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.

Great. Thanks, Josh. Starting with the results for the third quarter, we continue to demonstrate the strength, stability, and growth of our fee-related earnings, on a year-over-year basis, which supported distributable earnings of $220 million, or 54 cents per share. Pre-tax fee-related earnings of $213 million, or 52 cents per share, were complemented by modest realized performance fees and realized investment income, principally generated by our private equity segment. For the 12 months ended September 30, 2019, FIRE totaled $2.23 per share, reflecting 30% growth over the prior year period. This growth was supported by 19% management fee growth and an emphasis on efficiency and cost discipline, driving margin expansion. In the third quarter, management fees grew 3% quarter over quarter and 11% year over year, driven by strong inflows across the platform. Advisory and transaction fees were lighter in the quarter due to the timing of deal closings, We expect fourth quarter advisory and transaction fees to increase based on several transactions that we expect will close within the quarter. Costs increase in the quarter driven by increases in headcount as we invest in our business. Performance fees grew quarter over quarter but remained modest, consistent with our expectation that performance fees would be more back-loaded for the year. We declared a $0.50 per Class A share dividend in a light realization and light advisory and transaction fee quarter, bringing the total Class A cash distribution for the 12 months ended September 30, 2019 to $2.02 per share. Turning to investment performance, our net accrued performance fee balance grew 25% in the quarter, supported by positive marks across our private equity, credit, and real assets businesses, and reached its highest level in nearly two years. In private equity, the funds we manage appreciated by 3.6% in the quarter, despite some energy headwinds, as revenue and EBITDA growth remained consistent with long-term trends. The successful IPO started at the beginning of the fourth quarter, and increasing visibility into other monetization processes also added support to third-quarter marks. Our funds' private portfolio company holdings appreciated by 4.6% during the quarter, while the fund's public holdings depreciated by 0.6%, impacted by mark-to-market adjustments on debt investments. Importantly, Fund 8 appreciated by 7.6% in the quarter, bringing 2019 year-to-date appreciation to approximately 17%. In credit, we generated positive performance across the board, with gross returns of 1.8% for each of corporate credit and structured credit and 2.9% for direct origination, outperforming the S&P Leveraged Loan Index total return of 1% and the Merrill High Yield Index return of 1.2%. Within our credit business, energy constitutes just 2%, or $1.7 billion, of our credit AUM, excluding Athene. And during the quarter, there was negligible impact to credit results from energy. In real assets, performance remains strong, with aggregate appreciation excluding real estate debt of 4.6% for the quarter, and approximately 11% for the 12 months ended September 30. I'd now like to move on to asset growth, which forms the basis for growing management fees and ultimately fee-related earnings. During the third quarter, Apollo saw gross inflows of $16 billion, driven by Athene and Athora flows and capital raising across a number of funds. We held first closes for our FCI-4, U.S. Real Estate III, and Navigator funds during the quarter. Navigator represents our first dedicated fund related to aircraft leasing, a strategy we've been active in for many years. During Q3, we closed on $500 million for our ADIP fund, and as Josh mentioned, we just closed on an additional $1.5 billion. Over the last four quarters, gross inflows have totaled $75 billion. Our asset raising remains robust, consistent with the growth trends we've been able to demonstrate, not just over the past three or five years, but since our IPO eight years ago. Within credit, fee-generating inflows totaled $9 billion during the quarter and $48 billion over the 12 months ended September 30, 2019. Looking ahead, we remain confident in our ability to drive strong AUM growth across the platform, fueled by fundraising across strategic capital initiatives vehicles focused on strategies within each of our businesses, and ongoing capital raising for managed accounts. With regards to deployment, funds managed by Apollo put $3 billion of capital to work across commitment-based funds, and over the last 12 months, capital deployed in commitment-based funds was $17 billion. This is in addition to capital we've put to work across managed accounts, evergreen funds, and other investment structures. During the quarter, Private Equity Fund 9 closed on its take-private acquisition of Shutterfly, which marks the 12th public company within the last four years to be taken private. In addition, our hybrid value fund remained active and is now approximately 40% committed or invested after having just held its final close in March, reflecting the strong pipeline in place for our newest private equity strategy. Looking ahead, we continue to identify and evaluate an active pipeline of investment opportunities across a broad spectrum of asset classes, and we are optimistic about our ability to deploy capital at a solid pace in various market environments. Finally, as it relates to realizations, we sold shares during the Virelia IPO earlier this month and have visibility into several transactions, some of which have already been announced, that should contribute to fourth quarter performance fees. As we mentioned during last quarter's call, we also expect that the crystallization of carry in several credit funds should be additive to Fund 8 monetizations in the fourth quarter. Partly offsetting these higher realizations in the fourth quarter will be an elevated profit share expense of approximately $50 million related to our incentive pool. Depending on the timing of the close of the sale of Presidio, we expect that net carry realized in 2019 will be in line with or higher than it was in 2018. With that, we'll now turn the call back to the operator and open the line for any of your questions.

