (375,418 ) 211.7 734,869 (343,848 ) 1,078,717 NM Net Income (Loss) Attributable to Apollo Global Management, Inc. 446,329 164,823 281,506 170.8 (549,889 ) 313,880 (863,769 ) NM Series A Preferred Stock Dividends (4,383 ) (4,383 ) - - (8,766 ) (8,766 ) - - Series B Preferred Stock Dividends (4,782 ) (4,781 ) (1 ) - (9,563 ) (9,562 ) (1 ) - Net Income (Loss) Attributable to AGM Class A Shareholders$ 437,164 $ 155,659 $ 281,505 180.8 %$ (568,218 ) $ 295,552 $ (863,770 ) NM
Note: "NM" denotes not meaningful. Changes from negative to positive amounts and
positive to negative amounts are not considered meaningful. Increases or
decreases from zero and changes greater than 500% are also not considered
meaningful.
InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus (COVID-19) a pandemic, which has resulted in uncertainty and disruption in the global economy and financial markets. While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of the Apollo Funds and their portfolio companies, for an indefinite period of time. Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 In this section, references to 2020 refer to the three months endedJune 30, 2020 and references to 2019 refer to the three months endedJune 30, 2019 . - 93-
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Revenues
Our revenues and other income include fixed components that result from measures of capital and asset valuations and variable components that result from realized and unrealized investment performance, as well as the value of successfully completed transactions. Management fees increased by$21.7 million to$410.0 million in 2020 from$388.2 million in 2019. This change was primarily attributable to increases in management fees earned from Athora and Athene of$15.8 million and$10.9 million , respectively. For additional details regarding changes in management fees in each segment, see "-Segment Analysis" below. Advisory and transaction fees, net, increased by$30.8 million to$62.0 million in 2020 from$31.1 million in 2019. This change was primarily attributable to an increase in net advisory and transaction fees earned with respect to certain portfolio companies in the media, telecom and technology industries and an increase in structuring fees earned from a company in the consumer and retail industry. Performance allocations increased by$747.7 million to$924.6 million in 2020 from$176.9 million in 2019. This change was primarily attributable to increased performance allocations earned from Fund VIII,Fund VII andApollo Credit Strategies Master Fund Ltd. of$621.6 million ,$86.5 million and$45.6 million , respectively, in 2020. The increase in performance allocations from Fund VIII was primarily driven by appreciation in the value of the fund's investments in public portfolio companies in the consumer services, manufacturing and industrial sectors during 2020. The increase in performance allocations from Fund VII was primarily driven by appreciation in the value of the fund's investments in public portfolio companies primarily in the consumer, retail and natural resources sectors during 2020. The increase in performance allocations fromApollo Credit Strategies Master Fund Ltd. was driven by unrealized gains on the fund's investments across a number of sectors, primarily in banking, utilities, retail and transportation. Principal investment income increased by$72.0 million to$111.6 million in 2020 from$39.6 million in 2019. This change was primarily driven by increases in the value of investments held by certain Apollo funds and other entities in which the Company has a direct interest, mainly with respect to Fund VIII, Voya Financial, Athora and Fund VII of$28.7 million ,$24.5 million ,$10.4 million and$6.1 million , respectively, during 2020. Expenses Compensation and benefits increased by$349.8 million to$586.4 million in 2020 from$236.6 million in 2019. This change was primarily attributable to an increase in profit sharing expense of$307.7 million due to a corresponding increase in performance allocations during 2020. In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance allocations in the period. Additionally, salary, bonus and benefits increased by$27.4 million primarily due to an increase in headcount, and equity-based compensation increased$14.8 million due to higher amortization expenses associated with previously granted performance awards. Included in profit sharing expense is$5.0 million for 2020 related to theIncentive Pool . There was no profit sharing expense related to theIncentive Pool for 2019. See "-Profit Sharing Expense" in the Critical Accounting Policies section for an overview of theIncentive Pool . Interest expense increased by$9.0 million to$32.3 million in 2020 from$23.3 million in 2019, primarily due to additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. Other Income (Loss) Net gains from investment activities increased by$223.6 million to$268.7 million in 2020 from$45.1 million in 2019. This change was primarily attributable to increased appreciation on the Company's investment in Athene Holding during 2020. See note 7 to the condensed consolidated financial statements for further information regarding the Company's investment in Athene Holding. Net gains from investment activities of consolidated VIEs increased by$53.2 million to$57.9 million in 2020 from$4.6 million in 2019. This change was primarily driven by gains from newly consolidated funds during 2020 as discussed in note 6 to the condensed consolidated financial statements. Interest income decreased by$4.7 million to$4.0 million in 2020 from$8.7 million in 2019. primarily due to decreased interest income earned fromU.S. Treasury securities as a result of lower interest rates during 2020. - 94-
