Apollo Global Management : Q1 2021 Earnings Call Transcript

FINAL

Bloomberg Transcript

Company Name: Apollo Global Management Inc

Company Ticker: APO US Equity

Date: 2021-05-04

Q1 2021 Earnings Call

Company Participants

Marc Rowan, Co-Founder & Senior Managing Director

Martin Kelly, Chief Financial Officer & Co-Chief Operating Officer

Peter Mintzberg, Investor Relations

Scott Kleinman, Co-President

Other Participants

Alex Blostein, Analyst

Bill Katz, Analyst

Chris Harris, Analyst

Craig Siegenthaler, Analyst

Devin Ryan, Analyst

Gerry O Hara, Analyst

Glenn Schorr, Analyst

Ken Worthington, Analyst

Michael Cyprys, Analyst

Mike Carrier, Analyst

Patrick Davitt, Analyst

Robert Lee, Analyst

Presentation

Operator

Good morning and welcome to Apollo Global Management First Quarter 2021 Earnings Conference Call. During today's discussion all callers will be placed in listen-only mode and following management's prepared remarks, the conference call will be open for your questions. This conference call is being recorded. This call may include forward-looking statements and projections, which do not guarantee future events or performance. Please refer to Apollo's most recent SEC filings for risk factors related to these statements. Apollo will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP figures in Apollo's earnings presentation which is available on the company's website. Also note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in any Apollo fund.

I would now like to turn the call over to Peter Mintzberg, Head of Investor Relations.

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FINAL

Bloomberg Transcript

Company Name: Apollo Global Management Inc

Company Ticker: APO US Equity

Date: 2021-05-04

Peter Mintzberg {BIO 22032830 }

Thanks Operator. Welcome to our First Quarter 2021 Earnings call. Joining me this morning are Marc Rowan CEO and Co-Founder; Scott Kleinman Co-President and Martin Kelly, CFO and Co-COO.

I would like to turn it over to Marc to kick off our comments for today.

Marc Rowan {BIO 1457142 }

Good morning. Thank you, Peter and welcome all.

Q1 '21 was a strong quarter for Apollo, record FRE of $287 million or $0.65 a share, up 26%year-over-year, up 4% sequentially. Total inflows of $13 billion driven by $5 billion of fundraising and $4 billion of Athene organic growth. AUM of $461 billion, up $145 billion year-over-year, 46% year-over-year and $6 billion quarter-over-quarter, reflecting $13 billion of inflows, $9 billion of positive marks on the PE portfolio partially offset by reductions in the yield portfolios at Athene and Athora due to rising rates and change in position of the Euro.

Our opportunistic businesses had a particularly strong quarter as they are positioned for a strong US and European recovery. The PE portfolio in particular, was up 22% versus an S&P of 5.8%. Scott, I know, will take you through more details including deployment and realizations and Martin will take you through the financials.

As I discussed on our last earnings call, I had some simple observations on our business, and by extension, our strategy. We are in our growth business. This quarter and the year- over-year results make this abundantly clear. We provide a product that is in high demand. We provide excess returns to investors on a risk adjusted basis. We serve a growing market driven primarily by the need for retirement income. We serve this market directly through our Athene and Athora affiliates and indirectly through our institutional clients who are pension funds, retirement systems, sovereign wealth funds, and others.

The demographics and market trends of aging, indexation, and low rates create a need for retirement income meaning that in general, the business gets better every day. We recognize how fortunate we are to be in a growth business. If you dig down to the next level, if you look at our largest business, our yield business which is more than $330 billion of our AUM, that business is not limited in its growth by capital or liabilities. It is limited in its growth by assets and that limitation is only temporary. It is our job and therefore our strategy to expand our capacity to generate assets that provide interesting risk reward for this segment of the market.

In our Hybrid and Opportunistic businesses it is a little bit more balanced. Some of our strategies still have substantial room to expand by expanding their access to capital, because the front end of those businesses is just so strong. Apollos' unique value proposition is that we are exceptionally good at generating excess returns across a very broad swath of the risk return spectrum from investment grade to private equity.