Thank you. The floor is now open for questions. If you wish to ask a question at this time, please press star then the number one on your telephone keypad. If a question has been answered, you may remove yourself from the queue by pressing the pound key. For today's call, we will be taking only one question per person initially. and to the extent there are follow-up questions, we ask that you please re-enter the queue by again pressing star, then the number one on your keypad. Our first question comes from one of Craig Seigenthaler of Credit Suisse.

Thanks. Good morning, everyone.

Good morning. Can you walk us through the composition of the $8 billion of credit inflows in the quarter by product?

Sure. Most of that was coming through Athene, actually. So the permanent capital platforms contributed a majority of that, both Athene organic flows, a pension deal that they did, as well as increases in sub-advisory mandates across both Athene and Athora. And then I'd call out the other funds that I mentioned in the remarks.

Thank you, Martin. Sure.

Our next question comes from one of Bill Katz of Citi.

Okay. Thank you very much for taking the question this morning. So maybe I'll sneak in a two-parter. I guess on the fee-related earnings margin, I was sort of wondering if you could sort of give us a walkthrough of how you sort of see that progressing as we go into 2020. And then could you just clarify the $50 million profit share of what is prompting that relative to the realization activity? Thank you.

Sure, Bill. So the margin, as we've said, we're mid-50s percent margin. That's where we're expected to be. We're pleased with that. And we balance investments in the platform and growth against revenues that we have a high conviction of. And so I would expect that the margin, which on a year-to-date basis is mid-50s, will be around about that level as we look ahead. And it really comes down to decisions we make around future investment spend versus revenues that typically follow after you expense the investments. So we're committed to maintaining margins at what we see as best in class. And we manage that carefully. But I would think sort of mid-50s as we look forward. And then on the incentive pool, that's a year-to-year plan that we've used now for many years to reward individuals with compensation derived from carry. We make decisions on a year-to-year basis, and it tends to track the timing of realizations. So as we expect realizations this year to be back-ended in Q4, we also expect the cost for the incentive pool to be back-ended.

Our next question comes from one of of Goldman Sachs.

Hey guys, good morning. Thanks. So maybe zoning in on the Athene for a second, the $70 billion of incremental asset purchases potentially with all the excess capital that's between all these various vehicles that you guys anticipate could come in over time. Can you talk a little bit about maybe the composition of M&A opportunities you see there given the fact that lower interest rates probably put a little bit of pressure on the kind of more pure kind of vanilla fixed annuity reinsurance transactions? And ultimately, how quickly do you guys anticipate some of these transactions to come through?