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Net Income Attributable to Non-Controlling Interests and Series A and Series B Preferred Stockholders For information related to net income attributable to Non-Controlling Interests and net income attributable to Series A and Series B Preferred Stockholders, see note 14 to the condensed consolidated financial statements. Income Tax Provision EffectiveSeptember 5, 2019 ,Apollo Global Management, LLC , aDelaware limited liability company, converted to aDelaware corporation namedApollo Global Management, Inc. Prior to the Conversion, a portion of the investment income, performance allocations and principal investment income we earned was not subject to corporate-level tax inthe United States . Subsequent to the Conversion, generally all of the income is subject toU.S. corporate income taxes, which could result in an overall higher income tax expense (or benefit) in periods subsequent to the Conversion. The provision for income taxes includes federal, state and local income taxes inthe United States and foreign income taxes. The income tax provision increased by$123.4 million to$140.3 million in 2020 from$16.9 million in 2019. The increase was primarily related to: (i) earnings now subject to corporate-level tax subsequent to the Conversion effectiveSeptember 5, 2019 , and (ii) the subsequent increase in value of previous unrealized book losses generated from the earlier market dislocation due to the impacts of COVID-19. The provision for income taxes includes, federal, state, local and foreign income taxes resulting in an effective income tax rate of 12.3% and 4.7% for 2020 and 2019, respectively. The most significant reconciling items between ourU.S. federal statutory income tax rate and our effective income tax were due to the following: (i) income passed through to Non-Controlling Interests and (ii) state and local income taxes including NYC UBT, as well as foreign income taxes (see note 10 to the condensed consolidated financial statements for further details regarding the Company's income tax provision). Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 In this section, references to 2020 refer to the six months endedJune 30, 2020 and references to 2019 refer to the six months endedJune 30, 2019 . Revenues Management fees increased by$38.3 million to$806.6 million in 2020 from$768.2 million in 2019. This change was primarily attributable to an increase in management fees earned from Athene and Athora of$26.1 million and$16.5 million , respectively. For additional details regarding changes in management fees in each segment, see "-Segment Analysis" below. Advisory and transaction fees, net, increased by$48.2 million to$98.9 million in 2020 from$50.7 million in 2019. This change was primarily driven by increased net advisory and transaction fees earned with respect to certain portfolio companies in the media, telecom, technology, and financial services industries, increased net advisory and transaction fees earned related to the structuring of a loan for a portfolio company and an increase in structuring fees from a company in the consumer and retail industry during 2020. Performance allocations decreased by$1.2 billion to$(0.8) billion in 2020 from$0.4 billion in 2019. The pandemic resulting from COVID-19 and the actions taken in response have caused severe disruption to the global economy and financial markets. In line with public equity and credit indices, we have experienced significant unrealized mark-to-market losses in our underlying funds. The decrease in performance allocations was primarily attributable to decreased performance allocations earned from Fund VIII,Structured Credit Recovery Fund IV ("SCRF IV") and Fund VII of$812.4 million ,$98.5 million and$92.0 million , respectively, during 2020. The decrease in performance allocations from Fund VIII was primarily driven by depreciation in the value of the fund's investments in public portfolio companies primarily in the financial services and manufacturing and industrial sectors, and in private portfolio companies primarily in the consumer services, leisure and natural resources sectors during 2020. The decrease in performance allocations from SCRF IV was primarily driven by the fund's mark-to-market losses on its investments in structured credit products due to widespread market sell-off and spread widening during 2020. The decrease in performance allocations from Fund VII was primarily driven by depreciation in the value of the fund's investments in public portfolio companies primarily in the consumer, retail and natural resources sectors during 2020. Principal investment income decreased by$141.9 million to$(76.2) million in 2020 from$65.6 million in 2019. This change was primarily driven by decreases in the value of investments held by certain Apollo funds and other entities in which the Company has a direct interest, mainly with respect to Fund VIII, Redding Ridge, SCRF IV, AION and ARI of$82.2 million ,$10.8 million ,$10.6 million ,$10.3 million and$10.0 million , respectively, during 2020. - 95-