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FINAL

Bloomberg Transcript

Company Name: Apollo Global Management Inc

Company Ticker: APO US Equity

Date: 2021-05-04

Examples of excess return across this very broad spectrum, not over one year, but over a very long period of time, I think are instructive. In private equity, our 31-year return is 39% gross, 24% net, with every core private equity fund having generated carry, an incredible track record with puts us substantially ahead of the top quartile PE performance. It's not any one fund, it's not size of fund, it's not any one investment cycle, it is the discipline of the franchise and what we do. And I know Scott will spend time walking you through the returns of the most recent fund and how we approach our opportunistic businesses.

In our Yield business, I believe the best example of our capacity to generate excess return is manifested by examining our largest client, Athene. If you look at Athene since inception, over more than the past decade, their ROE in their insurance business is 22%, and on a consolidated basis 15% on average over this period of time. This is substantially in excess of any comparable company or comparable index. In the context of this background, this quarter was all about reinforcing strategy, building our front-end or capacity to generate additional assets and positioning us to grow faster.

The biggest step in the quarter was obviously our decision to enter into an agreement to merge with Athene. This transaction massively reinforces our position serving retirement income and retirees adding almost 1 million clients, including our pension retirement transfer business, at an average age in the high 60s. This transaction adds to our capacity and coordination to develop additional yield platforms through aligning Apollo and Athene. Thinking back to what we have been able to achieve with us not fully aligned, whether it is Midcap, our corporate credit business, our Triple-Net lease business, our Aircraft Finance business, our Redding Ridge Structured Products business, the list goes on and on. I'm excited as to what we can achieve with full alignment.

In our Hybrid and opportunistic businesses, this transaction increases our ability to seed products and to seed teams and to launch new funds and simply to get to market faster. Some examples of what we've done historically include our Hybrid Value Fund, our Infrastructure Fund and numerous others. The transaction also represents a significant strengthening of our connection to additional forms of distribution, including retail banks, independent broker-dealers, and other wealth channels. These wealth distribution channels represent a significant source of growth for us and we expect 2021, even prior to the closing of the transaction with Athene, to be a record year for Apollo in these channels, and a source of significant future growth.

The merger was not the only step we took in the quarter to reinforce our strategy. Significant progress was made in our high grade Alpha business. Apollo has developed a unique platform to provide capital and funding to large corporations globally in the investment grade market. Our unconstrained appetite for long dated creative and semi liquid solutions have allowed us to execute multi-billion dollar transactions in a short timeframe as the sole counterparty to these corporations.

Working with our partners and with our 400 plus investment professionals, we expect to generate $15 to $20 billion of these transactions in 2021. Also in the quarter, we announced the launch of our Credit Secondaries business, a new platform levering our insurance affiliates appetite for this asset class into a very fast growing private credit secondaries market. This is one of the first funds in this rapidly growing space and

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Bloomberg Transcript

Company Name: Apollo Global Management Inc

Company Ticker: APO US Equity

Date: 2021-05-04

we plan to raise substantial additional money in the future for this strategy, as we continue to build out our general partnership solutions capabilities.

In summary, this is an investment year. We are focused on setting the business up so that it grows faster over the next five years. And Scott will take you through some of the investments we're making during 2021 in his prepared remarks. Away from the financials of the business and the strategy of the business, we delivered the changes and governance that we had set out in the first conference call I had done with you. We began to implement changes to our governance to establish a simpler, more transparent corporate structure. We believe this ultimately positions us to be eligible for S&P index inclusion.

In closing, the business is firing on all cylinders. We're making tremendous progress, and I'm very optimistic about growth. I want to take this moment to thank the over 1,700 Apollo employees around the world, including 59 new hires in Q1, who worked tirelessly to achieve the results we have announced today. Culturally, the senior management team is focused on positioning the firm to speak authentically about what we can achieve and what we can particularly have an impact on. We are very focused on expanding opportunity particularly for broader segments of society that heretofore may not have had access to the same opportunities. We can do this at Apollo, we can also do this through our portfolio companies. More to come on this in the near future.