So, hi, this is Gary. You're going to get an answer that's quite like the answer even two years ago, and that is as to predicting timing, we're not able to do that. It's hard to say. Having said that, what we also said a couple of years ago before we did some big transactions is we have a very active pipeline. And it is interesting is, of course, the decline in rates has caused more on a number of the insurance companies. And that's actually where our comparative advantage comes through to give us an edge and is what creates a lot of the flow. And that is so long as we can produce some incremental spread through origination and other capabilities, that means we can actually do something that makes sense where the insurers can't make a reasonable profit or get a good return on their capital. So we still see plenty of opportunity to move liabilities our way. And so long as we can continue to add that enhanced spread relative to what they can earn.

Yeah, the only thing I would add is obviously with the $3 billion we've closed on recently in ADEP, it's, you know, obviously the limited partners spend an awful lot of time reviewing pipeline and other things before committing those dollars. And so clearly, you know, while it's certainly not predictable, there's definitely a lot of – things to think about and a lot of possible activity or that would be an indication that there is based on their funding of that commitment.

Our next question comes from the line of Mike Carrier of Bank of America, Merrill Lynch.

Good morning. Thanks for taking the question. It seems like more recently we've seen some dislocation in the leveraged loan market. It seems more flow-driven probably than credit-driven, but just curious. if you're seeing any impact, you know, on the credit performance or, you know, in terms of financing.

Well, this is Jim. You know, yeah, what you're talking about, there certainly seems to be in the leveraged loan market and the new issue market a world of haves and have-nots. And because of the preponderance of CLO buying and their ability to own CCC paper, there's a tight basket. The B3, B- issuers are really having a challenging time. Companies that have wide access do very well. Those that don't, you know, it's been more challenging. So there is a bit of weakness in the leveraged loan market really in the B3B minus sector. You know, I would add that, you know, while the overall economy and the markets are doing well, there's been a fair amount of dispersion this year in the credit markets. Double Bs are up quite strong. you know, 7%, 8% where triple Cs are down 7%, 8%. So wide dispersion. And I think that just shows you the maturity of the market. You know, for our credit platform, we've really had a strategy of staying very senior and not really playing a lot of, you know, middle market distress. That's worked well for us. So there are some pockets of weakness out there. But our numbers are strong, and we feel very good with our strategy and our performance. All right, thanks a lot.

Our next question comes from one of Glenn Shore of Evercore ISI.

Hi, thanks. A question on just your assessment on PE performance. Now, I'm not losing tons of sleep given your last 30 years of performance, but the last 12 months, not what it usually is. So curious how much that is a function of market environment and price is just not at the place where you normally play, but just curious on how you're looking at that.

Yeah, no, no. We've just been through a review of our entire portfolio. I think that the last nine months' performance is up 17%, and then the fund aid is up 17%. And, you know, you've had, it's one and a half X, it's about three and a half years old on average. And so, you know, what you've seen is a dispersion between growth and value. And so we feel, I mean, we bought that portfolio at six and a half times. It's, you know, the multiple is about that in terms of, you know, our mark. And, you know, kind of, we feel pretty good about, you know, where the portfolio is heading. And we're starting to see, you know, that portfolio was acquired at about a five multiple point discount to the average multiple paid for larger transactions. And I think that you're, you know, the mark on that portfolio is a little bit caught up in you know, kind of this dispersion, as well as maybe a little bit of the downdraft in energy, which is kind of behind us now. So we feel very good about where that portfolio is heading, and you're starting to see it in our crude carry, and I think you'll see some real, you know, presuming that the markets hold out over the next 12 months, you're going to start to see, you know, the pickup in realizations there as that portfolio matures.

Our next question comes from one of Ken Worthington of JP Morgan.

Hey, good morning. You know, just reflecting on the announcement for Athene, it seemed like Athene investors were more enthusiastic about the impact for Athene than Apollo investors were. So as you reflect, and you probably fielded, you know, more questions about the transaction since your call, are there elements that you think Apollo investors are sort of underappreciating in that transaction?