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Expenses
Compensation and benefits decreased by$382.5 million to$141.8 million in 2020 from$524.3 million in 2019. This change was primarily attributable to a decrease in profit sharing expense of$451.8 million due to a corresponding decrease in performance allocations during 2020, as compared to the same period in 2019. In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance allocations in the period. The decrease in profit sharing expense was partially offset by an increase in salary, bonus and benefits of$47.5 million , primarily attributable to an increase in headcount, as well as an increase in equity-based compensation of$21.8 million due to higher amortization expenses associated with previously granted performance awards. Included in profit sharing expense is$42.9 million and$17.0 million for 2020 and 2019, respectively, related to theIncentive Pool . See "-Profit Sharing Expense" in the Critical Accounting Policies section for an overview of theIncentive Pool . Interest expense increased by$21.1 million to$63.5 million in 2020 from$42.4 million in 2019, primarily due to additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. General, administrative and other expenses increased by$14.8 million to$168.3 million in 2020 from$153.5 million in 2019. This change was primarily driven by an increase in occupancy expenses during 2020. Other Income (Loss) Net losses from investment activities were$(1.0) billion in 2020 as compared to net gains from investment activities of$63.9 million in 2019. This change was primarily attributable to unrealized mark-to-market losses from the Company's investment in Athene Holding from the combined impact of COVID-19 related market dislocation and the DLOM during 2020. See note 7 to the condensed consolidated financial statements for further information regarding the Company's investment in Athene Holding. Net losses from investment activities of consolidated VIEs were$(108.1) million in 2020, as compared to net gains from investment activities of consolidated VIEs of$14.1 million in 2019. This change was primarily driven by losses from newly consolidated funds during 2020, as discussed in note 6 to the condensed consolidated financial statements. Interest income decreased by$3.9 million to$11.9 million in 2020 from$15.8 million in 2019, primarily due to decreased interest income earned fromU.S. Treasury securities as a result of lower interest rates in 2020. Other loss, net was$13.2 million in 2020, as compared to other income, net of$6.7 million in 2019. This change was primarily attributable to one-time costs to wind down a managed account arrangement incurred in 2020 and the reversal of a liability relating to a favorable judgment in a legal proceeding during 2019, which did not occur during 2020. Income Tax Provision The income tax benefit was$155.5 million for 2020, compared to the income tax provision of$36.6 million for 2019. The change was primarily related to: (i) earnings now subject to corporate-level tax subsequent to the Conversion effectiveSeptember 5, 2019 , and (ii) the year-to-date unrealized mark-to-market book losses generated from the recent market dislocation due to the impacts of COVID-19. The provision for income taxes includes federal, state, local and foreign income taxes resulting in an effective income tax rate of 10.8% and 5.3% for 2020 and 2019, respectively. The most significant reconciling items between ourU.S. federal statutory income tax rate and our effective income tax rate were due to the following: (i) income passed through to Non-Controlling Interests and (ii) state and local income taxes, including NYC UBT, as well as foreign income taxes (see note 10 to the condensed consolidated financial statements for further details regarding the Company's income tax provision). Segment Analysis Discussed below are our results of operations for each of our reportable segments. They represent the segment information available and utilized by our executive management, which consists of ourManaging Partners ,who operate collectively as our chief operating decision maker, to assess performance and to allocate resources. See note 17 to our condensed consolidated financial statements for more information regarding our segment reporting. Our financial results vary, since performance fees, which generally constitute a large portion of the income from the funds that we manage, as well as the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. As a result, we emphasize long-term financial growth and profitability to manage our business. - 96-
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Credit
The following table sets forth our segment statement of operations information
and our supplemental performance measure, Segment Distributable Earnings, within
our credit segment.
