Apollo Global Management, Inc. (New)

Good morning, and welcome to Apollo Global Management's third quarter 2019 earnings conference call. During today's presentation, all callers will be placed in a listen-only mode, and following management's prepared remarks, the conference call will be open for 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 a solicitation of an offer to purchase an interest in any Apollo fund. I would now like to turn the call over to Gary Stein, Head of Investor Relations.

Great. Thanks, Operator. Welcome to our third quarter 2019 earnings call. Joining me this morning are Josh Harris, Co-Founder and Senior Managing Director, and Martin Kelly, Chief Financial Officer and Co-Chief Operating Officer. Jim Zelter, Co-President, and Gary Parr, Senior Managing Director, are also here with us and will be available during the Q&A portion of today's call. Earlier this morning, we reported distributable earnings of 54 cents per share, which led to a cash dividend of 50 cents per share for the third quarter. The quarter's distributable earnings were primarily driven by pre-tax fee-related earnings, or FRE, of 52 cents per share. As a reminder, we will be hosting an Investor Day next Thursday, November 7th, and we look forward to engaging with all of you there. With that, I'll turn the call over to Josh.

Thanks, Gary, and thanks, everyone, for joining us. Looking back on our performance over the third quarter and the last 12 months, We continue to move Apollo forward in terms of our financial results as well as our strategy. Regarding our financial performance, we've grown AUM and fee generating AUM 19% year over year, while FRA has grown by 30% during the same period. From a strategic standpoint, we have also been active in a number of ways. First, on September 5th, we completed our conversion from a publicly traded partnership to a C corporation. We've been very pleased with the reaction since we announced our conversion, and we believe the positive effects are already becoming evident. Our average daily volume has more than doubled from pre-conversion levels to 2.6 million shares currently. We have recently been added to the CRISP indices, which, for example, resulted in the purchase of nearly 13 million shares by Vanguard at the end of September. We've seen a meaningful shift in Apollo's ownership base towards large institutional investors since we announced we would be converting. We believe the growth in long-only and passive ownership of our stock has only just begun and has already grown from 35% of our float to more than 50%. We think we're only in the middle innings in terms of realizing the benefits of our C corporation conversion and believe we will continue to see a transition of our shareholder base going forward. We expect to be added to additional indices over the next few months, such as MSCI, and we've also been actively engaging with large, long-only institutional investors that could not own our stock prior to conversion. Ultimately, based on what we have seen from some of our peers that converted before Apollo, we believe that more than 70% of our public float could be owned by long-only and passive investors, which would be more than twice our level prior to conversion. In addition, as many of you know, earlier this week we announced a strategic equity exchange transaction with Athene. Through this unique transaction, we are more than doubling Apollo and certain of its related parties and employees' ownership stake in Athene from 17 percent to approximately 35 percent. At the same time, Athene will be eliminating its dual-class structure and taking approximately 7 percent stake in Apollo, marking the first time that they will have a direct economic interest in our financial success. In total, we are investing $1.55 billion in this transaction, which includes the exchange of $1.2 billion of common equity with Athene and the purchase of an additional $350 million of Athene common stock. As we said on Monday, we're doing this because many investors were telling us that the structure of Athene's super voting shares held by Apollo was a negative on the valuation of Athene and Apollo shares. For Athene, the concern was that Apollo did not have enough capital at risk while managing the assets. So there was an unfounded concern Apollo might take too much risk or cause Athene to grow unprofitably. For Apollo, there was concern that Athene would want to change the asset management contract because we were not fully aligned with them. Although we thought the concerns were unfounded, we listened. We believe we now have stronger alignment to ensure the durability of the relationships. We believe our investment in Athene is a great example of our highly efficient use of Apollo's balance sheet to pursue strategic capital initiatives. In the case of Athene, pro forma for this transaction, Apollo will have an investment in Athene's equity valued at approximately $2.3 billion, which has helped create and grow a business where we manage approximately $125 billion of assets. In connection with Apollo's ongoing efforts to drive Athene's strategic growth, we have now closed on $3 billion of capital commitments to date for investment into Athene's strategic capital vehicle, which we refer to as ADEP. When this third-party capital vehicle is combined with Athene's standalone capital, the cumulative buying power represents more than $70 billion of potential incremental assets for Athene through M&A and pension risk transfer transactions, in addition to the C-Corp conversion and Athene transaction. From a strategic standpoint, we have also continued to make progress on building out Apollo's direct origination platforms. During the quarter, we announced the acquisition of GE Capital's industry-leading aviation lending business, PK Air Finance, which is highly complementary to our existing Also during this quarter, MidCap Financial, a specialty finance firm managed by Apollo Capital Management, acquired a franchise finance business from PNC Bank, broadening their range of origination capabilities. We have continued to make significant progress in terms of expanding our origination platforms. We very much look forward to sharing the details with you at next week's Investor Day. Before I turn the call over to Martin, I'd like to make a comment about our senior leadership team. We continue to be focused on building a great firm. We've been promoting, hiring, and developing the best and the brightest in the industry in a variety of leadership positions, and we look forward to sharing more details about this at our investor deck. With that, I'll turn the call over to Martin.