You know, I think that the Athene transaction, we took a very long-term point of view in terms of economically aligning our ownership of Athene and their ownership of Apollo. They now participate with Apollo, and we now have a larger ownership of Athene, and we got rid of the super vote and increased our economic ownership, which we think is more highly sustainable. I mean, What we said on the call was that Athene has a tremendous amount of earnings, but it doesn't pay a dividend. So from an FRE point of view, and I think this is maybe one of the things that people are reacting to, it's about 7% dilutive, even though some of the parts, it's neutral. And if you were to include the economic ownership of Athene's earnings, it would be, you know, greater than 40% accretive. And so, you know, we obviously are going to discuss a lot more of this on Investor Day, but I think it's just going to take a while for us to get that message out. So I think we're, and I think maybe the focus a little bit on the short-term FRE delusion is I think there's a tremendous amount of benefit to it, and we made an investment in a great company, and it was very strategic for us, but there might be a little too much focus on the immediate FRE dilution versus some of the longer-term benefits, and the earnings power. We're going to talk about all that more in our investor deck.

Great. Thank you very much.

Thanks. Our next question comes from a line of Robert Lee of KBW.

Great. Thanks for taking my questions. Actually, Martin, I just want to make sure I understood your comment about net realization expectations, not so much for Q4. I thought I heard you say next year should be similar to, was it this year or last year? I just want to make sure I understood it.

No, so this year depends on when Presidio closes. So if Presidio does not close this side of the year end, then this year's net carry will be in line with last year. If it does close this side of year end, it'll be more. And then as we look into next year, we expect a significant uptick in net carry in 20 relative to 19.

Our next question comes from one of Patrick DeVeet of Autonomous Research.

Hey, thank you. Another follow-up on the realization guide. Is it only flat to up? versus 2018 because of this $50 million payout is on top of the normal payout. So the gross realized revenue is actually up year over year. Is that the right way to think about it?

No, that number is similar year on year. It's just, you know, if we don't have the realizations, then we're not going to make that payment. And so as the realizations this year are more back-ended, we're expecting to take a charge associated with that also on a back-ended basis. But the The amount of the incentive pool year to year is very similar.

So the percentage of gross should be similar? Yes. Yes. Okay. Thank you.

Our next question comes from one of Jerry O'Hara of Jefferies.

Thanks. Good morning. Maybe picking up on the aviation lending business for a moment, just kind of noting here that there was a deal done in the quarter, but also something like, if I heard correctly, a dedicated first-time fund. Perhaps you could give a little sense on where you see the opportunity set in that market and potential growth. It also looks like it's somewhat delineated between the credit platform and the Athene platform. So any color there would be helpful. Thank you.

Sure. You know, as Martin referenced, we've been in the aviation business for a while. It's really been on the credit side where we're a mid-life lessor. We started under the BDC. We started a company called Merck's Aviation. Over the last seven, eight years now, they have successfully deployed, you know, several billion of capital, purchased a couple hundred leases, and today that portfolio has returned to nice low to mid-double-digit returns very successfully. And through the knowledge of that and through the insight of the aircraft space and our asset management skills, which have grown, as Martin discussed, we, in conjunction with Athene, purchased PK Aviation Finance, which was the debt provider at GE Capital. That was a business that, from our perspective, the institutional knowledge was transferable. And from our perspective, that's a business that really is a debt provider for commercial aviation, a business that's got a 30-plus year track record of very, very, very low defaults. And as part of doing that, you know, in conjunction with Athene and our affiliates, basically what Athene's able to do is create investment-grade debt securities that is very, very comparable in rating but is very greater in yield on an investment-grade basis. And in doing so, it's a real win for Athene in terms of their alternatives basket on the equity, on their investment-grade debt holdings. So the PK Aviation and Navigator Finance are separate entities and separate activities, but in terms of the institutional knowledge, they are certainly the part of the beneficiary of our integrated platform.

It's also a huge area. There's a huge need for capital. And we see it as an area that's going to grow over time. So we do think that you'll continue to hear more about us expanding that business. And we think we have unique capability. And, again, it's just another example of us building these origination platforms that go off the run and out of the public markets. And by doing that, we're able to offer our clients, including Athene, but also our LP clients, extra return per unit of risk. And so it's a hallmark of what we do, and it's another example of what we're doing.