For the Three Months Ended For the Six Months Ended June
June 30, 30,
2020 2019 Total Change Percentage Change 2020 2019 Total Change Percentage Change
(in thousands) (in thousands)
Credit:
Management fees $ 224,721 $ 190,275 $ 34,446 18.1 % $ 432,950 $ 373,017 $ 59,933 16.1 %
Advisory and transaction
fees, net 13,756 5,510 8,246 149.7 29,023 8,358 20,665 247.2
Performance fees(1) 3,440 9,261 (5,821 ) (62.9 ) 5,844 9,922 (4,078 ) (41.1 )
Fee Related Revenues 241,917 205,046 36,871 18.0 467,817 391,297 76,520 19.6Salary, bonus and benefits (52,806 ) (50,465 ) (2,341 )
4.6 (109,814 ) (94,769 ) (15,045 ) 15.9
General, administrative and other (37,251 ) (31,647 ) (5,604 ) 17.7 (72,624 ) (59,143 ) (13,481 ) 22.8 Placement fees (358 ) (157 ) (201 ) 128.0 (664 ) 148 (812 ) NM Fee Related Expenses (90,415 ) (82,269 ) (8,146 ) 9.9 (183,102 ) (153,764 ) (29,338 ) 19.1 Other income (loss), net of Non-Controlling Interest (724 ) 1,968 (2,692 ) NM (1,387 ) 1,564 (2,951 ) NM Fee Related Earnings 150,778 124,745 26,033 20.9 283,328 239,097 44,231 18.5 Realized performance fees 4,359 18,030 (13,671 ) (75.8 ) 30,220 21,357 8,863
41.5
Realized profit sharing expense (4,359 ) (7,877 ) 3,518
(44.7 ) (29,916 ) (11,395 ) (18,521 )
162.5
Net Realized Performance
Fees - 10,153 (10,153 ) (100.0 ) 304 9,962 (9,658 ) (96.9 )
Realized principal
investment income, net (2) 1,810 7,909 (6,099 ) (77.1 ) 3,184 10,958 (7,774 ) (70.9 )
Net interest loss and other (11,857 ) (4,656 ) (7,201 ) 154.7 (28,971 ) (9,042 ) (19,929 ) 220.4
Segment Distributable
Earnings $ 140,731 $ 138,151 $ 2,580 1.9 % $ 257,845 $ 250,975 $ 6,870 2.7 %
(1) Represents certain performance fees related to business development companies
and
(2) Realized principal investment income, net includes dividends from our
permanent capital vehicles, net of such amounts used to compensate employees.
Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 In this section, references to 2020 refer to the three months endedJune 30, 2020 and references to 2019 refer to the three months endedJune 30, 2019 . Management fees increased by$34.4 million to$224.7 million in 2020 from$190.3 million in 2019. This change was primarily attributable to an increase in management fees earned from Athora and Athene of$16.2 million and$10.2 million , respectively. Advisory and transaction fees, net increased by$8.2 million to$13.8 million in 2020 from$5.5 million in 2019. This was primarily driven by structuring fees earned related to a portfolio company in the consumer and retail industry during 2020. Performance fees decreased by$5.8 million to$3.4 million in 2020 from$9.3 million in 2019, primarily attributable to a decrease in performance fees generated fromRedding Ridge Holdings of$4.9 million , asRedding Ridge Holdings achieved its annualized hurdle rate during 2019 but did not during 2020. General, administrative and other increased by$5.6 million to$37.3 million in 2020 from$31.6 million in 2019 primarily driven by an increase in technology and occupancy expenses in 2020. Realized performance fees decreased by$13.7 million to$4.4 million in 2020 from$18.0 million in 2019. This change was primarily attributable to a decrease in realized performance fees generated from FCI I. The decrease in realized performance fees generated from FCI I was primarily driven by realizations of the fund's investments in various life settlement policies during 2019, while the fund had no realized performance fees during 2020. Realized profit sharing expense decreased by$3.5 million to$4.4 million in 2020 from$7.9 million in 2019 as a result of a corresponding decrease in realized performance fees as described above. In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Included in realized profit sharing expense is$1.3 million related to theIncentive Pool for 2020. There was no profit sharing expense related to theIncentive Pool for 2019.The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period. - 97-
