Apollo Global Management, Inc. (New)

Since our IPO in 2011, we have grown our AUM at a 20 percent compound annual growth rate, and this quarter we surpassed $300 billion in AUM. We continue to grow our fee-related earnings, or FRE, at a similarly strong pace, and our FRE has been a predictable underpinning of the significant cash distribution to our shareholders. supported by solid margins and high levels of permanent and long-dated capital. At the same time, the funds we manage have meaningful capital in the ground that should drive further cash generation as assets are monetized, all while continuing to invest in what we believe are attractive opportunities, setting the stage for future value creation. We believe there are a limited number of companies in the public markets that have been able to generate the same pace and quality of growth as Apollo. And in our view, the modest tax friction that we expect to experience by converting to a C Corp should be more than outweighed by the variety of benefits we expect to gain by moving away from our current partnership structure. Throughout our history, We have prided ourselves on our relentless focus towards creating value for our investors, and we believe that converting to a C-Corp is consistent with that goal. We continue to believe our stock is a compelling investment opportunity at current valuations, and we hope that by converting to a C-Corp, we can reduce the barriers to owning our stock and close the gap between where we trade today and where we see intrinsic value for Apollo. We analyzed a variety of factors in reaching the decision to convert, and we believe there are a number of benefits, including, one, a simplified structure and the elimination of the K1 form, two, an enhanced liquidity and the potential for reduced volatility for our stock, three, the potential for inclusion in the number of indices, such as the CRSP, the MSCI and total market indices, which is particularly important given the increasing flow of assets into index and passive funds. Four, as a C-Corp, we believe it will be easier for many new investors to own our stock. And finally, we have seen an increase in the valuations of our peers that have already converted or announced a conversion. And we believe that our conversion presents an opportunity for value creation for all of our shareholders. We look forward to continuing this discussion with our current and prospective shareholders. And with that, I'll hand it over to Josh for some additional thoughts around the conversion as well as our quarterly results.

Thanks, Leon. And let me also express my excitement for this significant step in Apollo's journey as a public company. In conjunction with our earnings release, we also published some materials this morning related to our announced C-Corp conversion. I don't intend to run through each of the slides. There are a handful of items I'd like to highlight in addition to the ones that Leon just discussed. First, in connection with the conversion, our dividend policy will remain unchanged. Capital return has been a cornerstone of Apollo's value proposition since we went public, and our shareholders have consistently expressed their appreciation for the ongoing quarterly cash flow. Turning to the economics of the conversion, at the corporate level, on a pro forma basis for 2018, the dilution to Class A shareholder cash earnings would have been approximately 5% if Apollo had been a corporation for the full year, given a year with low taxable income in our incentive business. Looking out over a cycle, as realizations increase, we expect that dilution could be in the range of 7% to 9% per year. For many of our shareholders, we expect that the ultimate after-tax impact will be lower than the corporate level delusion. On an important note, the bulk of the tax increase will be driven by our performance fees, while the impact to our after-tax fee-related earnings should be minimal since our FRE is already taxed at the corporate rate. We believe that this is significant given that FRE is the most valuable component in the sum of the parts valuation methodology applied to our business. At the end of the day, we felt the argument for conversion was compelling, and we believe the impact to our financial results should be more than offset by increased investor ability to own shares in Apollo, among other benefits. As we note on slide six of the supplemental materials, share ownership of Apollo and its among passive and index funds averaged less than 1% for publicly traded partnerships versus nearly 7% for C-Corps, and this figure continues to grow. We expect that the conversion will occur during the third quarter of this year. Moving on to our results for the quarter, which highlight the continued growth and diversification across our business, I'd like to start with some comments around asset growth, which has consistently remained strong and has created a stable base for increasing management fees and ultimately fee-related earnings. During the first quarter, Apollo saw gross inflows of $25 billion, which included advisory assets from Fund9's Aspen acquisition, assets from Athora's acquisition of Generali Belgium, flows from Athene, capital raised across various funds such as hybrid value and total return fund, and ongoing flows into managed accounts. Over the past four quarters, gross inflows have exceeded $80 billion during a period in which we did not raise a flagship private equity fund over that timeframe. We have grown AUM by 22 percent to $303 billion. The robust level of asset raising we have achieved is consistent with the growth trends we've been able to demonstrate, not just over the past three to five years, but since our IPO eight years ago. Looking ahead, we remain confident in our ability to drive strong AUM growth across the platform, fueled by fundraising among strategic capital initiatives and a variety of vehicles focused on strategies such as natural resources, credit, and real estate, as well as managed accounts. We have experienced particularly robust growth across insurance, which has been driven by a combination of internal growth, acquisitions, and reinsurance transactions. Over the last four quarters, Athene and Athora have contributed a total of $44 billion to inflows. In addition, our third-party fundraising efforts through the more traditional channels have generated inflows of $15 billion over the last four quarters. I would also like to highlight the following the segment changes Martin will discuss. Further, our real asset business now has $32 billion in assets as of March 31st, which is a strong reflection of the diversification of our investment platform and robust capabilities in real estate and infrastructure. Turning to capital deployment, We had another solid quarter with $4.3 billion of capital invested across the Apollo platform. In private equity, our funds committed an additional $2.3 billion of capital in the first quarter. We closed on our first investment for private equity fund nine, Aspen Insurance, during the quarter. Fund nine also announced two additional transactions. The acquisition of a number of TV stations and other assets from Cox Enterprises, and the take private of food retailers smart and final. Hybrid value just recently held its final close at approximately $3.25 billion, and we're pleased to announce that the fund is already 15% committed or invested, and the pipeline remains solid. Our methodical and patient approach of embracing complexity, combined with our ability to source and structure investments in a creative and flexible fashion, has enabled our funds to deploy capital in what we believe are attractive opportunities. We continue to identify and evaluate an active pipeline of investments across a broad spectrum of asset classes, and we are optimistic about our ability to deploy capital at a solid pace. As we've said previously, we believe the valuation of Apollo is closely tied to our FRA, which is largely based on recurring management fees which we view as predictable and a predictable growing component of our quarterly cash distribution. The strong AUM growth we've achieved in conjunction with a meticulous approach to cost control have together created the path for robust FRE growth that we have demonstrated through various market environments, with core FRE growing 17% on a compound annual basis over the past five years, and margins which are in the mid-50s. We expect to continue driving meaningful AUM and FRE growth across segments to organic capital raising and continued strategic capital initiatives. In addition, we have approximately $45 billion of dry powder, some of which will begin to earn fees as capital is invested, providing some visibility into FRE growth just from the AUM we have available across our platform today. Going forward, we will remain focused on driving our FRE higher since it is a reliable source of cash each quarter, regardless of whether we have any significant realizations from the funds we manage. We declared a $0.46 per share cash distribution during the quarter, bringing the total cash distribution over the past four quarters to $1.91 per share despite light realization activity over that period. Lastly, before I turn the call over to Martin, I want to mention we'll be hosting an Apollo Investor Day on November 7th, where we will be providing our current and prospective shareholders with an update on our strategic objectives and growth expectations over the coming years and showcasing the deep bench of talent we have here at Apollo. We hope to see you all there.