And just to clarify, the transaction was announced in August. We expect it to close in a couple of phases across Q4 and Q1.

Our next question comes from one of Devin Ryan of JMP Securities.

Hi, thanks. This is Brian McKenna for Devin. So just a quick modeling question for me. The payout ratio has been just north of 90% year-to-date. Is that a good level moving forward? And then if I look at the DE walk-up, the percent to common ratio ticked up to 56% in the quarter. So I'm just trying to figure out where that should be kind of going forward. Uh, cause it looked, looks like it's up a little bit from the prior quarters.

Sure. So we'll, um, we'll, we'll talk, um, we'll talk more about the dividend, uh, policy at the investor day next week. Um, the, um, but I think, you know, the short, the short version of that is the, the policy remains unchanged. We expect to continue to pay out, uh, a majority of our, our DE as, uh, as a dividend. And, um, we may institute some minimum related to FRE. And then on the percentage allocation to Class A, that actually reflects some changes that were done in conjunction with the conversion to a C-Corp where certain unit holders made charitable exchanges of units for shares. And so there's been a redistribution between A's and ARG units in that ratio, sort of 56 to 44.

Thank you.

Sure. Our next question comes from one of Chris Harris of Wells Fargo.

Thank you, guys. You mentioned 13 million shares of Apollo stock was purchased by Vanguard as a result of being added to CRISP indices. Any sense as to how much more stock could be bought based on the other indexes you guys potentially could be added to?

Yeah, look, I think this will play out now over the next close to a year. There's a handful of other indices that we expect to be included in, and they will each add a percentage 0.02 to the ownership. And then around that, we expect... continue to increase by long-only investors and other funds that sort of track the index in some way. So I think the collection of all three of those shows momentum in the stock in terms of ownership in long-only or passive hands. In the last... couple of months, we've seen that ratio jump from 35% of the ownership to almost 55%, as Josh mentioned. So I'd expect to see that continue to play out over time.

And I think what we said in my remarks is that when you look at other similar peers that have converted before we did, that sort of ownership gets to more than 70% of their public float. So you could see another 15% or 20% of our float if you just use that analogy, moving into more stable, like more deep hands.

Our next question comes from one of Michael Cypress of Morgan Stanley.

Hey, good morning. Thanks for taking the question. I was just hoping to circle back to MidCap. You guys had mentioned the acquisition from PNC of the franchise finance loan portfolio. So just hoping, one, you could just give us a sense of the opportunity set that you see there, maybe a little bit of an update on the MidCap platform build-out, and maybe just more broadly how you're thinking about the broader opportunity set for these sort of tuck-in acquisitions for expanding the origination opportunity set.

Great. So, you know, for us, MidCap, a lot of talk about private debt financing in the markets and private capital and You know, we find that most of our peers focus really on the middle market sponsor business, and it's been a hallmark of MidCap over the last several years to have a variety of incremental activities around, you know, revolvers and ABLs and life sciences. And this was a small talking acquisition from PNC in terms of a franchise finance business, one where there's a longstanding history in the sector of, granular risk, but very, very low losses and very, very low defaults, so a nice business. It fits in very well with what MidCap's doing. MidCap's running at a mid-teens ROE the last 24 months, and we're steadily very, very comfortable with the growth, but I think you'll see more of these small tuck-in acquisitions where it can be accretive to MidCap. It's really a specialty lending vertical And in the changing regulatory landscape, you know, these opportunities are still afforded to us. And, you know, again, these are the ways that we want to stay senior. We want to have industry expertise. We want to have a longstanding experience of low losses. And if there are losses, very, very high recoveries. And, you know, that's really the theme that, you know, Josh and Martin and we've all been mentioning about really adding value on the balance sheet in terms of the asset side and because of these types of investment activities. So things are going well with MidCap. I would suspect, you know, listen, we're in a high valuation environment, so we do things that really are accretive to book value. This was something that was done at a level that was accretive to us. But MidCap continues to march along, and you'll hear more about that next week.