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Realized principal investment income decreased by$6.1 million to$1.8 million in 2020 from$7.9 million in 2019. This change was primarily attributable to a decrease in realizations from Apollo's equity ownership in Midcap. Net interest loss and other increased by$7.2 million to$11.9 million in 2020 from$4.7 million in 2019, primarily due to additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 In this section, references to 2020 refer to the six months endedJune 30, 2020 and references to 2019 refer to the six months endedJune 30, 2019 . Management fees increased by$59.9 million to$433.0 million in 2020 from$373.0 million in 2019. This change was primarily attributable to an increase in management fees earned from Athene and Athora of$23.6 million and$17.5 million , respectively, as well as modest increases across other credit funds during 2020. Advisory and transaction fees, net increased by$20.7 million to$29.0 million in 2020 from$8.4 million in 2019. This increase was primarily driven by structuring fees earned related to portfolio companies in the energy and consumer & retail industries during 2020. Performance fees decreased by$4.1 million to$5.8 million in 2020 from$9.9 million in 2019 primarily attributable to a decrease in performance fees earned fromRedding Ridge Holdings of$4.5 million asRedding Ridge Holdings achieved its annualized hurdle rate during 2019 but did not during 2020. Salary, bonus and benefits expense increased by$15.0 million to$109.8 million in 2020 from$94.8 million in 2019 primarily due to an increase in headcount and changes in bonus accruals. General, administrative and other increased by$13.5 million to$72.6 million in 2020 from$59.1 million in 2019. The change was primarily driven by an increase in occupancy and technology expenses in 2020. Realized performance fees increased by$8.9 million to$30.2 million in 2020 from$21.4 million in 2019. This change was primarily attributable to an increase in realized performance fees generated from Athene and certain CLOs of$13.9 million and$5.3 million , respectively, partially offset by a decrease in realized performance fees generated from FCI I of$12.0 million . The increase in realized performance fees from Athene was a result of realizations from the sale of insurance linked securities during 2020. The increase in realized performance fees from certain CLOs was attributable to crystallization of performance fees as the CLOs liquidated during 2020. The decrease in realized performance fees generated from FCI I was primarily driven by realizations of the fund's investments in various life settlement policies during 2019, while the fund had no realized performance fees during 2020. Realized profit sharing expense increased by$18.5 million to$29.9 million in 2020 from$11.4 million in 2019, as a result of a corresponding increase in realized performance fees as described above, and an increase in profit sharing expense related to theIncentive Pool . In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Included in realized profit sharing expense is$16.6 million and$0.1 million related to theIncentive Pool for 2020 and 2019, respectively.The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period. Realized principal investment income decreased by$7.8 million to$3.2 million in 2020 from$11.0 million in 2019. This change was primarily attributable to a decrease in realizations from Apollo's equity ownership in Midcap and Redding Ridge of$4.6 million and$1.8 million , respectively. Net interest loss and other increased by$19.9 million to$29.0 million in 2020 from$9.0 million in 2019, primarily due to additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. Additionally, the increase was partially due to one-time costs to wind down a managed account arrangement incurred during 2020. - 98-
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Private Equity
The following table sets forth our segment statement of operations information
and our supplemental performance measure, Segment Distributable Earnings, within
our private equity segment.