Thanks, Josh, and good morning, everyone. In addition to this morning's C Corp news, our earnings presentation issued earlier today reflects some changes which were made in order to simplify our reporting and make it easier for investors and analysts to interpret our results. We also made some changes at the segment level as we have recategorized certain assets and their associated income and expenses among segments. to better align our reporting with the way these businesses are now being managed under Scott and Jim. Turning to our results, starting with distributable earnings, the $207 million or 50 cents per share we generated during the first quarter was driven primarily by fee-related earnings. Pre-tax fee-related earnings of $210 million or 51 cents per share were complemented by a modest amount of realized performance fees and realized investment income principally generated by monetization activity in private equity. FRE declined by 18 percent versus the prior quarter, but grew 58 percent versus the first quarter of 2018. The lower quarter-over-quarter FRE was driven primarily by lighter transaction and advisory fees. However, we continued to grow base management fees, which increased 4 percent versus last quarter and 32 percent versus the year-ago quarter. Advisory and transaction fees of $19 million in the quarter included co-invest fees related to Fund 9's Aspen transaction. As a reminder, transaction fees can be variable on a quarterly basis since they are generally tied to the pace of capital deployment. However, for the last three years, transaction and advisory fees have been over $100 million annually. And as Josh highlighted in his remarks, we remain confident in our ability to put money to work with a value-oriented bias despite generally elevated market values. I also want to note that as of the first quarter, we are recognizing management fees from Athene under the terms of the proposed amended fee arrangement. As we have noted previously, we believe the revised fee arrangement we announced together with Athene last September maintains the strong alignment of interest that has endured since Athene was founded more than a decade ago. There is no meaningful near-term financial impact under the proposed amended fee arrangement as compared to the previous arrangement. But under the revised arrangement, Apollo will now earn a base management fee and a sub-allocation fee as opposed to a base management fee and sub-advisory fees under the prior arrangement. We've presented some new disclosures in connection with the revised arrangement on slide 10 of our earnings presentation. As a reminder, we have moved to a focus on distributable earnings, or DE, as our primary earnings metric, as we feel this better represents our underlying operating performance and how we manage the business. However, as you saw in our earnings release from this morning, we continue to disclose pertinent information related to returns by strategy and accrued performance fees in order to provide our shareholders with what we believe is the most complete view of performance across the Apollo platform. Our net accrued performance fees balance grew 12% in the quarter, supported by positive marks across our credit, private equity, and real estate businesses. In private equity, the public market's rebound in the quarter drove 16% appreciation in our fund's public portfolio companies. Combined with positive mark-to-market of 2% for the fund's private portfolio, our aggregate private equity funds appreciated by 4.6% during the quarter. In credit, we also participated in the rebound experienced across credit markets during the quarter, with positive performance across the funds we manage in corporate credit, structured credit, and direct origination. We believe our patient and thoughtful approach to investing in conjunction with our ability to deploy capital quickly when the opportunity arises, helped our funds perform well over the past six months, a period during which there was significant market volatility. In times of market dislocation, we believe our integrated platform and expertise in navigating various parts of the credit risk spectrum are important competitive advantages, particularly as our business model affords us meaningful liquidity and patience to invest behind our conviction. Finally, in real assets, the aggregate appreciation across the portfolio was 4% for the quarter and 6.7% for the 12 months ended March 31, and this segment continues to perform well. With that, we'll now turn the call back to the operator and open the line for any of your questions.