Our next question is a follow-up from the line of Bill Katz of Citi.

Okay, thanks. Just two things I'd like to clarify. Josh, in your prepared comments, you mentioned something about leadership. I was sort of wondering if you might be able to expand a little bit on it. Obviously, you said you're going to go into more next week, but just sort of curious of your phraseology with that. And then, Martin, you sort of mentioned that you might link some of the dividend to FRE. I was wondering if you might give us a couple more lines. I'm sorry. How are you thinking about that?

Yeah, look, I mean, I think that we continue to broaden our franchise and make it less dependent on, you know, a small number of people and much more of a broad management team. I think we're, you know, obviously we promoted Jim and Scott to co-presidents a couple years ago. We promoted Anthony and Martin to co-COOs a year or so ago. And we've announced numerous promotions internally in P and in opportunistic natural resources. And then we've added Dylan Fu on the infrastructure side and infrastructure investing side. But what we're going to talk about next week is we're also doing a lot on what we call enterprise solutions, which is You know, the infrastructure of Apollo, it's now renamed Enterprise Solutions. So, you know, we're going to announce a head of communications. I don't think we'll hit next week, but we're investing and very focused on technology and data. And so a series of senior hires in that area, which is very exciting, you know, for both the firm and the funds. And, um, and then, you know, on the yield side, we have two or three major senior hires. So I think that, uh, the, and, and so we're going to go into all that investor day, but really it's broadly across the firm. You know, we're now, um, you know, our management committee is about 14 people. And then we have, we have a leadership advisory forum, which is more than 40 senior leaders. And increasingly, um, You know, we're getting a lot of depth and a lot of bench strength, and, you know, we have really great people. So increasingly, you know, we want them to do more and drive the firm, and they are doing more and driving the firm.

I don't know. Yeah, just quickly on the second point. So, Bill, I wouldn't read anything into it in terms of a substantive change other than we would plan to underscore a minimum of distribution that could be paid in any quarter.

Yeah, Bill, we've been hearing from investors that, you know, setting a minimum could be beneficial. And clearly, our FRE is highly predictable and durable through a cycle and growing. So I think that, you know, it's an easy thing for us to do, and we're likely to do it. you know, and particularly we don't, you know, and hopefully that will have some positive impact on, you know, people, you know, believing that it's durable and, you know, positively impact and we'll get a little more credit for it in the stock.

Our next question is a follow-up from the line of Robert Lee of KBW.

Great. Thanks for taking my question. I'm going to try a two-parter. First, On the Athena transaction, I'm just curious. I mean, you're selling 35%. You have an option to buy another five down the road. Plus, I'm assuming you're not going to participate in their buybacks. Is there any kind of regulatory limit to ownership that you wouldn't want to or be able to go above? And then I'm just curious if you could give us the fee rate on dry powder.

The fee rate on dry powder. Dry powder is – the dry powder related to management fees is concentrated in credit. Credit's average fee rate is sort of 65, 70 basis points. So that's probably a good proxy to use.

Our final question will come from the line of Patrick Devine of Autonomous Research.

Hey, thanks for the follow-up. You mentioned in the release that 3Q was mostly driven by Tranquility.com. which I thought still needed regulatory approval. Was that some sort of pre-distribution and there's still kind of the final closing to come?

Yes. Sorry to be succinct.

And that concludes the Q&A portion of today's call. I will now return the floor over to Gary Stein for any additional or closing remarks.

Great. Thanks, Operator. Thanks, everyone, for joining us this morning. We look forward to connecting with you next week at Investor Day.

Thank you, ladies and gentlemen. This does conclude today's third quarter 2019 earnings conference call. You may now disconnect and have a great day.