For the Three Months Ended For the Six Months Ended June
June 30, 30,
2020 2019 Total Change Percentage Change 2020 2019 Total Change Percentage Change
(in thousands) (in thousands)
Private Equity:
Management fees $ 127,592 $ 129,638 $ (2,046 ) (1.6 )% $ 252,860 $ 260,134 $ (7,274 ) (2.8 )%
Advisory and transaction
fees, net 44,802 20,257 24,545 121.2 65,145 36,393 28,752 79.0
Fee Related Revenues 172,394 149,895 22,499 15.0 318,005 296,527 21,478 7.2Salary, bonus and benefits (53,202 ) (40,267 ) (12,935 )
32.1 (95,682 ) (83,500 ) (12,182 ) 14.6
General, administrative and other (21,770 ) (22,962 ) 1,192 (5.2 ) (43,764 ) (48,824 ) 5,060 (10.4 ) Placement fees - (618 ) 618 (100.0 ) (107 ) (483 ) 376 (77.8 ) Fee Related Expenses (74,972 ) (63,847 ) (11,125 ) 17.4 (139,553 ) (132,807 ) (6,746 ) 5.1 Other income, net 2 3,963 (3,961 ) (99.9 ) 25 4,159 (4,134 ) (99.4 ) Fee Related Earnings 97,424 90,011 7,413 8.2 178,477 167,879 10,598 6.3 Realized performance fees 3,549 12,231 (8,682 ) (71.0 ) 4,692 72,687 (67,995 ) (93.5 ) Realized profit sharing expense (3,549 ) (4,089 ) 540 (13.2 ) (4,996 ) (41,816 ) 36,820 (88.1 ) Net Realized Performance Fees - 8,142 (8,142 ) (100.0 ) (304 ) 30,871 (31,175 ) NM Realized principal investment income 3,404 1,877 1,527 81.4 3,946 9,965 (6,019 ) (60.4 ) Net interest loss and other (11,686 ) (7,650 ) (4,036 ) 52.8 (27,360 ) (13,783 ) (13,577 ) 98.5 Segment Distributable Earnings$ 89,142 $ 92,380 $ (3,238 ) (3.5 )%$ 154,759 $ 194,932 $ (40,173 ) (20.6 )% Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 In this section, references to 2020 refer to the three months endedJune 30, 2020 and references to 2019 refer to the three months endedJune 30, 2019 . Advisory and transaction fees, net increased by$24.5 million to$44.8 million in 2020 from$20.3 million in 2019. This change was primarily attributable to a transaction fee earned with respect to a portfolio company in the media, telecom and technology industry and a structuring fee earned related to a portfolio company in the consumer and retail industry. Salary, bonus and benefits expense increased by$12.9 million to$53.2 million in 2020 from$40.3 million in 2019 primarily due to an increase in headcount and changes in bonus accruals. Realized performance fees decreased by$8.7 million to$3.5 million in 2020 from$12.2 million in 2019. This change was primarily attributable to a decrease in realized performance fees generated from Fund VIII of$10.0 million . The realized performance fees generated from Fund VIII during 2019 were a result of sales and income generated from investments primarily in the natural resources and financial services sectors, while the fund had no realized performance fees during 2020. Realized profit sharing expense decreased by$0.5 million to$3.5 million in 2020 from$4.1 million in 2019. In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Included in realized profit sharing expense is$1.8 million related to theIncentive Pool for 2020. There was no profit sharing expense related to theIncentive Pool for 2019.The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period. Net interest loss and other increased by$4.0 million to$11.7 million in 2020 from$7.7 million in 2019, primarily due to a decrease in interest income as a result of lower interest rates, as well as additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 In this section, references to 2020 refer to the six months endedJune 30, 2020 and references to 2019 refer to the six months endedJune 30, 2019 . Management fees decreased by$7.3 million to$252.9 million in 2020 from$260.1 million in 2019. This change was primarily attributable to a decrease in management fees earned from Fund VII and Fund VIII of$5.2 million for each fund. - 99-
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Advisory and transaction fees, net increased by$28.8 million to$65.1 million in 2020 from$36.4 million in 2019. This change was primarily attributable to transaction fees earned with respect to a portfolio company in the media, telecom and technology industry and a structuring fee earned from a portfolio company in the consumer and retail industry in 2020. Salary, bonus and benefits expense increased by$12.2 million to$95.7 million in 2020 from$83.5 million in 2019 primarily due to an increase in headcount and changes in bonus accruals. General, administrative and other decreased by$5.1 million to$43.8 million in 2020 from$48.8 million in 2019. The change was primarily driven by decreased legal expense in 2020. Realized performance fees decreased by$68.0 million to$4.7 million in 2020 from$72.7 million in 2019. This change was primarily attributable to a decrease in realized performance fees generated from Fund VIII of$67.5 million as a result of sales and income generated from investments primarily in the business services, manufacturing and industrial, financial services and leisure sectors during 2019, while the fund had no realized performance fees in 2020. Realized profit sharing expense decreased by$36.8 million to$5.0 million in 2020 from$41.8 million in 2019, as a result of a corresponding decrease in realized performance fees as described above, and a decrease in profit sharing expense related to theIncentive Pool . In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Included in realized profit sharing expense is$1.8 million and$16.9 million related to theIncentive Pool for 2020 and 2019, respectively.The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period. Realized principal investment income decreased by$6.0 million to$3.9 million in 2020 from$10.0 million in 2019. This change was primarily attributable to a decrease in realizations from Apollo's equity ownership in Fund VIII of$8.5 million partially offset by an increase in realizations from Apollo's equity ownership in Fund IX of$2.7 million . Net interest loss and other increased by$13.6 million to$27.4 million in 2020 from$13.8 million in 2019 primarily due to additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. Additionally, the increase was partially due to one-time costs to wind down a managed account arrangement incurred during 2020. - 100-
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Real Assets
The following table sets forth our segment statement of operations information
and our supplemental performance measure, Segment Distributable Earnings, within
our real assets segment.