Our efforts around citizenship, diversity, equity, inclusion and ESG are core to our value proposition for our people and we continue to raise awareness and deepen education on the key issues. In January, we received a score of 100% from the Human Rights Campaign Foundation with regard to being the best place to work for LGBTQ equality. Yesterday, we announced a significant donation to United Way India's Partner ACT to immediately deploy thousands of oxygen concentrators and other critical life saving medical equipment to those in most need. Our hearts go out to the Apollo community in India and their loved ones who are experiencing the impact of this crisis.

With that, I will now turn it over to Scott.

Scott Kleinman {BIO 2322865 }

Thanks, Marc, and thank you all for joining us this morning.

As Marc mentioned, Apollo differentiates itself by the ability to generate excess returns across the entire risk reward spectrum. In this quarter, we again demonstrated the strength of this proposition across our platform. When I think about the overall performance of the business, I break it down into five key factors: Finding good investments to deploy capital, having the portfolio accrete in value, monetizing our investments, raising more capital, and investing in and growing both our existing platforms as well as our new ones.

So far in 2021, Apollo has made very good progress across all of these areas. So let me get through them one by one. Regarding deployment, our ability to find attractive returns

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FINAL

Bloomberg Transcript

Company Name: Apollo Global Management Inc

Company Ticker: APO US Equity

Date: 2021-05-04

at all points along the risk spectrum shines in an environment like the one we're in now where valuations are seemingly high for private equity and yields are painfully thin for most credit products.

Total deployment for Q1 was $24.9 billion. Our private equity funds deployed $2.4 billion in capital in the quarter. Additionally, we committed to deploy a further $3.3 billion in the quarter driven by two large fund nine investments, Michaels and Venetian. And since quarter-end, we've continued to commit to significant additional transactions. We continue to see a strong recovery in the economy, particularly in those sectors hardest hit by COVID such as leisure, travel, gaming and specialty retail, and we continue to invest in those spaces.

Our Hybrid value business continues to be active with over $0.5 billion deployed in the quarter. Strong deployment of $19.1 billion in our credit business in the first quarter was in line with fourth quarter levels and includes strong insurance balance sheet growth on insurance inflows and pension risk transfer transactions. With spreads tight, others are going down in quality to earn returns, but we've been moving up in credit quality and finding our returns through superior asset selection and origination. This will set us up well in the future.

We're preparing for, but not predicting higher rates to come. Our initiatives to seek increased high grade alpha origination transactions continues to grow and has a robust pipeline. We continue to see substantial opportunities to provide capital and funding solutions to corporations and financial institutions globally with the ability and expertise to find innovative solutions and structures. Also, we are now fully in the European direct loan markets committing to $1 billion in the first quarter. This is a space we weren't present a year ago. And lastly, J.C. Penney, has agreed to transfer $2.8 billion in pension obligations for roughly 30,000 participants in J.C. Penney's Pension Plan to Athene as part of a pension transfer transaction.

Athene utilized its strategic capital vehicle ACRA to support the completion of this transaction. In terms of value creation, this has been an exceptional quarter for Apollo. Marc just mentioned our very strong track record in private equity for over 31 years. We continue to show that we have an ability to find attractive returns in any market environment. We continue to believe that purchase price matters and we will utilize our expertise to creatively source structure and optimize assets adding value and partnership with our growing in-house operations team of experts.

This can clearly be seen in our most recent and largest fund, Fund nine. We're seeing very strong performance in this fund, with the current marks up 33%, leading to an IRR of 49% gross, 26% net and a MOIC of 1.7 times, While we expect these numbers to converge over time towards historic levels, we see the results as a validation of our investment expertise and of the fact that this continues to be a very high return business, if done the right way.

In a market characterized by indexation, correlation, and volatility, Apollo's investment discipline really stands out. During the quarter, our overall private equity segment appreciated by 22% as compared to the S&P at 5.8% driven by exceptionally strong

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