For the Three Months Ended June
30, For the Six Months Ended June 30,
2020 2019 Total Change Percentage Change 2020 2019 TotalChange Percentage Change
(in thousands) (in thousands)
Real Assets:
Management fees $ 49,509 $ 46,398 $ 3,111 6.7 % $ 98,380 $ 91,783 $ 6,597 7.2 %
Advisory and transaction
fees, net 3,191 5,295 (2,104 ) (39.7 )% 4,313 5,371 (1,058 ) (19.7 )
Fee Related Revenues 52,700 51,693 1,007 1.9 % 102,693 97,154 5,539 5.7
Salary, bonus and benefits (28,991 ) (19,537 ) (9,454 )
48.4 % (53,524 ) (37,725 ) (15,799 ) 41.9
General, administrative
and other (12,782 ) (8,547 ) (4,235 ) 49.5 % (23,768 ) (18,222 ) (5,546 ) 30.4
Placement fees - - - NM - - - NM
Fee Related Expenses (41,773 ) (28,084 ) (13,689 ) 48.7 % (77,292 ) (55,947 ) (21,345 ) 38.2
Other income, net of
Non-Controlling Interest 116 156 (40 ) (25.6 )% 95 94 1 1.1
Fee Related Earnings 11,043 23,765 (12,722 ) (53.5 )% 25,496 41,301 (15,805 ) (38.3 )
Realized performance fees 2,929 3,074 (145 ) (4.7 )% 41,671 3,080 38,591 NM
Realized profit sharing
expense (2,929 ) (1,340 ) (1,589 ) 118.6 % (41,671 ) (1,234 ) (40,437 ) NM
Net Realized Performance
Fees - 1,734 (1,734 ) (100.0 )% - 1,846 (1,846 ) (100.0 )
Realized principal
investment income 5 1,495 (1,490 ) (99.7 )% 3,672 1,794 1,878 104.7
Net interest loss and
other (5,507 ) (2,708 ) (2,799 ) 103.4 % (9,853 ) (4,881 ) (4,972 ) 101.9
Segment Distributable
Earnings $ 5,541 $ 24,286 $ (18,745 ) (77.2 )% $ 19,315 $ 40,060 $ (20,745 ) (51.8 )%
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
In this section, references to 2020 refer to the three months ended June 30,
2020 and references to 2019 refer to the three months ended June 30, 2019 .
Management fees increased by $3.1 million to $49.5 million in 2020 from $46.4
million in 2019. This change was primarily attributable to an increase in
management fees earned from Athene and Athora of $2.0 million and $1.6 million ,
respectively.
Salary, bonus and benefits increased by $9.5 million to $29.0 million in 2020
from $19.5 million in 2019 primarily due to an increase in headcount.
General, administrative and other increased by $4.2 million to $12.8 million in
2020 from $8.5 million in 2019. This change was primarily driven by increases in
technology and occupancy expenses in 2020.
Realized profit sharing expense increased by $1.6 million to $2.9 million in
2020 from $1.3 million in 2019, as a result of an increase in profit sharing
expense related to the Incentive Pool . In any period the blended profit sharing
percentage is impacted by the respective profit sharing ratios of the funds
generating performance fees in the period. Included in realized profit sharing
expense is $1.8 million related to the Incentive Pool for the three months ended
June 30, 2020 . The Incentive Pool is separate from the fund related profit
sharing expense and may result in greater variability in compensation and have a
variable impact on the blended profit sharing percentage during a particular
period.
Net interest loss and other increased by $2.8 million to $5.5 million in 2020
from $2.7 million in 2019, primarily due to additional interest expense
incurred as a result of the timing of issuances of debt arrangements, as
described in note 11 to our condensed consolidated financial statements.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
In this section, references to 2020 refer to the six months ended June 30, 2020
and references to 2019 refer to the six months ended June 30, 2019 .
Management fees increased by $6.6 million to $98.4 million in 2020 from $91.8
million in 2019. This change was primarily attributable to an increase in
management fees earned from Athene and Athora of $4.1 million and $2.1 million ,
respectively.
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Salary, bonus and benefits expense increased by$15.8 million to$53.5 million in 2020 from$37.7 million in 2019 primarily due to an increase in headcount. General, administrative and other increased by$5.5 million to$23.8 million in 2020 from$18.2 million in 2019. The change was primarily driven by an increase in occupancy, organization and technology expenses in 2020. Realized performance fees increased by$38.6 million to$41.7 million in 2020 from$3.1 million in 2019. The increase in realized performance fees was primarily attributable to realized performance fees generated from EPF III of$34.1 million in 2020 as a result of the sale of investments in logistics assets, while the fund had no realizations during 2019. Realized profit sharing expense increased by$40.4 million to$41.7 million in 2020 from$1.2 million in 2019 as a result of a corresponding increase in realized performance fees as described above, and an increase in profit sharing expense related to theIncentive Pool . In any period the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance fees in the period. Included in realized profit sharing expense is$24.3 million related to theIncentive Pool for 2020. There was no profit sharing expense related to theIncentive Pool for 2019.The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period. Net interest loss and other increased by$5.0 million to$9.9 million in 2020 from$4.9 million in 2019 primarily due to additional interest expense incurred as a result of the timing of issuances of debt arrangements, as described in note 11 to our condensed consolidated financial statements. Summary of Distributable Earnings The following table is a reconciliation of Distributable Earnings per share of common and equivalent to net dividend per share of common and equivalent. For the Three Months Ended
For the Six Months Ended June
June 30, 30,
2020 2019 2020 2019
(in thousands, except per share data)
Segment Distributable Earnings $ 235,414 $ 254,817 $ 431,919 $ 485,967
Taxes and related payables (21,040 ) (14,878 ) (43,233 ) (29,514 )
Preferred dividends (9,165 ) (9,164 ) (18,329 ) (18,328 )
Distributable Earnings 205,209 230,775 370,357 438,125
Add back: Tax and related payables
attributable to common and equivalents 17,776 12,777 37,020 25,252
Distributable Earnings before certain
payables(1) 222,985 243,552 407,377 463,377
Percent to common and equivalents 54 % 51 % 54 % 51 % Distributable Earnings before other payables attributable to common and equivalents 120,412 124,212 219,984 236,322 Less: Taxes and related payables attributable to common and equivalents (17,776 ) (12,777 ) (37,020 ) (25,252 ) Distributable Earnings attributable to common and equivalents(2)$ 102,636 $ 111,435 $ 182,964 $ 211,070 Distributable Earnings per share(3)$ 0.46 $ 0.56 $ 0.83 $ 1.06 (Retained) contributed capital per share(3) 0.03 (0.06 ) 0.08 (0.10 ) Net dividend per share(3)$ 0.49 $ 0.50 $ 0.91 $ 0.96
(1) Distributable Earnings before certain payables represents Distributable
Earnings before the deduction for the estimated current corporate taxes and
the amounts payable under Apollo's tax receivable agreement.
(2) "Common and equivalents" consists of total shares of Class A Common Stock
outstanding and RSUs that participate in dividends.
(3) Per share calculations are based on end of period Distributable Earnings
Shares Outstanding, which consists of total shares of Class A Common Stock
outstanding, AOG Units that participate in dividends and RSUs that
participate in dividends.
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